Explain and Learn, The Strategies of Capabilities in Production Management!
What is Capacity Planning? The production system design planning considers input requirements, conversion process, and output. The concept of the study – The Strategies of Capabilities in Production Management. Capacity Planning defines, Strategic Capacity Planning, and Explaining of Capacity strategies. After considering the forecast and long-term planning organization should undertake capacity planning. Also learn, The Strategies of Capabilities in Production Management!
Capacity is defined as the ability to achieve, store or produce. For an organization, capacity would be the ability of a given system to produce output within the specific time period. In operations, management capacity is referred as an amount of the input resources available to produce relative output over the period of time.
It is a process of governing the production capacity obligatory by a manufacturing unit to meet out their varying demand for their products. It facilitates the organization to achieve their production level during the time of demand. It is the level of input that is obtainable to make the needed product in a particular period of time. It helps the management to take better management decision for optimum utilization of the resource.
In general, terms capacity is referred to as maximum production capacity, which can be attained within a normal working schedule. Capacity planning is essential to be determining optimum utilization of resource and plays an important role decision-making process, for example, the extension of existing operations, modification to product lines, starting new products, etc.
Understand the Strategic Capacity Planning: A technique used to identify and measure the overall capacity of production is referred to as strategic capacity planning. Strategic capacity planning is utilized for the capital-intensive resource like the plant, machinery, labor, etc.
Strategic capacity planning is essential as it helps the organization in meeting the future requirements of the organization. Planning ensures that operating cost is maintained at a minimum possible level without affecting the quality. It ensures the organization remain competitive and can achieve the long-term growth plan.
Strategies of Capabilities:
The Capacity strategies can explain into two types:
- The short-term response, and.
- Long-term response.
Short-term strategies:
In short-term periods of up to one year, fundamental capacity is fixed. Major facilities are seldom opened or closed on a regular monthly or yearly basis. Many short-term adjustments for increasing or decreasing capacity are possible, however. Which adjustment to make depend on whether the conversion process is labor or capital intensive and whether the product is one that can be stored in inventory.
Capital intensive processes rely heavily on physical facilities, plant, and equipment. Short-term capacity can be modified by operating these facilities more or less intensively than normal. The cost of setting up, changing over and maintaining facilities, procuring raw materials and managing inventory, and scheduling can all be modified by such capacity changes. In labor-intensive processes, the short term capacity can be changed by laying off or hiring people or having employees overtime or be idle. These alternatives expensive, though since hiring costs, severance pay, or premium wages may have to be paid, the scarce human skills may be lost permanently.
Strategies for changing capacity also depend upon long the product can be stored in inventory. For products that are perishable (raw food) or subject to radical style changes, storing in inventory may not feasible. This is also true for many service organizations offering such products as insurance protection, emergency operations (fire, police etc,) and taxi and barber services. Instead of storing outputs in inventory, inputs can be expanded or shrunk temporarily in anticipation of demand.
Long-term Responses:
Capacity expansion strategies- capacity expansion adds capacity, within the industry, to further the objectives of the firm to improve the competitive position of the organization. It focuses on the growth of the Organization by enabling it to increase the flow of its products in the industry. Capacity expansion is a very significant decision; the strategic issue is how to add capacity while avoiding industry overcapacity. Overbuilding of capacity has plagued many industries e.g. paper, aluminum and many chemical businesses. The accountants’ or financial procedure for deciding on capacity expansion is straightforward.
However, two types of expectations are crucial:
- Those about future demand, and.
- Those about competitors behavior.
With known future demand, organizations will compete to get the capacity on stream to supply that demand, and perhaps preempt such action from others.
Horizontal and vertical integration: Horizontal and vertical integration add capacity, within the industry, to further the objectives of the firm to improve the competitive position of the organization.
Horizontal Integration: Horizontal integration is the growth of a company at the same stage of the value chain. Horizontal integration consists of procuring (related companies, products or processes) the company could start the related business within the firm, which would be an example of internal concentric diversification.
Vertical Integration: Vertical integration is the combination of economic processes within the confines of a single organization. It reflects the decision the decision of the firm to utilize internal transaction rather than the market transaction to accomplish its economic purpose. It is expressed by the acquisition of a company either further down the supply chain, or further up the supply chain, or both.
Backward Integration: In case of backward integration, it is critical that the volumes of purchases of the organization are large enough to support an in-house supplying unit, If the volume of throughputs is sufficient to set up capacities with economies of scale, an organization will reap benefits in production, sales purchasing, and other areas.
Takeover or Acquisitions: Takeover or acquisition is a popular strategic alternative to accelerate growth. Major companies which have been taken over the post-liberalization period include Shaw Wallace, Ashok Leyland, Dunlop, etc. Acquisition can either be for value creation or value capture.
