Page 162 - Operations Strategy
P. 162
CAPACiTy CHAngE 137
Figure 4.8 (a) Capacity-leading and capacity-lagging strategies and (b) smoothing
with inventory means using the excess capacity of one period to produce inventory
which can be used to supply the under-capacity period
(a)
2,400
Demand
2,000
Capacity leads demand
Volume (units/week) 1,200 Capacity lags demand
1,600
800
400
0
Time
(b)
2,400
Demand
2,000
Volume (units/week) 1,200
1,600
800
400
0
Time
alternative to this. A hotel cannot satisfy demand in one year by using rooms that
were vacant the previous year. For some materials- and information-processing opera-
tions, however, the output from the operation that is not required in one period can
be stored for use in the next period. Inventories can be used to obtain the advantages
of both capacity-leading and capacity-lagging. In Figure 4.8(b) plants have been intro-
duced such that over-capacity in one period is used to make air conditioning units
for the following or subsequent periods. This may seem like an ideal state. Demand is
always met and so revenue is maximised. Capacity is usually fully utilised and so costs
are minimised. The profitability of the operation is therefore likely to be high. There is
a price to pay, however, and that is the cost of carrying the inventories. Not only will
these have to be funded, but also the risks of obsolescence and deterioration of stock
are introduced.
M04 Operations Strategy 62492.indd 137 02/03/2017 13:02
