Week4 Lecture

ACCG301: Organisational Planning and Control

LECTURE 4

Capacity Management (including Theory of Constraints)

Chapter 16 (Langfield-Smith et al., 2012; pp751-753) Chapter 7 (Paton et al., 2011; pp207-230)

Aleksandra Pop-Vasileva Department of Accounting and Corporate Governance accg301@mq.edu.au

After this lecture you should be able to:

1. Define capacity, and understand the factors that influence it 2. Evaluate strategies for managing capacity in the short, medium and long term and matching it with market demand 3. Describe theory of constraints and throughput accounting 4. Analyse the impact of constraints/bottlenecks on a product or service process, and consider the theory of constraints 5. Apply different approaches to manage constraints 6. Critically analyse effects of the constraints.

What is Capacity?

• Capacity is the upper limit or ceiling of an operating unit can produce – is the maximum __________ of a facility – the ________ to deliver goods and services – _____ (as opposed to does) • Capacity could include: – ____________ – ____________ – ____________ – ____________

Measuring Capacity

• There is no one best way to measure capacity

– _________ measures like barrels per day are easier to understand – With multiple products, ________ measures work better

Why Plan Capacity?

Capacity Planning

• …… is the process of establishing the output rate that can be achieved at a facility: • Strategic issues: how much and when to spend capital for additional facility & equipment  Leading: build capacity in anticipation of future demand increases  Following: build capacity when demand exceeds current capacity  Tracking: similar to the following strategy, but adds capacity in relatively small increments to keep pace with increasing demand • Tactical issues: workforce & inventory levels, & day-to-day use of equipment

Forecasting Demand - Anticipating Changes

Insert Figure 7.3 here

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The key point is . . . it is essential to...