Reference no: EM138505 , Length: 1 Page

One of the key decisions a company must make on contemplating a new site, or a new operation at an existing site, is its capacity. The site will attract a mix of fixed and floating costs dependent upon throughput. Fixed costs will be related to optimum throughput and any reduction will attract a relative increase in costs per unit. Floating costs are usually directly related to throughput and might include: waste, energy, overtime, transport, materials, and so on. Capacity planning is the long-term strategic decision which determines a company's capability to supply products or services. Capacity planning is usually undertaken using sophisticated computer software. For instance; Otto Fuchs KG uses workshop-oriented production to manufacture high-quality forged products, in particular for the aerospace and automotive industries: To control the complex logistical processes starting from the development phase, through to purchase orders and right up until the actual delivery, the company uses SAP Supply Chain Management. In fact, it uses SAP Supply Chain Management (SCM) so efficiently that stocks are kept to an absolute minimum despite huge fluctuations in demand and orders are delivered just-in-time (Grotepass, 2010). When a company needs to increase capacity, it has several options to consider ranging between working overtime to building a new site or a plant. Forecasting demand is critical to capacity planning and companies can adopt different capacity strategies (that is, lead, lag or average) to ensure customer satisfaction and maintain operations within their budget and other constraints. What are your thoughts? 

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