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Operations Management: Processes and Supply Chains, 12th Edition by Larry P. Ritzman, Manoj K. Malhotra, Lee J. Krajewski

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Tools for Capacity Planning

Capacity planning requires demand forecasts for an extended period of time. Unfortunately, forecast accuracy declines as the forecasting horizon lengthens. In addition, anticipating what competitors will do increases the uncertainty of demand forecasts. Demand during any period of time may not be evenly distributed; peaks and valleys of demand may (and often do) occur within the time period. These realities necessitate the use of capacity cushions. In this section, we introduce three tools that deal more formally with demand uncertainty and variability: (1) waiting-line models, (2) simulation, and (3) decision trees. Waiting-line models and simulation account for the random, independent behavior of many customers, ...

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