capacity planning
TRANSCRIPT
5-1 Capacity Planning
William J. Stevenson
Operations Management
8th edition
5-2 Capacity Planning
CHAPTER5
Capacity PlanningFor Products and Services
McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights
reserved.
5-3 Capacity Planning
Capacity PlanningCapacity Planning
Capacity is the upper limit or ceiling on the load that an operating unit can handle.
The basic questions in capacity handling are: What kind of capacity is needed? How much is needed? When is it needed?
5-4 Capacity Planning
1. Impacts ability to meet future demands2. Affects operating costs3. Major determinant of initial costs4. Involves long-term commitment5. Affects competitiveness6. Affects ease of management7. Globalization adds complexity8. Impacts long range planning
Importance of Capacity DecisionsImportance of Capacity Decisions
5-5 Capacity Planning
CapacityCapacity
Design capacity maximum output rate or service capacity an
operation, process, or facility is designed for Effective capacity
Design capacity minus allowances such as personal time, maintenance, and scrap
Actual output rate of output actually achieved--cannot
exceed effective capacity.
5-6 Capacity Planning
Efficiency and UtilizationEfficiency and Utilization
Actual outputEfficiency =
Effective capacity
Actual outputUtilization =
Design capacity
Both measures expressed as percentages
5-7 Capacity Planning
Actual output = 36 units/day Efficiency = =
90% Effective capacity 40 units/ day
Utilization = Actual output = 36 units/day =
72% Design capacity 50 units/day
Efficiency/Utilization ExampleEfficiency/Utilization Example
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
5-8 Capacity Planning
Determinants of Effective CapacityDeterminants of Effective Capacity
Facilities Product and service factors Process factors Human factors Operational factors Supply chain factors External factors
5-9 Capacity Planning
Strategy FormulationStrategy Formulation
Capacity strategy for long-term demand Demand patterns Growth rate and variability Facilities
Cost of building and operating Technological changes
Rate and direction of technology changes Behavior of competitors Availability of capital and other inputs
5-10 Capacity Planning
Key Decisions of Capacity PlanningKey Decisions of Capacity Planning
1. Amount of capacity needed
2. Timing of changes
3. Need to maintain balance
4. Extent of flexibility of facilities
Capacity cushion – extra demand intended to offset uncertainty
5-11 Capacity Planning
Steps for Capacity PlanningSteps for Capacity Planning
1. Estimate future capacity requirements
2. Evaluate existing capacity
3. Identify alternatives
4. Conduct financial analysis
5. Assess key qualitative issues
6. Select one alternative
7. Implement alternative chosen
8. Monitor results
5-12 Capacity Planning
Make or BuyMake or Buy
1. Available capacity
2. Expertise
3. Quality considerations
4. Nature of demand
5. Cost
6. Risk
5-13 Capacity Planning
Developing Capacity AlternativesDeveloping Capacity Alternatives
1. Design flexibility into systems
2. Take stage of life cycle into account
3. Take a “big picture” approach to capacity changes
4. Prepare to deal with capacity “chunks”
5. Attempt to smooth out capacity requirements
6. Identify the optimal operating level
5-14 Capacity Planning
Economies of ScaleEconomies of Scale
Economies of scale If the output rate is less than the optimal level,
increasing output rate results in decreasing average unit costs
Diseconomies of scale If the output rate is more than the optimal level,
increasing the output rate results in increasing average unit costs
5-15 Capacity Planning
Evaluating AlternativesEvaluating Alternatives
Minimumcost
Av
era
ge
co
st
per
un
it
0 Rate of output
Production units have an optimal rate of output for minimal cost.
Figure 5.3
Minimum average cost per unit
5-16 Capacity Planning
Evaluating AlternativesEvaluating Alternatives
Minimum cost & optimal operating rate are functions of size of production unit.
Av
era
ge
co
st
per
un
it
0
Smallplant Medium
plant Largeplant
Output rate
Figure 5.4
5-17 Capacity Planning
Need to be near customers Capacity and location are closely tied
Inability to store services Capacity must be matched with timing of
demand Degree of volatility of demand
Peak demand periods
Planning Service CapacityPlanning Service Capacity
5-18 Capacity Planning
Cost-Volume RelationshipsCost-Volume Relationships
Am
ou
nt
($)
0Q (volume in units)
Total cost = VC + FC
Total variable cost (V
C)
Fixed cost (FC)
Figure 5.5a
5-19 Capacity Planning
Cost-Volume RelationshipsCost-Volume Relationships
Am
ou
nt
($)
Q (volume in units)0
Total r
evenue
Figure 5.5b
5-20 Capacity Planning
Cost-Volume RelationshipsCost-Volume Relationships
Am
ou
nt
($)
Q (volume in units)0 BEP units
Profit
Total r
even
ue
Total cost
Figure 5.5c
5-21 Capacity Planning
Break-Even Problem with Step Fixed CostsBreak-Even Problem with Step Fixed Costs
Quantity
FC + VC = TC
FC + VC = TC
FC + VC =
TC
Step fixed costs and variable costs.
1 machine
2 machines
3 machines
Figure 5.6a
5-22 Capacity Planning
Break-Even Problem with Step Fixed CostsBreak-Even Problem with Step Fixed Costs
$
TC
TC
TCBEP2
BEP3
TR
Quantity
1
2
3
Multiple break-even points
Figure 5.6b
5-23 Capacity Planning
1. One product is involved2. Everything produced can be sold3. Variable cost per unit is the same regardless
of volume4. Fixed costs do not change with volume5. Revenue per unit constant with volume6. Revenue per unit exceeds variable cost per
unit
Assumptions of Cost-Volume AnalysisAssumptions of Cost-Volume Analysis
5-24 Capacity Planning
Financial AnalysisFinancial Analysis
Cash Flow - the difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes.
Present Value - the sum, in current value, of all future cash flows of an investment proposal.
5-25 Capacity Planning
Calculating Processing RequirementsCalculating Processing Requirements
P r o d u c tA n n u a l
D e m a n d
S t a n d a r dp r o c e s s i n g t i m e
p e r u n i t ( h r . )P r o c e s s i n g t i m e
n e e d e d ( h r . )
# 1
# 2
# 3
4 0 0
3 0 0
7 0 0
5 . 0
8 . 0
2 . 0
2 , 0 0 0
2 , 4 0 0
1 , 4 0 0 5 , 8 0 0
P r o d u c tA n n u a l
D e m a n d
S t a n d a r dp r o c e s s i n g t i m e
p e r u n i t ( h r . )P r o c e s s i n g t i m e
n e e d e d ( h r . )
# 1
# 2
# 3
4 0 0
3 0 0
7 0 0
5 . 0
8 . 0
2 . 0
2 , 0 0 0
2 , 4 0 0
1 , 4 0 0 5 , 8 0 0
5-26 Capacity Planning
Location/CriteriaLocation/Criteria
PS11
Guitar site location
5-27 Capacity Planning
Capacity/DesignCapacity/Design
STA11
Demand/ patients/ staffing/ variation at St. Alexius Hospital
5-28 Capacity Planning
Process Flow ImprovementProcess Flow Improvement
SU6
Redesign of layout at Toyota