capacity planning module - 5

8/3/2019 Capacity Planning Module - 5

http://slidepdf.com/reader/full/capacity-planning-module-5 1/54

Module - 5

Capacity Planning

Prepared by

Darshan jayswal



Concept of Aggregation



Hotels

Room Nights Per Month

ignores the number of guests in each room and their

individual requirements



Units Per Month

ignores size, color, and style variations



Revenue Per Month

ignores variation in spend, number of items and

gross margin of items, per customer transaction



Meaning of Aggregation

• The important characteristic of capacity

planning & control is that it is concerned with

setting capacity levels over the medium &

short terms in aggregated plan.

• Aggregate plans assume that the mix of

different products & services will remain

relatively constant during the planning period.



Introduction to Capacity Planning

• Capacity is the rate of productive capability of

a facility. Capacity is usually expressed as

volume of output per time period. Operations

managers are concerned with capacity for

several reasons:

1) Sufficient capacity

2) Cost of maintaining the facility

3) Capacity requires an investment of capital



Definition of CapacityPlanning

According to APICS, “Capacity planning or

capacity requirements planning is the function

of establishing, measuring and adjusting limits

or levels of capacity. The term ‘Capacity

Requirement Planning’ in this context is the

process of determining how much labor and

machine resources is required to accomplishthe tasks of production”



Meaning of Capacity Planning

• Capacity Planning is a long-term strategicdecision that establishes a firm’s overall level

of resources.

• The decisions are strategic, because they oftencommit the resources of the organization for

long periods.

•For example, Reliance decision to put up anethylene cracker required an investments of

hundreds of corers of rupees.



Capacity and value creation

• Begins with understanding what current and

potential future customer’s value.

• Value driven capacity starts from the outside,

the market.

• It strives to ensure that the company’s

product/service bundles match customer

needs and, once matched, that these value

profiles drive the shape and nature of internal

decisions.



Financial impact of capacitydecision



Financial impact of capacitydecision(cont…)

• Increase in flexibility

• Increase in value

• Enhanced market share• Increase in net sales

• Increase in net income

• Increase in return on assets



Procedure of Aggregate Planning

1) Concept of Aggregation

For example, Steel producer , Paint

industry 1) Goals for Aggregate Planning

2) Aggregate Demand Forecasts

3) Interrelationships among Decision



Types of Aggregate plans

1) ‘Level capacity’ plan

2) ‘Matching capacity with aggregate

demand’ plan

3) ‘Varying utilization’ plan, Mixed plan



1. ‘Level capacity’ plan

• This strategy attempts to maintain an average

production level and use the inventory as abuffer.

• In months where demand is low production willexceed demand, with the balance going into

inventory.

• In months were demand exceeds production theinventory is drawn down to replace the missing

production.• The strategy emphasis is not to disturb the

existing production system at all.



2. ‘Matching capacity with aggregate demand’ plan,Chase plan

• The chase strategy attempts to match production to

meet demand in each time period, using overtime,layoffs and new hires, temporary help, orcontractors.

• In a chase strategy the supply-demand mismatch is

addressed during each period by employing avariety of capacity related alternatives.

• The chase strategy does not use any changes ininventory.

• This strategy keeps investment in inventory quitelow but the effort required by planners can be veryhigh.



3. ‘Varying utilization’ plan, Mixed plan

• The mixed strategy employs a combination of

the available alternatives.• Illustrations:

• Mixed strategy 1: Hire a certain no. of workers at

the beginning of the planning horizon, maintain aconstant production rate & utilize inventory

based alternatives to match supply with demand.

• Mixed strategy 2: Do not hire or lay-off workers,adjust the production rate by varying the no. of

shifts, use inventory & sub-contracting to match

supply with demand.



• Mixed strategy 3: Do not hire or lay-off

workers, use sub-contracting during the

periods of high demand & build inventory

during periods of low demand.

• All the above examples, seeks to maintain level

production during the periods of low demand

by building inventory &

• Chase the demand by additional inventory

alternatives during periods of high demand.



CAPACITY REQUIREMENTPLANNING

• A Technique to determine the labor and

equipment capacities needed to meet the

objectives.

• MRP and CRP—establish specifically what

materials and capacities are needed and when

they are needed.



•

•

AGGREGATE

PLANResource planning

MPSRough-cut capacity planning

MRP

PLANNED ORDERS

AND RELEASE ORDERS

JOB(WORK)ORDERSS

VENDOR

(PURCHASE)ORDERS

IS

CAPACITY

MODIFI

CATION

FEASIBL

E?

NO

CRP

Work centre

status fileShop routing file

Load projection

report

Is

Capacity

adequate

Workload report

Input/output control

yes

yesn

o



CRP inputs:

• (a)planned orders and released orders from

MRP system

• (b)Loading information from the work

centre status file• (c)Routing information from the shop

routing file

• (d) changes which modify capacity, givealternative routings or altered planned

orders



Planning activity:

• Infinite loading and finite loading

CRP outputs:

• Rescheduling information which call forcapacity modification or revision of MPS.

• Verification of planned orders for MRP

system

• Load reports.



Planning Hierarchies In OperationsBusiness Plan

Marketing Plan Financial Plan

Production Plan

(rough cut capacity)

Master Production Schedule

Material Requirement Plan Capacity Requirement Plan

Detailed scheduling

Shop Floor Control

Level 1

Level 2

Level 3



Aggregate Planning



Aggregate Planning

• Aggregate planning is an operational activity

which does an aggregate plan for the

production process, in advance of 2 to 18

months, to give an idea to management as towhat quantity of materials and other

resources are to be procured and when, so

that the total cost of operations of theorganization is kept to the minimum over that

period.



Purpose of aggregate planning

• Information on the required level of O/P to be

produced, inventory levels to be maintained

and backlogs based on the business plan.

• Capacity under-utilization may lead to

wastage of resources.

• The company’s objectives and its policies

regarding its employees should be in line with

its aggregate plan.



Necessary of Aggregate planning

• Its helps in fully load facilities and minimizes

over loading and under loading.

• Make sure enough capacity available to satisfy

expected demand.

• Get the most output for the amount of

resources available.



Importance of aggregate plans

• It serve as a foundation for future short-range

type planning.

• It helps in balancing capacity and demand in

such a way that costs are minimized.



Managerial Importance of Aggregate

PlansOperations

Current Machines Capacities

Plans for Future Capacities

Workforce capacities

Current Staffing Levels

Materials

Suppliers Capabilities

Storage Capacity

Material Availability

Engineering

New Products

Product Design Changes

Machine

Distribution and Marketing

Customer Needs

Demand Forecasts

Competition

Accounting and Finance

Cost Data

Financial Condition of Firm

Human Resources

Labour-Market conditions

Training Capacity

Aggregate

Plan



Alternatives for managing demand

and supply in Aggregate Planning

• For managing demand

– Differential pricing

– Advertising and sales promotion

– Backlogs

– Development of complimentary product

• For managing supply

– Inventory based alternative

– Capacity adjustment alternatives



Strategies for Matching

Capacity and Demand

• Shifting Demand to Match Capacity

• Adjusting Capacity to Meet Demand

- Dwayne D. Gremler



Strategies for Shifting Demand

to Match Capacity

• Use signage to communicate busydays and times

• Offer incentives to customers forusage during non-peak times

• Take care of loyal or regularcustomers first

• Advertise peak usage times and

benefits of non-peak use

• Charge full price for the service--no discounts

• Use sales and advertising toincrease business from currentmarket segments

• Modify the service offering toappeal to new market segments

• Offer discounts or price reductions

• Modify hours of operation

• Bring the service to the customer

- Dwayne D. Gremler

Demand Too High Demand Too LowShift Demand



Strategies for Adjusting Capacity

to Match Demand

• Stretch time, labor, facilities andequipment

• Cross-train employees

• Hire part-time employees

• Request overtime work fromemployees

• Rent or share facilities

• Rent or share equipment

• Subcontract or outsourceactivities

• Perform maintenance renovations

•Schedule vacations

• Schedule employee training

• Lay off employees

- Dwayne D. Gremler

Demand Too High Demand Too LowAdjust Capacity



Steps for Capacity Planning

• Estimate future capacity requirements

• Evaluate existing capacity

• Identify alternatives• Conduct financial analysis

• Assess key qualitative issues

• Select one alternative

• Implement alternative chosen

• Monitor results



Developing Capacity Alternatives

• Design flexibility into systems

• Take stage of life cycle into account

• Take a “big picture” approach to capacity

changes

• Prepare to deal with capacity “chunks(large

amount)”

• Attempt to smooth out capacity requirements

• Identify the optimal operating level



STEPS

• Determine the demand

• Determine the aggregate demand

• Transform the aggregate demand for each

time period• Identify company policies

• Determine unit costs

• Develop alternative resource plans• Select the resource plan



MATERIAL REQUIREMENTS

PLANNING

• COMPUTER BASED INFORMATION SYYSTEM

FOR ORDERING AND SCHEDULING OF

DEPENDENT DEMAND INVENTORIES.



OBJECTIVES

• TO IMPROVE CUSTOMER SERVICE

• TO REDUCE INVENTORY COSTS BY

REDUCING INVENTORY LEVELS

•

TO IMPROVE PLANT OPERATING EFFICIENCYBY BETTER USE OF PRODUCTIVE

RESOURCES



PURPOSE

• CONTROL INVENTORY LEVELS

• ASSIGN OPERATING PRIORITIES

• ASSIGN CAPACITY TO LOAD PRODUCTION

SYSTEM.



ADVANTAGES

• REDUCED INVENTORY

• REDUCED IDLE TIME

• REDUCED SET UP TIME

• ABILITY TO CHANGE THE MASTER

• PRODUCTION SCHEDULE

•BETTER CUSTOMER SERVICE



DISADVANTAGES:

• LACK OF TOP MANAGEMENT COMMITMENT

• PROBLEMS EVALUATING MRP SOFTWARE

• IT DOESN’T AUTOMATICALLY CHECK STATUS

OF ORDERS AND EXPEDITE THEM.



BILLS OF MATERIAL

LISTS ALL OF THE SUBASSEMBLIES

PARTS, AND RAW MATERIALS THAT GO

INTO A PARENT ASSEMBLY SHOWING THE

QUANTITIES REQUIRED.TYPES:

• SINGLE –LEVEL BOM :

that displays the assembly or sub-assembly withonly one level of children. Thus it displays thecomponents directly needed to make theassembly or sub-assembly



• MULTI-LEVEL BOM :

that displays the highest-level item closest to

the left margin and the components used in

that item indented more to the right

• MULTI-LEVEL INDENTED BOM :

It can also be visually represented by a

product structure tree, although they are

rarely used in the workplace



Advantage of Capacity Planning

• Lowers the cost

• More consistency

• Improved service quality

• Better outcomes

• Better margins for revenues



Disadvantage of Capacity Planning

• Diseconomies of scale (poor co-ordination,

communication, etc.)

• Time consuming

• Includes more risk

• Difficult to predict

•

Miscellaneous

Conclusion



Conclusion

Thus Capacity Planning

has a tremendous efficiency in the business

scenario. Hundreds of methods for capacity

planning are practiced in a variety of organizations, depending on the necessity of

the production units as well as products. This

tool improves productivity by enablingautomatic detection and self-correction of

many problems.

capacity planning module - 5

Documents