Capacity Planning

Process Selection and Capacity Planning Make or Buy? Available capacity Quality Consideration The nature of demand Cost

The basic questions in capacity handling are: Capacity 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?

Capacity Design capacity Effective capacity Actual output maximum obtainable output Effective capacity Maximum capacity given product mix, scheduling difficulties, and other doses of reality. Actual output rate of output actually achieved--cannot exceed effective capacity.

Efficiency and Utilization Actual output Efficiency = Effective capacity Utilization = Design capacity

Efficiency/Utilization Example Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day Actual output 36 units/day Efficiency = = 90% Effective capacity 40 units/ day Utilization = Actual output = 36 units/day = 72% Design capacity 50 units/day

Determinants of Effective Capacity Facilities Products or services Processes Human considerations Operations External forces

Some Possible Growth Patterns Figure 5-4 Volume Volume Growth Decline Time Time Cyclical Stable Volume Volume Time Time

Developing Capacity Alternatives Design flexibility into systems Take a “big picture” approach to capacity changes Prepare to deal with capacity “chunks” Attempt to smooth out capacity requirements Identify the optimal operating level

Evaluating Alternatives Figure 5-6 Production units have an optimal rate of output for minimal cost. Average cost per unit Minimum cost Rate of output

Evaluating Alternatives Figure 5-7 Minimum cost & optimal operating rate are functions of size of production unit. Small plant Average cost per unit Medium plant Large plant Output rate

Calculating Processing Requirements

A Bottleneck in the Product Flow Transparency 9.6 (Exhibit 9.3)

Steel Production Flow: A Product Layout Transparency 9.9 (Exhibit 9.6)

Determining System Capacity Transparency 9.10 (Exhibit 9.7)

Rounding Out Capacity Transparency 9.11 (Exhibit 9.8)

A Process Layout of a Medical Center Transparency 9.13 (Exhibit 9.9)

Capacity Decisions When to add capacity? How much capacity to add? Where to add capacity? (Location decision) What type of capacity to add? (Process selection) Should capacity be reduced? Transparency 9.14

Capacity vs. Demand Transparency 9.15 (Exhibit 9.10)

Capacity, Demand and Production Rate Transparency 9.16 (Exhibit 9.11)

How Much Capacity to Add Transparency 9.17 (Exhibit 9.12)

Decision Tree for Capacity Decision Transparency 9.18 (Exhibit 9.13)

Calculations for Gross Profit (Slide 1 of 2) continues on next slide Transparency 9.19a (Exhibit 9.14)

Calculations for Gross Profit (Slide 2 of 2) Transparency 9.19b (Exhibit 9.14)