1. Capacity Planning

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

3. 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?

4. 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.

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

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

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

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

9. 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

10. 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

11. 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

12. Calculating Processing Requirements

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

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

15. Determining System Capacity
Transparency 9.10
(Exhibit 9.7)

16. Rounding Out Capacity
Transparency 9.11
(Exhibit 9.8)

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

18. 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

19. Capacity vs. Demand
Transparency 9.15
(Exhibit 9.10)

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

21. How Much Capacity to Add
Transparency 9.17
(Exhibit 9.12)

22. Decision Tree for Capacity Decision
Transparency 9.18
(Exhibit 9.13)

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

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