1. PRODUCTION AND OPERATIONS MANAGEMENT
Ch. 8: Capacity Planning
POM - J. Galván

2. Definition and Measures of Capacity
Designed Capacity:
Effective capacity or utilization:
Rated Capacity:
The maximum output of a system in a
given period
The maximum capacity that can be
achieved under ideal conditions
The percent of design capacity actually
expected
Maximum usable capacity of a
particular facility
RC = (Capacity)(Utilization)(Efficiency)
POM - J. Galván 38

3. Utilization
Measure of planned or actual capacity usage of a facility, work center, or machine
Expected c
apacity
Utilizatio n =
Capacity
Planned ho
urs to be
used =
Total hour
s availabl e
POM - J. Galván 40

4. Efficiency
Measure of how well a facility or machine is performing when used
Actual out
put
Efficiency =
Effective
capacity
Actual out
put in uni ts =
Standard o
utput in u
nits
Average ac
tual time =
Standard t
ime
POM - J. Galván 41

5. Capacity Planning Process
Forecast
Demand
Develop
Alternative
Plans
Quantitative
Factors
(e.g., Cost)
Compute
Rated
Capacity
Evaluate
Capacity
Plans
Qualitative
Factors
(e.g., Skills)
Compute
Needed
Capacity
Select Best
Capacity
Plan
Implement
Best Plan
POM - J. Galván 42

6. WHY PLANNING CAPACITY?
POM - J. Galván

7. TYPICAL QUESTIONS How many machines should be purchased?
How many workers should be hired?
Consequences of a 20% increase in demand?
How many counters should be opened to maintain customer wait below 10 minutes?
How many assembly stations are needed to maintain backorders below 20?
How often will all 6 operating rooms be full?
How will congestion at Logan change if a 5th runway is built?
POM - J. Galván

8. CAPACITY ALTERNATIVES
Add Facilities
Add long lead time equipment
Schedule Jobs
Schedule Personnel
Allocate Machinery
Subcontract
Add Equipment
Add Shifts
Add Personnel
Build or Use Inventory
Long Range Planning
Intermediate Range Planning
Short Range Planning
Modify Capacity
Use Capacity *
*Limited options exist
POM - J. Galván

9. Theory of Constraints Identify the system bottleneck(s)
Exploit the bottleneck(s)
Subordinate all other decisions to step 2
Elevate the bottleneck(s)
Do not let inertia set in
This slide presents the basic elements of the Theory of Constraints as listed in the text.
POM - J. Galván
4-9 14

10. Capacity Bottlenecks To customers Inputs 1 2 3 200/hr 200/hr 50/hr
This slide and the next are based on Figure 4.1. The Figure is shown in two sections to improve legibility.
(a) Operation 2 a bottleneck
POM - J. Galván
4-10 14

11. Capacity Bottlenecks To customers Inputs 1 2 3 200/hr 200/hr 200/hr
(b) All operations bottlenecks
POM - J. Galván
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12. Capacity Cushion
Reserve capacity used to deal with sudden increases in demand
(100% - Average Utilization %)
Primary Disadvantage
unused capacity costs money
POM - J. Galván

13. Economies & Diseconomies of Scale
250-bed hospital
750-bed hospital
500-bed hospital
Average unit cost (dollars per patient)
Economies of scale
Diseconomies of scale
Output rate (patients per week)
POM - J. Galván 17

14. Capacity Strategy Expansionist Strategy
Looking to capture strong economies of scale
Positive learning
Planned Capacity
Capacity
Expected Demand
Time
POM - J. Galván

15. Capacity Strategy Build-to-Forecast Strategy
Trying to match capacity and demand
Planned Capacity
Capacity
Expected Demand
Time
POM - J. Galván

16. Capacity Strategy The Maximize Utilization Strategy
Maintains little or no capacity cushion
Expected Demand
Capacity
Planned Capacity
Time
POM - J. Galván

17. Systematic Approach to Capacity Decisions
Estimate Capacity Requirements
Identify Gaps
Develop Alternatives
Evaluate Alternatives
POM - J. Galván

18. [Dp + (D/Q)s]product 1 + ... + [Dp + (D/Q)s]product n
Capacity Decisions
Estimate Capacity Requirements
Example 4.1
Item Client X Client Y
Annual demand forecast (copies) (D)
Standard processing time (hour/copy)(p)
Average lot size (copies per report)(Q)
Standard setup time (hours)(s)
Using the copy center example (Example4.1), this is the basic information.
[Dp + (D/Q)s]product [Dp + (D/Q)s]product n
N[1 – (C/100)]
M =
POM - J. Galván
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19. (250 days/year)(1 shift/day)(8 hours/shift)(1.0 – 15/100)
Capacity Decisions
Estimate Capacity Requirements
Example 4.1
Item Client X Client Y
Annual demand forecast (copies)
Standard processing time (hour/copy)
Average lot size (copies per report)
Standard setup time (hours)
We substitute in the basic information..
[2000(0.5) + (2000/20)(0.25)]client X + [6000(0.7) + (6000/30)(0.4)]client Y
(250 days/year)(1 shift/day)(8 hours/shift)(1.0 – 15/100)
M =
Used capacity: 85%
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20. Capacity Decisions Estimate Capacity Requirements
Example 4.1
Item Client X Client Y
Annual demand forecast (copies)
Standard processing time (hour/copy)
Average lot size (copies per report)
Standard setup time (hours)
The equation is solved and the number of machines is known. Notice the rounding up, necessary to actually meet the capacity requirements.
5305
1700
M = =  4 machines
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21. Waiting-Line Models Often used in Capacity Planning
Balances customer service & the cost of extra capacity
Use probability distributions to estimate:
Avg.Customer Delay
Avg. Length of Waiting Lines
Work Center Utilization
POM - J. Galván

22. Simulation A tool that helps identify: More effective for
Process Bottlenecks
Capacity Cushions
More effective for
complex waiting-line
problems
POM - J. Galván

23. Capacity Decisions Simulation Figure 6.5(a)
The first slide shows the operational backlog over the three days of the simulation.
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24. Capacity Decisions Simulation 4-24 Figure 4.8
The final slide shows the utilization at the violations subprocess, the station with the biggest backlogs.
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4-24 51

25. Managing Existing Capacity
Demand Management
Capacity Management
Vary prices
Vary promotion
Change lead times (e.g., backorders)
Offer complementary products
Vary staffing
Change equipment & processes
Change methods
Redesign the product for faster processing
POM - J. Galván 43

26. Complementary Products
Sales (Units)
5,000
Total
4,000
Heavy clothes
3,000
2,000
1,000
Light clothes J M M J S N J M M J S N J
Time (Months)
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27. Matching Capacity to Demand
Demand Management
vary prices
change lead times
encourage/discourage business
Capacity Management
adjust staffing
adjust equipment and processes
change methods to facilitate production
redesign the product to facilitate production
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