To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process capacity Prepared by :firas ikhlayel supervisor :dr.yousef abu farah

Capacity : is define as the greatest level of output the firm can reasonably sustain by using realistic employee work sched- ules and the equipment currently in place. Capacity plans are made at to levels: Long-term capacity plans,these plans cover at least tow years into the future. Short-term capacity plans focus on work-force size,overtime,inventories …….and other types of decisions.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Measures of capacity No single capacity measure isapplicable To all types of situations. In general capacity can be expressed in on of two ways :output measures or input measures.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Measures of capacity Output measures: are the usual choice for line flow processes …Nissan motor co states capacity 450000 vehicles per year, that plant produces only one type of vehicle making capacity easy to measure. input measure are the usual choice fore flexible flow processes.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Utilization Capacity planning requires a knowledge of current capacity and its utilization or the degree to which equipment,space, or labor is currently being used, is expressed as percentage:

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Utilization Utilization = x 100% Average output rate Maximum capacity

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. The average output rate and the capacity Must be measured in the same terms (time,units,or dollars). and two definitions of maximum capacity are useful:peak capacity and Effective capacity.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Peak capacity : the maximum output that a process or facility can achieve under ideal conditions. when capacity is measured relative to equipment alone the appropriate measure is rated capacity a firm reaches it by using marginal methods of production,such as excessive overtime,extra shifts …… that premiums drive up costs, and quality drops.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Effective capacity :the maximum output that a process or firm can economically sustain under normal conditions, in some organizations effective capacity implies a one-shift operation ;in others it implies a three-shift operation. When operating close to peak capacity a firm can make minimal profits or even lose money despite high sales levels.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Calculating utilization capacity Ex:8.1 Utiliza peak = U p = = 50/100*100% =50% =50% Average out put rat Peak capacity U e = = 50/45*100%=111% Average out r Effective capacit

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Bottlenecks (a)Operation 2 a bottleneck True expansion of facilities capacity occurs only When bottleneck capacity is increased. Inputs To customers 50/hr 123 200/hr200/hr Figure 6.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Theory of Constraints 1.Identify the system bottleneck(s) 2.Exploit the bottleneck(s) 3.Subordinate all other decisions to Step 2 4.Elevate the bottleneck(s) 5.Do not let inertia set in

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. (b) All operations bottlenecks All three operations must be expanded simultaneously To increase capacity further. متزامن 231 Inputs To customers 200/hr Capacity Bottlenecks Figure 6.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. There are four principal reasons why economies of scale can drive costs down when output increases)economice of scale) Fixed costs are Spread over more units Construction cost are reduced Costs of purchased materials are cut (reduce the cost of purchased materials and services ) Finding process advantages

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Economies and Diseconomies of Scale Figure 6.3 250-bed hospital 500-bed hospital 750-bed hospital Economies of scale Diseconomies of scale Output rate (patients per week) Average unit cost (dollars per patient)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Cushions Capacity Cushion = 100% - Utilization Rate (%)

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Planned unused capacity Capacity Strategies Time Capacity Figure 6.4 Forecast of capacity required Time between increments Capacity increment (a) Expansionist strategy

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Strategies Time Capacity (b) Wait-and-see strategy Forecast of capacity required Planned use of short-term options Figure 6.4 Time between increments Capacity increment

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Linking Process Capacity and Other Decisions اشياء مهمة تتعلق بالسعة Competitive Priorities اولوياتCompetitive Priorities اولويات Quality managementQuality management Capital intensityCapital intensity Resource flexibilityResource flexibility InventoryInventory SchedulingScheduling

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. A systematic approach to capacity decisions 1 - Estimating Capacity Requirements 2 - Identify gaps by comparing requirements with available capacity available capacity 3 - Develop alternative plans for filling the gaps 4 - Evaluate each alternative,both qualitatively and quantitatively, and make a final choice and quantitatively, and make a final choice

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. 1- Estimating Capacity Requirements M = = 62.5 customers per day 50 50[1.0 –.20)] A process serves 50 customers per day, utilization is about 90%, and demand is expected to double in five years. Management wants to increase the capacity cushion to 20%. In 5 years if demand doubles, M = 2 x 62.5 or 125 customers per day Example 6.1

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. 1-Estimating Capacity Requirements Capacity requirement = Processing hours required for year’s demand Hours available from a single capacity unit per year, after deducting desired cushion M =M =M =M =Dp N[1 – (C/100)] D=demand forecast for the year p=processing time N=total number of hours per year during which the process operates C=desired capacity cushion

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies)2000.006000.00 Standard processing time (hour/copy) 0.50 0.70 Average lot size (copies per report) 20.00 30.00 Standard setup time (hours) 0.25 0.40 Example 6.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies)2000.006000.00 Standard processing time (hour/copy) 0.50 0.70 Average lot size (copies per report) 20.00 30.00 Standard setup time (hours) 0.25 0.40 [Dp + (D/Q)s] product 1 +... + [Dp + (D/Q)s] product n N[1 – (C/100)] M =M =M =M = Example 6.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies)2000.006000.00 Standard processing time (hour/copy) 0.50 0.70 Average lot size (copies per report) 20.00 30.00 Standard setup time (hours) 0.25 0.40 [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 =M =M =M = Example 6.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies)2000.006000.00 Standard processing time (hour/copy) 0.50 0.70 Average lot size (copies per report) 20.00 30.00 Standard setup time (hours) 0.25 0.40 M =M =M =M = [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) Example 6.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Estimate Capacity Requirements ItemClient XClient Y Annual demand forecast (copies)2000.006000.00 Standard processing time (hour/copy) 0.50 0.70 Average lot size (copies per report) 20.00 30.00 Standard setup time (hours) 0.25 0.40 M = = 3.12  4 machines 53051700 Example 6.2

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity gaps. 2-identify gaps Expand capacity to meet expected demand through Year 5 YearDemandCash Flow Example 6.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Identifying capacity gaps Expand capacity to meet expected demand through Year 5 YearDemandCash Flow 190,000(90,000 – 80,000)2 = $20,000 Example 6.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Identifying capacity gaps Expand capacity to meet expected demand through Year 5 YearDemandCash Flow 190,000(90,000 – 80,000) = $10,000 2100,000(100,000 – 80,000) = $20,000 3110,000(110,000 – 80,000) = $30,000 4120,000(120,000 – 80,000) = $40,000 5130,000(130,000 – 80,000) = $50,000 Example 6.3

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Before year 3,capacity of dining room (105,000)is greater than demand -year 3 :110,000-105,000=5000 -year 4 :120,000-105,000=15000 -year 5 : 130,000-105,000=25000

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. 3 –develop alternatives The next step is to develop alternative Plans to cope with projected gaps, other Alternatives are various timing and sizing Options for adding new capacity

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. 4 – evaluate the alternatives Qualitative concerns :the manager has to look at how each alternative fits the overall capacity strategy and other aspects. Quantitative concerns: the manager estimates the change in cash flows for each alternative over the forecast time horizon.

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Tools for capacity planning Waiting line models Decision trees

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Don’t expand Expand 2 Low demand High demand 1 Small expansion Large expansion Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Don’t expand Expand 1 2 Low demand [0.40] High demand [0.60] Small expansion Large expansion Figure 6.7 $70$220 $40 $135 $90

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) = $81 Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) = $81 Small = $28 + $81 = $109 Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Small/Low = $70 (0.40) = $28 Small/High = $135 (0.60) = $81 Small = $28 + $81 = $109 $109 Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Large/Low = $40 (0.40) = $16 Large/High = $220 (0.60) = $132 Large = $16 + $132 = $148 $109 Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Expected Payoff = Event * Event Probability Large/Low = $40 (0.40) = $16 Large/High = $220 (0.60) = $132 Large = $16 + $132 = $148 $109 $148 Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 $148 $109 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Decision Trees Low demand [0.40] $70 $220 $40 $148 $109 $148 High demand [0.60] $135 Don’t expand Expand $135 $90 1 2 Small expansion Large expansion Figure 6.7

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Solved Problem 1 A – how many machins are needed ? b –if the operation currently has tow machines,what is the gap ? n =(2shifts/day)(8hours/shift)(250days/mach) =4000hours /machin =4000hours /machin The number of machine required, m Figure 6.8(a) [Dp + (D/Q)s] product 1 +... + [Dp + (D/Q)s] product n N[1 – (C/100)] M =M =M =M =

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Solved Problem 1 Figure 6.8(b) [Dp + (D/Q)s] men +...children + [Dp + (D/Q)s] women N[1 – (C/100)] M =M =M =M = [80,000(.05)+(80,000/240).5]+[60,000(.1)+(60,000/180)2.2]+[120,000(.02)+(120,000/360)3.8] 4000[1 – (5/100)] M =M =M =M = 14,567hours/year3800hours/machine M =M =M =M =

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Capacity Decisions Solved Problem 2 TABLE 6.1 CASH FLOWS FOR TWO-STAGE EXPANSION OF GRANDMOTHER’S CHICKEN RESTAURANT ProjectedProjectedCalculation of Incremental Cash DemandCapacityFlow Compared to Base CaseCash Inflow Year(meals/yr)(meals/yr)(80,000 meals/yr)(outflow) 080,00080,000Increase kitchen capacity to 105,000 meals =($80,000) 190,000105,00090,000 – 80,000 = (10,000 meals)($2/meal) =$20,000 2100,000105,000100,000 – 80,000 = (20,000 meals)($2/meal) =$40,000 3110,000105,000105,000 – 80,000 = (25,000 meals)($2/meal) =$50,000 Increase total capacity to 130,000 =($170,000) ($120,000) 4120,000130,000120,000 – 80,000 = (40,000 meals)($2/meal) =$80,000 5130,000130,000130,000 – 80,000 = (50,000 meals)($2/meal) =$100,000

To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process.

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To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process.

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