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    5b. Capacity Planning

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    Sarvar Pathan
    The document discusses capacity planning and measurement in operations management. It addresses key issues like determining how much and when capacity should be added, and what type and location. Capacity can be measured in various units depending on the facility or process. Demand dimensions like quantity, timing, quality and location affect capacity requirements. The document also defines terms like design capacity, effective capacity, and capacity utilization, and provides examples of calculating bottleneck capacity and system efficiency.

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    5b. Capacity Planning

    Uploaded by

    Sarvar Pathan
    65 views21 pages
    The document discusses capacity planning and measurement in operations management. It addresses key issues like determining how much and when capacity should be added, and what type and location. Capacity can be measured in various units depending on the facility or process. Demand dimensions like quantity, timing, quality and location affect capacity requirements. The document also defines terms like design capacity, effective capacity, and capacity utilization, and provides examples of calculating bottleneck capacity and system efficiency.

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    The document discusses capacity planning and measurement in operations management. It addresses key issues like determining how much and when capacity should be added, and what type and location. Capacity can be measured in various units depending on the facility or process. Demand dimensions like quantity, timing, quality and location affect capacity requirements. The document also defines terms like design capacity, effective capacity, and capacity utilization, and provides examples of calculating bottleneck capacity and system efficiency.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    65 views21 pages

    5b. Capacity Planning

    Uploaded by

    Sarvar Pathan
    The document discusses capacity planning and measurement in operations management. It addresses key issues like determining how much and when capacity should be added, and what type and location. Capacity can be measured in various units depending on the facility or process. Demand dimensions like quantity, timing, quality and location affect capacity requirements. The document also defines terms like design capacity, effective capacity, and capacity utilization, and provides examples of calculating bottleneck capacity and system efficiency.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 21

    Capacity Planning –Overview

    ISSUE

    “The fundamental problem


    of operations management is
    balancing capacity and
    demand …”
    Capacity Issues
    • How much and when should capacity be
    added?
    • What type of capacity should be added?
    • Where should additional capacity be added?
    Capacity - measures
    • Productive Capacity, generally measured in
    physical units, refers either to the maximum
    output rate for products or services, or to the
    amounts of key resources available in each
    operating period.
    • Units/period (month, year) (Uniform output)
    • Machine hours/period (Variable output)
    • Man hours/period
    Capacity Measurement
    • Facility • Unit of measure
    • Steel Mill • Tons of steel/day
    • Shoe Factory • Pairs of shoes/shift
    • Commercial Airline • Passenger miles/route
    • Bottling plant • Gallons/shift, bottles/hour
    • Hospital or Hotel • Number of beds
    • Auto Repair Shop • Mechanic hours/day
    • Bank • Operating capital
    • Telephone Switchboard • Number of lines
    Demand & Productive Capacity
    • Effect on Capacity
    • Dimension of Demand Requirements
    • Quantity • How much capacity is
    needed?
    • Timing • When should capacity
    be available?
    • Quality • What kind of capacity
    is needed?
    • Where should capacity
    • Location
    be installed?
    Capacity Terms
    • Design Capacity:
    • Maximum output per unit of time that the process can achieve under
    ideal conditions

    • Effective Capacity :
    • Output per unit of time that is reasonably sustainable.

    • Actual or Operating Capacity:


    • Average actual output per unit of time over the immediate past
    periods.
    Capacity Terms
    – Capacity Utilization:
    • a measure of the degree to which a system is used:
    (capacity used / best operating level)

    – Capacity Cushion:
    • the difference between projected requirements and
    actual capacity

    – Bottleneck Capacity
    • Effective throughput of the system through the
    bottleneck process
    Procedure for developing a plan to change capacity
    Step 1 Determine Project Capacity requirements given a
    demand forecast and existing process bottlenecks

    Step 2 Formulate alternatives to meet future capacity


    requirements
    •Type of Technology
    •Centralized vs Decentralized plants
    •Opportunity for Subcontracting

    Step 3 Evaluate alternatives based on :


    •Economic factors, costs, revenues, risks
    •Strategic impacts: competition, flexibility,
    quality and organizational & managerial adjustments

    Step 4 Select optimum alternative and implement capacity-


    development plan
    Representative Service Facility
    • Single Channel • Multiple Channel
    • Single Stage • Single Stage
    • Restaurant with one • Bank Tellers for
    cash register, one deposits & withdrawls
    hostess • Supermarket cashiers
    • Multiple Stages • Multiple Stages
    • Cafeteria service line • Medical Treatment of
    • Automatic car wash patients at hospital
    Overcapacity NOW…

    • Automotive
    • Communication
    • Airlines
    • Consumer electronics

    Chronic overcapacity almost always results in


    price erosion.
    Over Capacity
    Auto Industry

    • Worldwide demand is for 60 million, capacity


    is for 90 million
    • Excess capacity is one of the driving forces
    behind mergers.
    • Most of the overcapacity is in Southeast Asia.
    • If a company waits until demand equals
    capacity, it may miss the market.
    Source: Fortune, December 1997
    Short and Long-Term Capacity
    Management
    • Short-Term:
    – overtime, floating labor, added shifts
    – sub-contracting
    – workforce supplements (e.g., temps)
    • Intermediate Term:
    – efficiency improvements
    – product re-design
    – marketing emphasis
    • Long-Term:
    – equipment additions
    – facility expansions
    – workforce policies (e.g., long-term hiring)
    CONCLUSION

    • Capacity decisions have a strategic impact on the


    competitiveness of the manufacturing operation.

    • Look at utilization vs. performance.

    • Reducing variability can sometimes have similar


    logistical effects as adding capacity.
    Example 1
    1) A production line manufacturing shoes has 5 stations in series
    whose individual capacities per shift are given below. The actual
    output of the line is 500 pairs per shift. Find
    a) Bottleneck machine

    b) System Capacity
    c) System Efficiency
    Input Output

    Station No. 1 2 3 4 5

    Individual 600 650 650 550 600

    Capacity / shift
    Solution

    a) Bottleneck machine ----- Machine 4


    b) System Capacity ------ 550
    c) System Efficiency = Actual Output /
    Effective Capacity
    = 500 / 550 = 0.90
    = 90%
    Example 2

    A work centre operates 5 days a week on a 2


    shifts per day basis, each shift of 8 hours
    duration. There are five machines of the
    same capacity in this work centre. If the
    machines are utilized 80% of the time at a
    system efficiency of 90%, what is the
    rated output in standard hours per week.
    Solution

    Rated capacity per week =


    (Number of machines) x (Machine hours per
    week) x (Percentage of utilization) x
    (System efficiency)
    = 288 Standard Hours
    Example 3

    2) A steel plant has a design capacity of


    50,000 tons of steel per day, effective
    capacity of 40,000 tons of steel per day
    and an actual output of 36,000 tons of
    steel per day. Compute the efficiency of
    the plant and its utilisation.
    Solution

    Efficiency = Actual output / Effective capacity

    Utilization = Actual output / Design capacity


    • Thank You

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