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Capacity Planning
The “throughput", or number of units a facility can hold, receive, store, or produce in a period of time
Capacity
The theoretical maximum output of a system in a given period
under ideal conditions
WHAT is DESIGN CAPACITY?
Production line operates:6 days/week with 12 hours per day
and at a rate of 1500 trays of mangoes per hour.
Design capacity is 108,000 trays.(6 x 12 x 1500)
Example:
The capacity a firm can expect to achieve, given its product mix, methods of scheduling, maintenance, and standards of quality
it is design capacity less personal and any other allowances
WHAT is EFFECTIVE CAPACITY?
Design capacity is 108,000Other allowances is 9,000
EC= 108,000-9,000=99,000
Example:
Actual output as a percent of design
capacity
Utilization
Actual output as a percent of effective capacity
Efficiency
Last week the facility produced 148000 rolls. Effective capacity is 175000 rolls. The production operates 7 days per week, with three 8-hour shifts per day at a rate of 1200 per hour
Example:
Design Capacity: (7days X 3 shifts X 8 hours) X ( 1,200 rolls per hour) =
201,600 rolls
Utilization: Actual output/Design Capacity148,000/201,600= 73.4%
Efficiency: Actual output/Effective capacity148,0 00/175,000 = 84.6%
Forecast demand accuratelyUnderstand the technology and capacity increments
Find the optimum operating size (volume)
Build for change
Capacity Considerations
1)Demand Exceeds Capacity-raising prices-scheduling long lead times-discouraging marginally profitable business
But in long terms the best solution is to increase capacity.
2)Capacity Exceeds Demand-price reduction / aggressive marketing-product changes
But with old and inflexible processes ----Lay offs and plant closing
3)Adjusting to Seasonal Demands-offer products with complementary demand patters
Managing Demand
Tactics for Matching Capacity to Demand
1) Making staffing changes
2) Adjust equipments
3) Improving processes to increase throughput
4) Redesigning to facilitate more throughput
5) Adding process flexibility to better meet changing product preference
6) Closing facilities
Demand Management is scheduling /controlling customers.This can be handled by :
-appointments system (doctors and lawyers)-reservations system (rental cars ,hotels and some restaurants)-first come , first served rule (fast food chain and retail stores)
Capacity Management is scheduling the work force.This can be handle by :
-changes in full time-changes temporary or-part-time staff
Demand and Capacity Management in the Service Sector
BOTTLENECK ANALYSIS AND THE THEORY OF
CONSTRAINTS
As managers seek to match capacity to demand, decisions must be made about the size of specific operations or work areas in the large system. Each of the interdependent work areas can be expected to have its own unique capacity.
Involves determining the through put capacity of workstations in a system and ultimately the capacity of the entire system.
CAPACITY ANALYSIS
Bottleneck is an operation that is the l imiting factor or constraint. The term bottleneck refers to the l iteral neck of a bottle that constrains fl ow or, in the case of production system, constrains throughput. A bottleneck has the lowest eff ective capacity of any operation in the system and thus l imits the system’s output.
BOTTLENECK
Bottlenecks occur in all facets of l ife from job shops where a machine is constraining the work fl ow to highway traffi c where two lanes converge into one inadequate lane, resulting in traffi c congestion.
The time to produce units at a single workstation
Process time of a station
Process time of a system The time of the longest (slowest)
process, the bottleneck
Process cycle time The time it takes for a product to go
through the production process with no waiting
Release work orders to the system at the pace set by the bottleneck’s capacity
Lost time at the bottleneck represents lost capacity for the whole system
Increasing the capacity of a non-bottleneck station is a mirage
Increasing the capacity of the bottleneck increases capacity for the whole system
Bottleneck Management
Break-even analysis computes the amount of goods required to be sold to just cover costs
Break-even analysis includes fixed and variable costs Break-even analysis can be used for location
analysis especially when the costs of each location are known
Step 1: For each location, determine the fixed and variable costsStep 2: Plot the total costs for each location on one
graphStep 3: Identify ranges of output for which each
location has the lowest total costStep 4: Solve algebraically for the break-even points over the identified ranges
Break-even analysis
Example using Break-even Analysis: Clean-Clothes Cleaners is considering four possible sites for its new operation. They expect to clean 10,000 garments. The table and graph below are used for the analysis.
Example 9.6 Using Break-Even AnalysisLocation Fixed Cost Variable Cost Total Cost
A $350,000 $ 5(10,000) $400,000B $170,000 $25(10,000) $420,000C $100,000 $40(10,000) $500,000D $250,000 $20(10,000) $450,000