Capacity Planning

CAPACITY PLANNING

CAPACITY IS THE LIMITING CAPABILITY OF A PRODUCTIVE UNIT TO PRODUCE WITHIN A STATED TIME PERIOD, NORMALLY EXPRESSED IN TERMS OF OUTPUT UNITS PER UNIT OF TIME.

OVERTIME

ADDITIONAL SHIFTS SUBCONTRACTING

CAPACITY PLANNINGMEASURES OF CAPACITY:

AUTOMOBILE NUMBER OF UNITS

STEEL PLANT TONS OF STEEL

POWER PLANT MEGAWATTS OF ELECTRICITY

HOSPITALS NO. OF BEDS/DOCTORS

MACHINE SHOP LABOUR HOURS

MANAGEMENT SCHOOL NO. OF SEATS/FACULTY

RESTAURANT NO. OF TABLES/SEATS

WAREHOUSE Cu. M. STORAGE SPACE

PHOTOCOPY CENTRE NUMBER OF M/C’s

MEASUREMENT PROBLEMS – ABSENTISM, BREAKDOWN OF M/C, DOWNTIME,VACATION ETC.

Capacity Decisions

Capacitymaximum capability to produce

rated capacity is theoreticaleffective capacity includes efficiency and utilization

Capacity utilizationpercent of available time spend working

Capacity efficiencyhow well a machine or worker performs compared to a standard output level

Capacity load standard hours of work assigned to a facility

Capacity load percent ratio of load to capacity

Example:Copy courier is a fledging copy center in downtown richmond run by two college students. Currently, the equipment consists of two high-speed copiers that can be operated by one operators. If the students work alone, it is conceivable that two shifts per day can be staffed. The students each work 8 hours a days a week. They don't take breaks during the day, but they do allow themselves 30 minutes for lunch or dinner. In addition, they service the machines for about 30 min. at the beginning of each shift. The time required to set up for each order varies by the type of paper, use of color, no. of copies, and so on. Estimates of setup time are kept with each other. Since the machines are new, their efficiency is estimated at 90%.Due to extensive advertising and new customer incentives, orders have been pouring in. the student need help determining the capacity of their operation and the current load on the their facility. Use the following information to calculate the normal daily capacity of copy courier and to project next Monday’s load and load percent.

Job No.No. of Copies Setup time (min) Run Time (min/unit)

10 500 5.2 0.08

20 1000 10.6 0.10

30 5000 3.4 0.12

40 4500 11.2 0.14

50 2000 15.3 0.10

Daily copy shop capacity = no of M/C or workers * hours of shift * no. of shifts * utilization * efficiency

Capacity= 2 M/C * 2 shifts * 8 hours/shift * 90% efficiency * 87.5% utilization (7/8) = 25.2 hours or 1512 min

Load percent = load /capacity *100 = 1615.70/1512 *100 = 106.8%

Copy courier is overload 6.8%.

CAPACITY PLANNING

CAPACITY PLANNING ESTABLISHES THE OVERALL LEVEL OF PRODUCTIVE RESOURCES FOR A FIRM - LONG TERM STRATEGIC DECISION.Capacity is expanded in anticipation of demand growth.

This is aggressive strategy

UNITS

DEMAND

CAPACITY LEAD STRATEGY

TIME

CAPACITY

CAPACITY PLANNING

Capacity is increased after an increase in demand has been documented.This is conservative strategy

UNITS DEMAND

CAPACITY LAG STRATEGY

TIME

CAPACITY

CAPACITY PLANNING

UNITS

DEMAND

AVERAGE CAPACITY

TIME

CAPACITY

CAPACITY PLANNING

UNITS

DEMAND

INCREMENTAL EXPANSION

TIME

CAPACITY

Capacity Expansion Strategies

PROCESS OF CAPACITY PLANNING1.Asses Existing Capacities

2.Predict future demands including the possible impact of Technology, Competition, Other Events

3.Translate predictions into physical capacity requirements

4.Generate alternative capacity plans

5.Analyse economic effects of Alt. Plants

6. Risks and Strategic effects of Alt. Plans

7. Decide on a plan for implementation

Capacity Decisions (cont.)Capacity increase depends on

volume and certainty of anticipated demandstrategic objectivescosts of expansion and operation

Best operating level% of capacity utilization that minimizes unit costs

Capacity cushion% of capacity held in reserve for unexpected occurrences

Economies of Scaleit costs less per unit to produce high levels of output

fixed costs can be spread over a larger number of unitsproduction or operating costs do not increase linearly with output levelsquantity discounts are available for material purchasesoperating efficiency increases as workers gain experience

Best Operating Level for a Hotel

CAPACITY PLANNING

A CAPACITY CUSHION IS EQUAL TO CAPACITY MINUS AVERAGE DEMAND. (% OF CAPACITY HELD FOR UNEXPECTED OCCURRENCES).

PRODUCTION CAPACITY = 20000 UNITS/MONTH

AVERAGE DEMAND/MONTH = 18000 UNITS

CAPACITY CUSHION = 2000 UNITS

CAPACITY PLANNING

DESIGN CAPACITY (PEAK CAPACITY): IS THE MAXIMUM OUTPUT THAT A PROCESS OR FACILITY CAN ACHIEVE UNDER IDEAL CONDITIONS.

EFFECTIVE CAPACITY: IS THE MAXIMUM OUTPUT THAT A PROCESS OR FIRM CAN ECONOMICALLY SUSTAIN UNDER NORMAL CONDITIONS.

ACTUAL OUTPUT: IS THE QUANTITATIVE MEASURE OF WHAT IS PRODUCED IN A TIME PERIOD.

CAPACITY PLANNING

DESIGN CAPACITY = 1500 SHOES/DAY

EFFECTIVE CAPACITY = 1200 SHOES/DAY

ACTUAL OUTPUT = 1000 SHOES/DAY

CAPACITY PLANNING

83.33% 100CAPACITY EFFECTIVE

OUTPUT ACTUAL EFFICIENCY SYSTEM

%67.67100 CAPACITY DESIGN

OUTPUT ACTUAL NUTILISATIO SYSTEM

%80100 CAPACITY DESIGN

CAPACITY EFFECTIVE RATE NUTILISATIO CAPACITY

U T I L I S A T I O N ( D E S I G N )

U T I L I S A T I O N ( E F F E C T I V E )

CAPACITY PLANNINGA SYSTEMATIC APPROACH TO CAPACITY

DECISIONS

ASSESS EXISTING CAPACITY ESTIMATE FUTURE CAPACITY REQUIREMENTS IDENTIFY GAPS BY COMPARING REQUIREMENTS WITH AVAILABLE CAPACITY DEVELOP ALTERNATIVE PLANS FOR FILLING THE GAPS EVALUATE (FINANCIAL / ECONOMICAL / TECHNOLOGICAL) EACH ALTERNATIVE AND MAKE A FINAL CHOICE.

CAPACITY PLANNING

EX: A HAIRDRESSING SALON OPERATES 8 HOURS/DAY, 5 DAYS/WK AND AN AVERAGE CUSTOMER IS ‘IN THE CHAIR’ FOR 15 MINUTES; IN A WEEK, 110 CUSTOMERS HAD A HAIRCUT AND THE SOLE HAIRDRESSER USES 60 MINUTES/DAY FOR PERSONAL WORK. CALCULATE THE SYSTEM UTILISATION AND EFFICIENCY RATES.AVAILABILITY / WK = 40 HRS.CUSTOMER TIME = 0.25 HRS.DESIGNED CAPACITY = (40/0.25) = 160CUSTOMERS / WK = 110SYSTEM UTILISATION RATE =SYSTEM EFFICIENCY =

CAPACITY PLANNINGCAPACITY PLANNING & STRATEGY ISSUES ON 3

LEVELS

IN THE SHORT RUN - NOT POSSIBLE TO CHANGE SIZE OF WORKFORCE OR THE PHYSICAL CAPACITY - BETTER UTILISATION OF EXISTING RESOURCES - OPTIMAL PRODUCT MIX. LINEAR PROGRAMMING.

IN THE MEDIUM TERM - WORK FORCE IS FLEXIBLE BUT PLANT & EQUIPMENT ARE NOT - AGGREGATE PLANNING & ROUGH CAPACITY PLANNING ARE APPLIED

IN THE LONG TERM - EVERYTHING IS CHANGEABLE - MUCH GREATER UNCERTAINTY - DECISION TREES. (TIMING AND SIZE) - SIMULATION