Chapter-5

Capacity Planning

Capacity planning The capacity of a facility is defined as the

maximum load that can be handled by it during a given period. The load means, the amount of inputs or out put.

Importance of Capacity PlanningA. Importance of Capacity Planning

• Basic questions in capacity planning What kind of capacity is needed? How much is needed? When is it needed?

• capacity planning relates to their potential impact on the ability of the organization to meet future demands for products and services

• It shows relationship between capacity and operating costs

Need for Capacity planning To satisfy the future demand of products without

any shortage. To find optimal capacity of the facility. To keep the initial investment in the facility as low

as possible. Investments in facility capacity are long- term and

can’t be reversed easily.

• In selecting a measure of capacity, it is important to choose one that does not require updating.

• Where only one product or service is involved, the capacity of the productive unit may be expressed in terms of that item relationship between capacity and operating costs

• When multiple products or services are involved, capacity is stated in terms of each product or to use a measure of capacity that refers to availability of inputs

Measures of Capacity

Measures of Capacity

Business Inputs Outputs

Auto manufacturing Labor hours, machine hours Number of cars per shift

Steel mill Furnace size Tons of steel per day

Oil refinery Refinery size Gallons of fuel per day

Farming Number of acres, number of cows

Bushels of grain per acre per year, gallons of milk per day

Restaurant Number of tables, seating capacity

Number of meals served per day

Theater Number of seats Number of tickets sold per performance

Retail sales Square feet of floor space

Revenue generated per day

Defining and Measuring Capacity

• Definitions of Capacity Design capacity – the maximum output that can possibly be

attained Effective capacity – the maximum possible output given a

product mix, scheduling difficulties, machine maintenance, quality factors, and so on.

Actual output – the rate of output actually achieved • Measures of System Effectiveness

Efficiency – the ratio of actual output to effective capacity Utilization – the ratio of actual output to design capacity

Calculating Capacity Utilization

• Measures how much of the available capacity is actually being used:

– Measures effectiveness– Use either effective or design capacity in

denominator

100%capacity

rateoutput actualnUtilizatio

(100%)capacity effective

output actualn Utilizatio effective

(100%)capacitydesign

output actualn Utilizatio design

Calculating Capacity Utilization

Example of Computing Capacity Utilization: In the bakery example the design capacity is 30 custom cakes per day. Currently the bakery is producing 28 cakes per day. What is the bakery’s capacity utilization relative to both design a effective capacity?

93%(100%)30

28(100%)

capacitydesign

output actualn Utilizatio

140%(100%)20

28(100%)

capacity effective

output actualn Utilizatio

design

effective

• The current utilization is only slightly below its design capacity and considerably above its effective capacity

• The bakery can only operate at this level for a short period of time

Example-2Given the information below, compute the efficiency and the utilization of the vehicle repair department:

Design Capacity = 50 trucks per day

Effective Capacity

= 40 trucks per day

Actual Output = 36 units per day

Efficiency = Actual OutputEffective Capacity

= 36 per units per day

40 units per day

= 90%

Utilization

= Actual OutputDesign Capacity

= 36 per units per day

50 units per day

= 72%