Date post: | 08-Apr-2018 |
Category: |
Documents |
Upload: | surya-nath-r |
View: | 214 times |
Download: | 0 times |
of 25
8/6/2019 Copy of Capacity Planning
1/25
Capacity Planning
8/6/2019 Copy of Capacity Planning
2/25
What is Capacity?
Capacity is the rate at which output can be produced by
an operating unit a machine, a process, a facility, a
company, an individual, a movie theater, a restaurant,
an auditorium, etc.
It is expressed as the number of units of output produced
per unit time
Examples: no. of cars assembled per day, no. ofstudents taught per semester, no. of computers
assembled per month, customers per day in a restaurant
8/6/2019 Copy of Capacity Planning
3/25
Capacity is the upper limit or ceiling on theload that an operating unit can handle.
Capacity also includes
Equipment
Space
Employee skills
8/6/2019 Copy of Capacity Planning
4/25
1. Impacts ability to meet future demands
2. Affects operating costs
3. Major determinant of initial costs
4. Involves long-term commitment
5. Affects competitiveness
6. Affects ease of management
7. Impacts long range planning
Importance of Capacity Decisions
8/6/2019 Copy of Capacity Planning
5/25
Capacity
Design capacity
maximum output rate or service capacity an
operation, process, or facility is designed for
Effective capacity
Design capacity minus allowances such as
personal time, maintenance, and scrap
Actual output
rate of output actually achieved- normally
cannot exceed effective capacity
8/6/2019 Copy of Capacity Planning
6/25
Efficiency and Utilisation
Actual outputEfficiency =
Effective capacity
Actual outputUtilisation =
Design capacity
8/6/2019 Copy of Capacity Planning
7/25
Efficiency/UtilisationExample
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Actual output = 36 units/dayEfficiency = = 90%
Effective capacity 40 units/ day
Utilization = Actual output = 36 units/day= 72%
Design capacity 50 units/day
8/6/2019 Copy of Capacity Planning
8/25
Determinants ofEffective Capacity
Facilities equipment, technology
Product and service factors design
Process factors layout, process flow
Human factors motivation, training, job
design, job content
8/6/2019 Copy of Capacity Planning
9/25
Determinants ofEffective Capacity Cont..
Policy factors mission, management
capability/philosophy
Operational factors QC systems, variety
Supply chain factors materials management
External factors government regulations(hrs, safety, pollution), union agreements
8/6/2019 Copy of Capacity Planning
10/25
Need for Capacity Planning
Whenever the existing demand changes or addition/reduction of
products has to be made, then Capacity planning becomes a need
8/6/2019 Copy of Capacity Planning
11/25
Steps for Capacity Planning
1. Estimate future capacity requirements
2. Evaluate existing capacity
3. Identify alternatives
4. Conduct financial analysis
5. Assess key qualitative issues
6. Select one alternative7. Implement alternative chosen
8. Monitor results
8/6/2019 Copy of Capacity Planning
12/25
A
lternatives of meeting desired capacity through
Better Utilisation of resourcesHigher EfficiencyOvertime
Adding a shift or twoAdding new machinery, adding another
production unit
Capacity Reduction Sell-off existing facilities Sell-off surplus inventories Lay off or transfer employees to other units Shut down equipment & place them as standby
8/6/2019 Copy of Capacity Planning
13/25
Market
Considerations
Capacity
Decisions
Resources
Available
Capacity Planning
Classification
Based on time
horizon
Based on amount of
resources employed
Short term
Long term
Finite
Infinite
Capacity Planning
8/6/2019 Copy of Capacity Planning
14/25
Capacity Strategy
The main objective of capacity planning is to match
companysproduction capacity & customer demand in
the most profitable way.
Thus capacity planning should take into consideration
not only facility, production & distribution costs, but
also lost sales due to inability to supply on time & any
revenue gains due to quick response.
In addition, the capacity strategy should consider
demand patterns as well as supply capabilities.
8/6/2019 Copy of Capacity Planning
15/25
Strategy Formulation
Should Consider:
Demand patterns
Growth rate and variability
Facilities
Cost of building and operating
Technological changes
Rate and direction of technology changes
Behavior of competitors
Availability of capital and other inputs
8/6/2019 Copy of Capacity Planning
16/25
A few Questions regarding CapacityDecisions
How much capacity?
When do we add or eliminate capacity?
What type of capacity?
Where do we augment capacity?
8/6/2019 Copy of Capacity Planning
17/25
Key Decisions of Capacity Planning
1.Amount of capacity needed
2. Timing of changes
3. Need to maintain balance4. Extent of flexibility of facilities
8/6/2019 Copy of Capacity Planning
18/25
Capacity Planning Strategies
The term Strategy is derived from the Greek word strateg means
the art of the general
Alfred .D.Chandler defines Strategy as the determination of the basiclong term goals and objectives of an enterprise and the adoption of thecourses of action & the allocation of resources necessary for carryingout these goals
Strategy levels Corporate level
Business unit level
Functional level
8/6/2019 Copy of Capacity Planning
19/25
Strategies Involved Active strategies:
Objective- To smooth out the peaks and values of demand during planninghorizon to obtain a smoother load on production facilities; during periods of low
demand, sales can be encouraged through price cuts
Passive strategies:
1. Pure strategy- vary anyone of the factors such as work force, productionrate, inventory, sub contracting, capacity utilisation.
2. Mixed strategy- Involves two or more pure strategies
Strategy 1 : Vary the size of the work force in accordance with the fluctuationsin demand
Strategy 2 : Vary output rate keeping the same size of the work force and usingovertime
or idle time or short work week with reduced pay to workers.Strategy 3 : Maintaining the same level of production, keep inventory duringperiods of low
demand and using the accumulated inventory to meet high demandin other
time periods
Strategy 4 : Sub-contracting work during high demand periods
Strategy 5 : By varying the utilisation of capacity according to the demand tomet
8/6/2019 Copy of Capacity Planning
20/25
Capacity Expansion Strategies
1. Demand leading strategy (excess capacity)2. Demand Trailing strategy
(maximum capacity utilisation)
3. Demand matching strategy (Balanced capacity)
4. Steady expansion strategy (steady expansion)
8/6/2019 Copy of Capacity Planning
21/25
1. Demand leading (excess capacity)
+ can accommodate new/unexpecteddemand
+ can provide quick response and delivery
+ low overtime & subcontracting costs
high cost ofunused capacity
Note:+
= advantages- = disadvantages
8/6/2019 Copy of Capacity Planning
22/25
Eg.:
Hotel industry (immediate need of
rooms; if substitute exists can lose
sales)
Furnituremaker (can people wait?)
Restaurant
University
8/6/2019 Copy of Capacity Planning
23/25
2. Demand trailing (maximum capacity utilisation)
+ minimizes facility & equipment costs cannot accommodate new or unexpected demand
slow response at peak times
high overtime and/or subcontracting costs
often forced to add capacity at peaks of businesscycles
Loose sales
Note: (+) => advantages( - ) => disadvantages
8/6/2019 Copy of Capacity Planning
24/25
3. Demand matching strategy
+balances capacity & other costs
+provides reliable service & responsiveness
must be able to predict demand well or
have constant demand
Note: (+) => advantages
( - ) => disadvantages
8/6/2019 Copy of Capacity Planning
25/25
4. Steady expansion strategy
+ do not have to outguess competitors
+ price risk from adding capacity during peak
demand is reduced
Eg: Eggs- excess capacity can result if long term
demand falls short of expectations
Note: (+) => advantages
( - ) => disadvantages