Transcript Capacity Planning - TWISTED ILLUSION

Capacity Planning
Capacity refers to on upper limit or ceiling on the
load that an operating unit can handle
The basic questions are:
• What kind of capacity is needed?
• How much is needed?
• When it is needed?
 Impact on the ability of the organization to meet future
demands for products & services
 Major determinant of initial cost – greater the capacity,
larger the investment
 Can affect competitiveness – excess capacity or flexible
capacity
 Affects the ease of management
Capacity Planning
Design Capacity: maximum attainable output
Effective Capacity: maximum possible output with
scheduling difficulties, machine maintenance & so on
Effective capacity is always less than design capacity
Actual output
Efficiency
Effective capacity
Actual output
Utilization 
Design capacity
Capacity Planning
Determinants of Effective Capacity
Facilities
• Design – including size & provision of expansion
• Location – transportation cost, distance to market, labor supply
• Layout – smoothness of flow, as will as lighting & ventilation
Product / services
• Design – easier the design, easier to produce
• Product Mix – varieties of product reduce capacity
Process
• Quantity – obvious determinant of capacity
• Quality – low quality will require inspection & rework
Capacity Planning
Determinants of Effective Capacity
Human Factor
• Job content
• Training/Experience
• Motivation
• Compensation
Operational
• Scheduling differences in equipment capabilities
• Materials management – shortage of materials/ complaints
• Quality assurance – in process & incoming materials
External
• Product standard – can restricts increasing capacity
• Safety regulations
• Unions
Capacity Planning
Capacity Requirement
Long term – relates to overall level of capacity e.g., facility size
Determined by forecasting demand over a time horizon, and then
converting those forecasts into capacity requirement
Trend
- How long
- Slope of trend
Short term – relates to probable variations e.g., seasonal, random
Deviations are important as they can place severe strain to satisfy
demand at sometimes & yet result in idle capacity at other times
Capacity Planning
Developing Capacity Alternatives
Design flexibility into systems
Provisions for futures expansions in the original design
Differentiate between new and mature products/services
Mature product/services tends to be more predictable
Attempt to smooth out capacity requirement
Need to identify products which can offset each other
Prepare to deal with capacity chunks
Capacity increases are often acquired in fairly large chunks
Take a big picture approach to capacity change
Important to consider how parts of the system interrelate
Identify the optimal operation level
In terms of unit cost of output
Capacity Planning
Evaluating Alternatives
Financial Analysis
• Pay back period
• Net present value
• Internal rate of return
Cost volume Analysis
TC  FC  VC
Total cost
Variable cost VC  Q * U
Total revenue TR  Q * R
Total Profit P  TR  TC
 Q * ( R  U )  FC
P  FC
Q
R U
FC
For breakeven Q 
R U