Transcript Capacity Planning

Capacity Planning
Introduction to Operations Management
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Capacity Planning
• Capacity is the upper limit or ceiling on
the load that an operating unit can
handle.
• The basic questions in capacity handling
are:
– What kind of capacity is needed?
– How much is needed?
– When is it needed?
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Capacity
• Design capacity
– maximum obtainable output
• Effective capacity
– Maximum capacity given product mix,
scheduling difficulties, and other doses of
reality.
• Actual output
– rate of output actually achieved--cannot
exceed effective capacity.
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Efficiency and Utilization
Actual output
Efficiency =
Effective capacity
Actual output
Utilization =
Design capacity
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Efficiency/Utilization Example
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Actual Output
36 units per day
Efficiency 

 90%
Effective Capacity 40 units per day
Actual Output
36 units per day
Utilizatio n 

 72%
Design Output 50 units per day
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Determinants of Effective
Capacity
•
•
•
•
•
•
Facilities
Products or services
Processes
Human considerations
Operations
External forces
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Volume
0
0
Time
Cyclical
Time
Volume
Growth
Decline
0
Time
Volume
Volume
Some Possible Growth Patterns
0
Introduction to Operations Management
Stable
Time
7
Developing Capacity Alternatives
• Design flexibility into systems
• Take a “big picture” approach to capacity
changes
• Prepare to deal with capacity “chunks”
• Attempt to smooth out capacity requirements
• Identify the optimal operating level
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Evaluating Alternatives
Average cost per unit
Production units have an optimal rate of output for minimal cost.
Minimum
cost
0
Rate of output
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Evaluating Alternatives
Average cost per unit
Minimum cost & optimal operating rate are
functions of size of production unit.
0
Small
plant
Medium
plant
Large
plant
Output rate
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Calculating Processing
Requirements
Standard
processing time
per unit (hr.)
Product
Annual
Demand
#1
400
5.0
2,000
#2
300
8.0
2,400
#3
700
2.0
1,400
5,800
Introduction to Operations Management
Processing time
needed (hr.)
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Amount ($)
Cost-Volume Relationships
Fixed cost (FC)
0
Q (volume in units)
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Amount ($)
Cost-Volume Relationships
0
Q (volume in units)
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Amount ($)
Cost-Volume Relationships
Q=FC/(R-VC)
Q =(SP+FC)/(R-VC)
0
BEP units
Q (volume in units)
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Break-Even Problem with Step
Fixed Costs
3 machines
2 machines
1 machine
Quantity
Step fixed costs and variable costs.
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Break-Even Problem with Step
Fixed Costs
$
BEP
3
TC
BEP2
TC
3
TC
2
1
Quantity
Multiple break-even points
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Financial Analysis
• Cash Flow - the difference between cash
received from sales and other sources,
and cash outflow for labor, material,
overhead, and taxes.
• Present Value - the sum, in current value,
of all future cash flows of an investment
proposal.
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