Capacity Planning

The “throughput", or number of units a facility can hold, receive, store, or produce in a period of time

Capacity

The theoretical maximum output of a system in a given period

under ideal conditions

WHAT is DESIGN CAPACITY?

Production line operates:6 days/week with 12 hours per day

and at a rate of 1500 trays of mangoes per hour.

Design capacity is 108,000 trays.(6 x 12 x 1500)

Example:

The capacity a firm can expect to achieve, given its product mix, methods of scheduling, maintenance, and standards of quality

it is design capacity less personal and any other allowances

WHAT is EFFECTIVE CAPACITY?

Design capacity is 108,000Other allowances is 9,000

EC= 108,000-9,000=99,000

Example:

Actual output as a percent of design

capacity

Utilization

Actual output as a percent of effective capacity

Efficiency

Last week the facility produced 148000 rolls. Effective capacity is 175000 rolls. The production operates 7 days per week, with three 8-hour shifts per day at a rate of 1200 per hour

Example:

Design Capacity: (7days X 3 shifts X 8 hours) X ( 1,200 rolls per hour) =

201,600 rolls

Utilization: Actual output/Design Capacity148,000/201,600= 73.4%

Efficiency: Actual output/Effective capacity148,0 00/175,000 = 84.6%

Forecast demand accuratelyUnderstand the technology and capacity increments

Find the optimum operating size (volume)

Build for change

Capacity Considerations

1)Demand Exceeds Capacity-raising prices-scheduling long lead times-discouraging marginally profitable business

But in long terms the best solution is to increase capacity.

2)Capacity Exceeds Demand-price reduction / aggressive marketing-product changes

But with old and inflexible processes ----Lay offs and plant closing

3)Adjusting to Seasonal Demands-offer products with complementary demand patters

Managing Demand

Tactics for Matching Capacity to Demand

1) Making staffing changes

2) Adjust equipments

3) Improving processes to increase throughput

4) Redesigning to facilitate more throughput

5) Adding process flexibility to better meet changing product preference

6) Closing facilities

Demand Management is scheduling /controlling customers.This can be handled by :

-appointments system (doctors and lawyers)-reservations system (rental cars ,hotels and some restaurants)-first come , first served rule (fast food chain and retail stores)

Capacity Management is scheduling the work force.This can be handle by :

-changes in full time-changes temporary or-part-time staff

Demand and Capacity Management in the Service Sector

BOTTLENECK ANALYSIS AND THE THEORY OF

CONSTRAINTS

As managers seek to match capacity to demand, decisions must be made about the size of specific operations or work areas in the large system. Each of the interdependent work areas can be expected to have its own unique capacity.

Involves determining the through put capacity of workstations in a system and ultimately the capacity of the entire system.

CAPACITY ANALYSIS

Bottleneck is an operation that is the l imiting factor or constraint. The term bottleneck refers to the l iteral neck of a bottle that constrains fl ow or, in the case of production system, constrains throughput. A bottleneck has the lowest eff ective capacity of any operation in the system and thus l imits the system’s output.

BOTTLENECK

Bottlenecks occur in all facets of l ife from job shops where a machine is constraining the work fl ow to highway traffi c where two lanes converge into one inadequate lane, resulting in traffi c congestion.

The time to produce units at a single workstation

Process time of a station

Process time of a system The time of the longest (slowest)

process, the bottleneck

Process cycle time The time it takes for a product to go

through the production process with no waiting

Release work orders to the system at the pace set by the bottleneck’s capacity

Lost time at the bottleneck represents lost capacity for the whole system

Increasing the capacity of a non-bottleneck station is a mirage

Increasing the capacity of the bottleneck increases capacity for the whole system

Bottleneck Management

Break-even analysis computes the amount of goods required to be sold to just cover costs

Break-even analysis includes fixed and variable costs Break-even analysis can be used for location

analysis especially when the costs of each location are known

Step 1: For each location, determine the fixed and variable costsStep 2: Plot the total costs for each location on one

graphStep 3: Identify ranges of output for which each

location has the lowest total costStep 4: Solve algebraically for the break-even points over the identified ranges

Break-even analysis

Example using Break-even Analysis: Clean-Clothes Cleaners is considering four possible sites for its new operation. They expect to clean 10,000 garments. The table and graph below are used for the analysis.

Example 9.6 Using Break-Even AnalysisLocation Fixed Cost Variable Cost Total Cost

A $350,000 $ 5(10,000) $400,000B $170,000 $25(10,000) $420,000C $100,000 $40(10,000) $500,000D $250,000 $20(10,000) $450,000