capacity planning & control decisions
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Capacity Planning
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Capacity Planning
Capacity:In general business sense, it is viewed as the amount of output
a system is capable of achieving over a specific period oftime.
It is the ability of a plant to meet the demand in terms ofproducts or services offered by the plant.
It represents the maximum rate of output of a facility
It affects the companys ability to meet market demand, thetype of markets it can enter & its ability to compete in thosemarkets.
Capacity Planning:
It is concerned with defining thei) long term &ii) short term capacity needs of a firm & determining howthese needs will be met.
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Capacity Planning:
The need for capacity planning
It is necessary when an organization decides to
i) increase its production or
ii) introduce new products in to the market
Once capacity is evaluated & a need for new or expanded facilities isdetermined, decision regarding facility location & process technologyselection are taken
Capacity Planning Decisions: Involves activities such as : -
a) Assessing existing capacity
b) Forecasting future capacity needs
c) Identifying alternate ways to modify capacity
d) Evaluating financial, economical & technological capacity alternatives
e) Selecting a capacity alternative most suited to achieve the strategicmission of the firm.
Capacity planning involves capacity decisions that must merge consumerdemands with human, material & financial resources of the organisation
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Capacity Planning:
Capacity planning decisions are based on the consumerdemand & this is merged with human, material & financialresources of the organization. The process of capacityplanning is shown in the following figure:
Environmental Scanning
Demand Forecasting
Estimation of present capacity
Alternate capacity to meet the demand
Select the best plan
Implement
Quantitative & Economic Analysis of various plans
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Capacity Planning:
Input to capacity planning
Market Considerations Resources available
Capacity decision
Classification of Capacity planning:a) Long term capacity planning ]b) Short term capacity planning ] Based on time horizon
c) Finite capacity planning ] Based on amount ofd) Infinite capacity planning ] resources employed
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Capacity Planning:
Long term capacity planningIt s concerned with accommodating major changes that affect
the overall level of output.Major changes could be to i) develop new product lines,
ii) expand existing facilities & iii) construct or phase outproduction plants
Short term capacity planning
It is concerned with responding to relatively immediate variationin demandIn short term planning horizon, capacity concerns involve thefluctuations in demand due to seasonal or economic factors.Ways to adjust capacity under this are: i) use of overtime or
idle time ii) Increase the number of shifts / day to meettemporary strong demand & iii) Sub-contracting to other firms
Service industries use flexible working hours, part timeemployees, over time work schedule to meet peak demands
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Capacity Planning:
Short term capacity strategies-Inventories: Stock finished goods during slack period to meet demand
during peak period
-Backlogs: During peak periods, the willing customers are requested to
wait & their orders are fulfilled after the peak demand period.-Employment level (hiring & firing): Hire additional employees during peakdemand period & lay off employees as demand decreases.
-Employees training: Develop multi-skilled employees through training sothat they can be rotated among different jobs. This helps as alternative
to hiring employees.-Workforce utilisation: Employees are made to work over time during peak
hours & work fewer hours during slack period ( Flexible work hours)
-Subcontracting: During peak periods, hire the capacity of other firmstemporarily to make the component parts of products.
-Process design: Change job content by redesigning the job.
-Maintenance: Temporarily discontinue routine maintenance so that thistime can be utilised for production.
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Capacity Planning:
Finite capacity planning & Infinite capacity planningIn operation planning two conflicting constraints are
i) time & ii) capacity
If time is fixed by the customers required delivery date, or processing cycle,
it is possible to accept time as the primary constraint & plan backwards toaccommodate these times. In such cases planning backwards to infinitecapacity offers a potential solution to the problem
If processing time is not a constraint -cases where products are produced tostock & sell, it is simpler to use a forward plan based on finite capacity i.e
based on available resources.
Factors affecting capacity planning:i) Controllable factors - e.g amount of labour employed, facilities installed,machines, tooling, shifts worked per day, days worked per week, overtime
work, subcontracting, alternative routing of work, preventive maintenance,& number of production set ups.ii) Less controllable factors e.g. absenteeism, labour performance,machine breakdowns, material shortage, scrap & rework, unexpectedproblems like strike, lock out, fire accidents etc.
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Capacity time horizon
Productionactivity
control
i) Capacity control of inputs-output & operationsequencing (Uses finite loading) Managing via over
time, idle time, work force re-allocation,subcontracting, alternative tooling.
3) ShortRange
Aggregateplans &MPS items
& productsMRP items
i) Resources requirement planning of total resourcesneeded to satisfy master production schedule (MRP-II), uses load profiles of each product & simulation of
alternate MPS. Managing thru work force re-allocation
ii) CRP of labour & equipment in key work centers(uses finite loading) managing through employment &work force re-allocation, inventory, subcontracting,
make buy decisions, alternative routing & moretooling.
2)Mediumrange
Business /corporateobjectives
Resources planning of land, facilities, equipment &human resourcesInvolves strategy of changing facilities& employmentlevels over long range time horizon
1) LongRange
Applies toTechnique & StrategiesTimeFrame
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Ways of Changing Long-range Capacity
i) Selling off existing facilities, selling inventories &laying off or transferring employees to other units.
ii) Developing & Phasing in new products asdemand for other products decline.
2 Reduction
i) Subcontracting with other companies to becomesuppliers of the expanding firms components orentire products
ii) Acquiring other companys facilities or resources
iii) Developing new sites, constructing newbuildings, buying new equipments,
iv) Re-activating facilities on stand-by status.
1Expansion
Ways of accommodating Long-range Capacitychanges
Type ofcapacitychange
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Capacity Planning:Factors favoring over capacity & Under capacity:
It is very difficult to forecast demand as there is uncertainty associated with thedemand.
The forecasted demand will be either higher or lower than the actual demand.There fore there is a risk involved in creating capacity based on projecteddemand. This gives rise to either over capacity or under capacity.
The over capacity is preferred when:i) Fixed cost of the capacity is not very high.
ii) Subcontracting is not possible due to secrecy of design &/or qualityrequirements.
iii) Time required to add capacity is long.
iv) The company cannot afford to miss the delivery & cannot afford to loose thecustomer.
v) There is a economic capacity size below which it is not economical to operatethe plant.
The under capacity is preferred when:
i) The time to build capacity is short.
ii) Shortage of products does not affect the company.
iii) Technology changes fast i.e the rate of obsolescence of plant & equipment ishigh.
iv) The cost of creating the capacity is prohibitively high.