week 05a – capacity planning and control (chapter 7s) definitions, capacity measurement, mrp ii...

SJSU Bus. 140 - David Bentley 1

WEEK 05A – CAPACITY PLANNING AND CONTROL (CHAPTER 7S)

Definitions, capacity measurement, MRP II and capacity, utilization, efficiency, breakeven


Definition of Capacity

• Upper limit on the work load that an operating unit can handle during a given period of time• Plant, production line, work center, work station, employee

• Also defined as “Rate of output”• Contrast to common definition of capacity


Capacity Decisions Affect…

• Ability to meet customer demand• Possible long term commitments• Competitive capability• Capital investment and operating costs


Capacity and Production Environments

• Operation Types• Project >• Intermittent >• Assembly >• Repetitive >• Continuous flow>

• Time to Forecast• Capacity• Capacity & raw materials• Capacity & raw materials• Capacity, RM & assemblies• Capacity, RM & products


Capacity Considerations - 1

• Definition: “Rate of output”• Utilization (uses design capacity)

• Relates actual output to theoretical output• Paid for 8 hours, producing parts 6.4 hours; utilization = 6.4 / 8 =

80%• Efficiency (uses effective capacity)

• Relates actual output to expected output• Expect production of 100 parts, actual = 90; efficiency = 90%


Capacity Considerations - 2

• Design capacity• Maximum output under normal conditions

• Effective capacity• Design capacity minus allowances for certain efficiency losses

• Actual output• Recorded output for a given time period


Utilization & Efficiency

• Utilization• Actual output_

Design capacity

• Efficiency• Actual output_

Effective capacity


Productivity

• Productivity• Product of (utilization X efficiency)• (.80)(.90) = 0.72 or 72%


Theory of Constraints

• Developed by Eliyahu Goldratt – “The Goal”• Management of bottlenecks• Attempts to schedule and feed work to maximize the rate of work flow

• Utilizes “transfer batches” = operation overlapping

• Optimized Production Technology (OPT) software


“The Goal” – Excellence in Manufacturing

“ ‘The Goal’ is about the OPT principles of manufacturing. It’s about trying to understand what makes our world tick so that we can make it better. When we think logically and consistently about our problems we can determine the ‘cause and effect’ relationships between actions and results.”

- from “The Goal” 1984

by Eliyahu M. Goldratt and Jeff Cox


Cost-Volume Relationships

Am

ou

nt

($)

0Q (volume in units)

Total cost = VC + FC

Total variable cost (V

C)

Fixed cost (FC)

Operations Management, Seventh Edition, by William J. Stevenson

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved



Am

ou

nt

($)

Q (volume in units)0

Tota

l revenue





Am

ou

nt

($)

Q (volume in units)0 BEP units

Profit

Tota

l rev

enue

Total cost




Make or Buy

• Cost-volume or breakeven analysis• QBEP = FC / (Rev – v)

• Where FC = fixed cost, Rev = unit price (or revenue), v = unit variable cost

• Example: candle manufacture FC = $50, Rev = $1, v = $.75• Solution: QBEP = 50 / (1 - .75)

= 200


Breakeven related problems

• QBEP = FC / (Rev – v)

• QX = (Profit + FC) / (Rev –v)

• Profit = Q (Rev – v) – FC• Rev = [(Profit + FC) / Q] +v• TR = Q × Rev


Break-even and Step Fixed Costs

Quantity

FC + VC = TC

FC + VC = TC

FC + VC =

TC

Step fixed costs and variable costs.

1 machine

2 machines

3 machines




MRP IICapacity Planning Levels

• Long Range• Long Range Resource Planning (LRRP)

• Intermediate Range• Rough Cut Capacity Planning (RCCP)

• Short Range• Capacity Requirements Planning (CRP)


Long Range Resource Planning (LRRP)

• Planning up to 5 years out• Time intervals in quarters and years• Broad categories of capacity

• Land• Buildings (square feet)• Equipment (by type)• Labor (by broad skill set)• Money, etc.


Rough Cut Capacity Planning (RCCP)

• 18 – 24 months• Time intervals in weeks and months• Critical resources needed to meet MPS• Allows time to:

• Hire / layoff• Develop subcontractors• Negotiate supply contracts• Buy and install equipment


Capacity Requirements Planning (CRP)

• Probably about 12 month horizon• Time intervals in days and weeks• Considers all internal resources needed to satisfy MRP

• May include vendor capacity• Allows time to:

• Buy parts• Exercise or call in subcontracting• Hire or lay off temps• Schedule overtime


Input-Output (I/O)Analysis

• Measures at a work center not only• Output, but also• Input• Also looks at changes in backlog• Used to trace upstream and identify problems in feeder work centers

week 05a – capacity planning and control (chapter 7s) definitions, capacity measurement, mrp ii...

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