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- 1. PROCESS SELECTION Capacity refers to an upper limit or ceiling on the load that an operating unit can handle. CAPACITY PLANNING Number of Products/Services plant, department, machine, store, or worker Capacity refers to an upper limit or ceiling on the load that an operating unit can handle.
- 2. Capacity refers to an upper limit or ceiling on the load that an operating unit can handle. CAPACITY PLANNING The goal of strategic capacity planning is to achieve a match between the long-term supply capabilities of an organization and the predicted level of long-term demand.
- 3. Capacity refers to an upper limit or ceiling on the load that an operating unit can handle. CAPACITY PLANNING Organizations become involved in capacity planning for various reasons such as; • Changes in demand • Changes in technology • Product/Service Design • Changes in the environment • Competitive forces
- 4. Capacity refers to an upper limit or ceiling on the load that an operating unit can handle. CAPACITY PLANNING Capacity Planning should be a Proactive Strategy
- 5. Capacity Strategy Formulation Leading Strategy Following Strategy Tracking Strategy What is Capacity Cushion?
- 6. IMPORTANCE OF CAPACITY DECISIONS Capacity Decisions are Strategic Because Capacity Decisions; 1. Involve long term financial implications 2. Impacts organizations future production size. 3. Affect operating costs. (Initial & Variable) 4. Are long term commitment of resources. 5. Can affect competitiveness of an organization.
- 7. Single Product: Number of Products or Services Produced Multiple Products: How to Measure Capacity Number of Total Products or Services No single measure of capacity will be appropriate in every situation. Rather, the measure of capacity must be tailored to the situation.
- 8. How to Measure Capacity Number of Total Products or Services Availability of Inputs Single Product: Number of Products or Services Produced Multiple Products:
- 9. How to Measure Capacity
- 10. Design Capacity Effective Capacity Two Types of Capacity Actual Capacity Actual Capacity can NEVER exceed Effective Capacity The maximum output that a process can achieve under ideal conditions. The maximum output that a process can achieve under Real conditions.
- 11. Design Capacity Effective Capacity Measuring Two Types of Capacity Efficiency = x 100 (Actual Output) (Effective Capacity) Utilization = x 100 (Actual Output) (Design Capacity)
- 12. Measuring Two Types of Capacity Given the following information, compute the efficiency and the utilization of the vehicle repair department: Design capacity = 50 trucks per day Effective capacity = 40 trucks per day Actual output = 36 trucks per day
- 13. Facilities Product and Service Design. Process Factors (Speed of response and Quality) Policy factors Human Factors Operational Factors External Factors Determinants of Capacity
- 14. Cost Revenue Working Capital Economies of Scale Diseconomies of Scale Determinants of Capacity
- 15. Cost Revenue Working Capital Economies of Scale - - - Diseconomies of Scale Determinants of Capacity o Spreading Fixed Costs o Reducing Construction Costs o Cutting Cost of Purchased Materials o Finding Process Advantage
- 16. Cost Revenue Working Capital Economies of Scale Diseconomies of Scale Determinants of Capacity
- 17. Steps in Capacity Planning Process 1. Identify future capacity requirements. 2. Evaluate existing capacity and identify gaps. 3. Identify alternatives for meeting requirements. 4. Conduct financial analyses of each alternative. 5. Assess key qualitative issues for each alternative. 6. Select alternative to pursue that will be best in long term. 7. Implement the selected alternative. 8. Monitor and Evaluate Results.
- 18. Developing Alternative Capacity Strategies 1. Design for Flexibility. 2. Take Stages of Life Cycle into Account 3. Take Big-Picture Approach into Account. 4. Be Prepared to Deal with Capacity Chunks. 5. Be Prepared to deal with unevenness in Demand. 6. Identify Optimum Operating Level. 7. Choose Strategy for Expansion
- 19. Developing Alternative Capacity Strategies 1. Design for Flexibility.
- 20. Developing Alternative Capacity Strategies 1. Design for Flexibility.
- 21. Developing Alternative Capacity Strategies 1. Design for Flexibility.
- 23. Developing Alternative Capacity Strategies 1. Design for Flexibility. 2. Take Stages of Life Cycle into Account Small Capacity Major Increases Increased only if it reduces cost or creates Competitive Advantage Sell Capacity Or Use for Other purposes
- 24. Developing Alternative Capacity Strategies 1. Design for Flexibility. 2. Take Stages of Life Cycle into Account 3. Take Big-Picture Approach into Account. 4. Be Prepared to Deal with Capacity Chunks. 5. Be Prepared to deal with unevenness in Demand. 6. Identify Optimum Operating Level. 7. Choose Strategy for Expansion Organization is a System. Set of interconnected and interdependent parts Working together as a unified whole
- 25. Developing Alternative Capacity Strategies 1. Design for Flexibility. 2. Take Stages of Life Cycle into Account 3. Take Big-Picture Approach into Account. 4. Be Prepared to Deal with Capacity Chunks. 5. Be Prepared to deal with unevenness in Demand. 6. Identify Optimum Operating Level. 7. Choose Strategy for Expansion Bottleneck Operations An operation in a sequence of operations whose capacity is lower than that of the other operations.
- 26. Developing Alternative Capacity Strategies 1. Design for Flexibility. 2. Take Stages of Life Cycle into Account 3. Take Big-Picture Approach into Account. 4. Be Prepared to Deal with Capacity Chunks. 5. Be Prepared to deal with unevenness in Demand. 6. Identify Optimum Operating Level. 7. Choose Strategy for Expansion
- 27. Developing Alternative Capacity Strategies 1. Design for Flexibility. 2. Take Stages of Life Cycle into Account 3. Take Big-Picture Approach into Account. 4. Be Prepared to Deal with Capacity Chunks. 5. Be Prepared to deal with unevenness in Demand. 6. Identify Optimum Operating Level. 7. Choose Strategy for Expansion
- 28. Developing Alternative Capacity Strategies 1. Design for Flexibility. 2. Take Stages of Life Cycle into Account 3. Take Big-Picture Approach into Account. 4. Be Prepared to Deal with Capacity Chunks. 5. Be Prepared to deal with unevenness in Demand. 6. Identify Optimum Operating Level. 7. Choose Strategy for Expansion
- 29. Developing Alternative Capacity Strategies 1. Design for Flexibility. 2. Take Stages of Life Cycle into Account 3. Take Big-Picture Approach into Account. 4. Be Prepared to Deal with Capacity Chunks. 5. Be Prepared to deal with unevenness in Demand. 6. Identify Optimum Operating Level. 7. Choose Strategy for Expansion
- 30. Evaluating Alternatives 1. Cost-Volume Analysis 2. Financial Analysis 3. Decision Theory 4. Waiting Line Analysis 5. Simulation
- 31. Evaluating Alternatives 1. Cost-Volume Analysis = Fixed Cost = Variable Cost = Total Cost = Total Revenue = Revenue per product = VC per product = Quantity of Production = Profit = Break-Even Quantity FC VC TC TR R v Q P QBEP = Fixed Cost = Q x v = FC + VC = R x Q = R/Q = VC/Q = TR - TC
- 32. Evaluating Alternatives 1. Cost-Volume Analysis = Fixed Cost = Variable Cost = Total Cost = Total Revenue = Revenue per product = VC per product = Quantity of Production = Profit = Break-Even Quantity FC VC TC TR R v Q P QBEP = Fixed Cost = v x Q = FC + VC = R x Q = R/Q = VC/Q = TR - TC P = TR - TC =R x Q - (FC+VC) =R x Q - (FC + v x Q) P = Q (R - v) - FC Q = P + FC R - v QBEP = FC R - v
- 33. Evaluating Alternatives 1. Cost-Volume Analysis Problem 1 The owner of Old-Fashioned Berry Pies, S. Simon, needs to add a new line of pies, which will require leasing new equipment for a monthly payment of $6,000. Variable costs would be $2 per pie, and pies would retail for $7 each 1. How many pies must be sold in order to break even? 2. What would the profit (loss) be if 1,000 pies are made and sold in a month? 3. How many pies must be sold to realize a profit of $4,000? 4. If 2,000 can be sold, and a profit target is $5,000, what price should be charged per pie? FC = $6,000 VC = $2 R = $7 / pie
- 34. Evaluating Alternatives 1. Cost-Volume Analysis Problem 1 The owner of Old-Fashioned Berry Pies, S. Simon, needs to add a new line of pies, which will require leasing new equipment for a monthly payment of $6,000. Variable costs would be $2 per pie, and pies would retail for $7 each 1. How many pies must be sold in order to break even? 2. What would the profit (loss) be if 1,000 pies are made and sold in a month? 3. How many pies must be sold to realize a profit of $4,000? 4. If 2,000 can be sold, and a profit target is $5,000, what price should be charged per pie? FC = $6,000 VC = $2 R = $7 / pie QBEP = FC R - v 6000 7 - 2 = = 1200
- 35. Evaluating Alternatives 1. Cost-Volume Analysis Problem 1 The owner of Old-Fashioned Berry Pies, S. Simon, needs to add a new line of pies, which will require leasing new equipment for a monthly payment of $6,000. Variable costs would be $2 per pie, and pies would retail for $7 each 1. How many pies must be sold in order to break even? 2. What would the profit (loss) be if 1,000 pies are made and sold in a month? 3. How many pies must be sold to realize a profit of $4,000? 4. If 2,000 can be sold, and a profit target is $5,000, what price should be charged per pie? FC = $6,000 v = $2 R = $7 / pie P = Q (R - v) - FC = 1000 (7 - 2) - 6000 = - 1000
- 36. Evaluating Alternatives 1. Cost-Volume Analysis Problem 1 The owner of Old-Fashioned Berry Pies, S. Simon, needs to add a new line of pies, which will require leasing new equipment for a monthly payment of $6,000. Variable costs would be $2 per pie, and pies would retail for $7 each 1. How many pies must be sold in order to break even? 2. What would the profit (loss) be if 1,000 pies are made and sold in a month? 3. How many pies must be sold to realize a profit of $4,000? 4. If 2,000 can be sold, and a profit target is $5,000, what price should be charged per pie? FC = $6,000 VC = $2 R = $7 / pie Q = P + FC R - v P + FC R - v = 4000 + 6000 7 - 2 = = 2000 pies
- 37. Evaluating Alternatives 1. Cost-Volume Analysis Problem 1 The owner of Old-Fashioned Berry Pies, S. Simon, needs to add a new line of pies, which will require leasing new equipment for a monthly payment of $6,000. Variable costs would be $2 per pie, and pies would retail for $7 each 1. How many pies must be sold in order to break even? 2. What would the profit (loss) be if 1,000 pies are made and sold in a month? 3. How many pies must be sold to realize a profit of $4,000? 4. If 2,000 can be sold, and a profit target is $5,000, what price should be charged per pie? FC = $6,000 VC = $2 R = $7 / pie P = Q (R - v) - FC 5000 = 2000 (R - 2) - 6000 R = 7.5
- 38. Evaluating Alternatives 1. Cost-Volume Analysis Problem 2 ------ 320 Units ------ 500 Units ------ 666 Units
- 39. Evaluating Alternatives 1. Cost-Volume Analysis 2. Financial Analysis 3. Decision Theory 4. Waiting Line Analysis 5. Simulation
- 40. Evaluating Alternatives 1. Cost-Volume Analysis 2. Financial Analysis 3. Decision Theory 4. Waiting Line Analysis 5. Simulation is about allocation of resources. Time Value of Money A dollar received today has greater value than a dollar received tomorrow • Present Value • Future Value • Rate of Return
- 41. Evaluating Alternatives 1. Cost-Volume Analysis 2. Financial Analysis 3. Decision Theory 4. Waiting Line Analysis 5. Simulation It involves identifying a set of possible future conditions that could influence results, listing alternative courses of action, and developing a financial outcome for each alternative–future condition combination. Decision theory is described in the supplement to this chapter.
- 42. Evaluating Alternatives 1. Cost-Volume Analysis 2. Financial Analysis 3. Decision Theory 4. Waiting Line Analysis 5. Simulation Waiting Lines are Symptoms of Bottleneck Operations.
- 43. Evaluating Alternatives 1. Cost-Volume Analysis 2. Financial Analysis 3. Decision Theory 4. Waiting Line Analysis 5. Simulation
Editor's Notes
- Capacity refers to an upper limit or ceiling on the load that an operating unit can handle.
- Capacity refers to an upper limit or ceiling on the load that an operating unit can handle. Reasons Explain Nai krni.
- Capacity refers to an upper limit or ceiling on the load that an operating unit can handle. Reasons Explain Nai krni.
- What is proactive, What is reactive? Barish aany say pehly, moasam khrab hota daikh k sb kuch smait lena (Proactive), wait krty rehna jesy hi baris hay to dorrain lgna (Reactive) Write ANTICIPATE and REACT on board. Agar aap anticipate kr laity hain k mosam khrab ho raha hai, agar aap barish k aany pr react krty hain. Som students prepare notes during lectures, (Proactive), Some start getting them fotocopied once date sheet is announced. Firms should add capacity based on anticipated demand, instead of when demand actualizes.
- (Feedback, Concurrent, Feedback) Relate it to PROACTIVE AND REACTIVE too. Leading Strategy: A leading capacity strategy builds capacity in anticipation of future demand increases. If capacity increases involve a long lead time, this strategy may be the best option. Following Strategy: A following strategy builds capacity when demand exceeds current capacity. (Making Hospital After corona) Tracking Strategy: A tracking strategy is similar to a following strategy, but it adds capacity in relatively small increments to keep pace with increasing demand. Capacity Cushion is used which is Extra capacity used to offset demand uncertainty. (reserve Places. For Quarantine Centers) ----- Meeting Notes (25/06/15 16:42) ----- when demand ACTUALLY exceed Current capacity.
- The question of “what kind of capacity is needed” depends on the products and services that management intends to produce or provide. For example, the kind of capacity needed to produce steel will be different from the kind of capacity needed by a hospital. For the other two questions, Forecasts are key inputs used to answer these questions of how much capacity is needed and when is it needed. 3rd: Bigger are expensive, overall cheaper. 4th: can not be reversed. Competitiveness: 5th point, barrier to entry, delivery speed.
- Read Stevenson Page 186 Measuring capacity is tricky. The question of “what kind of capacity is needed” depends on the products and services that management intends to produce or provide. For example, the kind of capacity needed to produce steel will be different from the kind of capacity needed by a hospital. In selecting a measure of capacity, it is important to choose one that does not require updating. That’s why ”capacity of 10 Million Dollars” is. not effective measure, coz dollar changes, price changes For the other two questions, Forecasts are key inputs used to answer these questions of how much capacity is needed and when is it needed.
- In Multiples prodects, some products take more time, some less, so unit is not same. We can not add all output to say this is our capacity. So Availability of inputs is used. Availability of Inputs: E.g. Number of Seats, Number of Beds. No of Classes Rooms.
- In Multiples prodects, some products take more time, some less, so unit is not same. We can not add all output to say this is our capacity. So Availability of inputs is used. Availability of Inputs: E.g. Number of Seats, Number of Beds. No of Classes Rooms.
- Car Wash machine. (Break horse power Example.) (JIC Design Capacity is 50 ppl per Rooms, But if admission is 40 students, this is effective capacity. 35 to 38 come in class, this is actual, or teacher ki chutti. 1. Design capacity: The maximum output that a process can achieve under ideal conditions. 2. Effective capacity: The maximum output that a process can achieve under Real conditions. Conditioned by the realities of machine breakdowns, the need for periodic maintenance of equipment, lunch breaks, coffee breaks etc, the Actual Capacity can not exceed effective capacity.
- Why effectiive is written under design and why design in written under effective? Bcoz denominator bra hoga to answer chota hoga. Design Capacity bri hoti hai. Iss say effective capacity km ay gi.
- Because effective capacity acts as a lid on actual output, the real key to improving capacity utilization is to increase effective capacity by correcting quality problems, maintaining equip- ment in good operating condition, fully training employees, and fully utilizing bottleneck equipment. Hence, increasing utilization depends on being able to increase effective capacity, and this requires a knowledge of what is constraining effective capacity. Next Slide explores some of the main determinants of effective capacity.
- Facilities: The design of facilities, including size and provision for expansion, energy sources etc, are the keys to determine Org. Capacity (Our machines can produce 1000 items but warehouse can store only 500, Capacity is reduced to 500 bcoz of lack of facilities) Product and Service Factors: Product or service design can have a tremendous influence on capacity. For example, the more uniform the output, the more opportunities there are for standardization of methods and materials, which leads to greater capacity. Restaurant with limited items can produce them FASTER. So it is related to Process Factors too Jitna product deisgn mai variety hogi, utna process design mai hogi, utna speed of response kam hogi. QUALITY k liy additional staff wali baat. Process Factors: The quantity and quality capability of a process is an obvious determinant of capacity. For instance, Quality. If quality of output does not meet standards, the rate of output will be slowed by the need for inspection and rework activities. Therefore capacity will reduce Policy Factors: Management policy can affect capacity by allowing or not allowing capacity options such as overtime or second or third shifts. (Tires Dengue example. Tire Shops can not keep excess amount of tires bcoz they cause dengue) Human Factors: Human factors such as, their level of motivation, skills and abilities etc. also affect their productivity levels leading to changes in capacity. Policy Factors: you cant keep inventory of old tires Operational Factors: Scheduling problems, Inventory stocking decisions, late deliveries, quality inspection and control procedures also affect capacity decisions. External Factors: Environmental factors such as minimum quality standards, govt regulations etc, keep employees busy in other activities. Hence they utilize lesser time in production which affects capacity.
- Facilities: The design of facilities, including size and provision for expansion, energy sources etc, are the keys to determine Org. Capacity (Our machines can produce 1000 items but warehouse can store only 500, Capacity is reduced to 500 bcoz of lack of facilities) Product and Service Factors: Product or service design can have a tremendous influence on capacity. For example, the more uniform the output, the more opportunities there are for standardization of methods and materials, which leads to greater capacity. Restaurant with limited items can produce them FASTER. So it is related to Process Factors too Jitna product deisgn mai variety hogi, utna process design mai hogi, utna speed of response kam hogi. QUALITY k liy additional staff wali baat. Process Factors: The quantity and quality capability of a process is an obvious determinant of capacity. For instance, Quality. If quality of output does not meet standards, the rate of output will be slowed by the need for inspection and rework activities. Therefore capacity will reduce Policy Factors: Management policy can affect capacity by allowing or not allowing capacity options such as overtime or second or third shifts. (Tires Dengue example. Tire Shops can not keep excess amount of tires bcoz they cause dengue) Human Factors: Human factors such as, their level of motivation, skills and abilities etc. also affect their productivity levels leading to changes in capacity. Operational Factors: Scheduling problems, Inventory stocking decisions, late deliveries, quality inspection and control procedures also affect capacity decisions. External Factors: Environmental factors such as minimum quality standards, govt regulations etc, keep employees busy in other activities. Hence they utilize lesser time in production which affects capacity.
- Spreading Fixed Cost: Cost of Machinery, Setup Reducing Construction Cost: Architect Fee, Building Rent same chahy 1 product bnao ya 100. Cutting Cost of Purchased Materials: Quantity discount, Bulk Purchased pr rate kam Finding Process Advantage: Your machines runs best at a certain speed. BEST EXAMPLE> Daewoo. Travelling to thi hi, courier b shuru kr dia. Ppl do fish farming in rice field
- Spreading Fixed Cost: Cost of Machinery, Setup Reducing Construction Cost: Architect Fee, Building Rent same chahy 1 product bnao ya 100. Cutting Cost of Purchased Materials: Quantity discount, Bulk Purchased pr rate kam Finding Process Advantage: Your machines runs best at a certain speed. BEST EXAMPLE> Daewoo. Travelling to thi hi, courier b shuru kr dia.
- Teach with the example of Decision making of Management Steps
- Big Picture = System Approach Define System, Computer Diagram. Everything is interconnected. Hotel increases no of rooms, parking area and staff shall also be increased.
- Big Picture = System Approach Define System, Computer Diagram. Everything is interconnected. Hotel increases no of rooms, parking area and staff shall also be increased.
- Capacity increased by 50 Products, One machine can produce 15 products. Will u add 3 or 4 machines?
- Ice and Soup Example Banquette Hall VS Event Management Complex
- Capacity increased by 50 Products, One machine can produce 15 products. Will u add 3 or 4 machines?
- Capacity increased by 50 Products, One machine can produce 15 products. Will u add 3 or 4 machines?
- The purpose of cost–volume analysis is to estimate the income of an organization under different operating conditions We should know all costs.
- Find the FV of $100 compounded for 3 years at 5% 100, 105, 110.25, 115.75
- Analysis is useful in helping managers choose a capacity level that will be cost-effective through balancing the cost of having customers wait with the cost of providing additional capacity. Thats a whole new chapter.
- Analysis is useful in helping managers choose a capacity level that will be cost-effective through balancing the cost of having customers wait with the cost of providing additional capacity. Thats a whole new chapter.