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capacity planning om
- 2. CAPACITY PLANNING Capacity planning is the process of determining the production capacity needed by an organization to meet changing demand for its products. The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time Capacity is the upper limit or ceiling on the load that an operating unit can handle.
- 3. MEASURES OF CAPACITY Capacity can be expressed in terms of input & output, depending on the nature of business. Organization Measure Output Automobile manufacturer Numbers of autos Steel producer Tones of steel Power company Megawatts of electricity Input Airline Numbers of seat Hospital Number of beds Tax office Number of accountants
- 4. Design capacity Maximum output rate or service capacity an operation, process, or facility is designed for. Effective capacity Capacity a firm can expect to attain given its product mix, methods of scheduling, maintenance and standards of quality. Design capacity minus allowances such as personal time, maintenance and scrap. MEASURES OF CAPACITY
- 5. PLANNING OVER A TIME HORIZON Modify capacity Use capacity Intermediate- range planning Subcontract Add personnel Add equipment Build or use inventory Add shifts Short-range planning Schedule jobs Schedule personnel Allocate machinery Long-range planning Add facilities Add long lead time equipment * Limited options exist * *
- 6. CAPACITY PLANNING DECISION Capacity planning normally involves the following activities: Assessing existing capacity. Forecasting capacity needs. Identifying alternative ways to modify capacity. Evaluating financial, economical, and technological capacity alternatives. Selecting a capacity alternative most suited to achieving strategic mission.
- 7. UTILIZATION AND EFFICIENCY Utilization is the percent of design capacity achieved Efficiency is the percent of effective capacity achieved Utilization = Actual output/Design capacity Efficiency = Actual output/Effective capacity
- 8. Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls BAKERY EXAMPLE
- 9. Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls Utilization = 148,000/201,600 = 73.4% BAKERY EXAMPLE
- 10. Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls Utilization = 148,000/201,600 = 73.4% Efficiency = 148,000/175,000 = 84.6% BAKERY EXAMPLE
- 11. Actual production last week = 148,000 rolls Effective capacity = 175,000 rolls Design capacity = 1,200 rolls per hour Bakery operates 7 days/week, 3 - 8 hour shifts Efficiency = 84.6% Efficiency of new line = 75% Expected Output = (Effective Capacity)(Efficiency) = (175,000)(.75) = 131,250 rolls BAKERY EXAMPLE
- 12. THREE STEPS OF CAPACITY PLANNING Determine Service Level Requirements Analyse current capacity Planning for future
- 13. Decision Tree Analysis Structures complex, multiphase decisions Allows objective evaluation of alternatives Incorporates uncertainty Develops expected values
- 14. Example: Decision Tree Analysis To absorb some short-term excess production capacity at its Chennai plant, Special Instrument Products is considering a short manufacturing run for either of two new products, a temperature sensor or a pressure sensor. The market for each product is known if the products can be successfully developed. However, there is some chance that it will not be possible to successfully develop them. Revenue of Rs10,00,000 would be realized from selling the temperature sensor and revenue of Rs4,00,000 would be realized from selling the pressure sensor. Both of these amounts are net of production cost but do not include development cost. If development is unsuccessful for a product, then there will be no sales, and the development cost will be totally lost. Development cost would be Rs1,00,000 for the temperature sensor and Rs10,000 for the pressure sensor.
- 15. Example: Decision Tree Analysis Temperature sensor Pressure sensor Neither Development Cost Development outcome Sales Revenue Net Profit Rs1,00,000 Rs10,000 Success Failure Success Failure Rs10,00,000 Rs0 Rs4,00,000 Rs0 Rs9,00,000 -Rs1,00,000 Rs3,90,000 -Rs10,000 Rs0