Process selection and capacity planning

PROCESS SELECTION AND CAPACITY PLANNING

TOPIC OUTLINE ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object],[object Object]

Measures of Capacity Business Inputs Outputs Auto manufacturing Labor hours, machine hours Number of cars per shift Steel mill Furnace size Tons of steel per day Oil refinery Refinery size Gallons of fuel per day Farming Number of ha , number of cows Bushels of grain per ha per year, litres of milk per day Restaurant Number of tables, seating capacity Number of meals served per day Theater Number of seats Number of tickets sold per performance Retail sales Square feet of floor space Revenue generated per day

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Example in Computing Efficiency and Utilization ,[object Object],Efficiency = Actual Output Effective Capacity = 36 per units per day 40 units per day = 90% Utilization = Actual Output Design Capacity = 36 per units per day 50 units per day = 72% Design Capacity = 50 trucks per day Effective Capacity = 40 trucks per day Actual Output = 36 units per day

C. Factors that determine effective capacity

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object]

Some possible demand patterns Growth Decline Cyclical

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Example of seasonal demand patterns Period Items Year Milk sales, toy sales, airline traffic, clothing, vacations, tourism, power usage, petrol consumption, sports and recreation, education Month Welfare and social security checks, bank transactions Week Retail sales, restaurant meals, automobile traffic, automotive rentals, hotel registrations Day Telephone calls, power usage, automobile traffic, public transportation, classroom utilization, retail sales, restaurant meals

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

CAPACITY PLANNING ,[object Object],[object Object],[object Object]

Example for Calculating Processing Requirements ,[object Object],[object Object],[object Object],[object Object],= 2.90 machines Product Annual Demand Standard Processing Time per Unit (hr.) Processing Time Needed (hr.) # 1 400 5.0 2,000 #2 300 8.0 2,400 #3 700 2.0 1,400 5800

CAPACITY PLANNING ,[object Object],[object Object],[object Object],[object Object],Cost-Volume Symbols FC = Fixed Cost VC = Variable cost per unit TC = Total Cost TR = Total Revenue R = Revenue per unit Q = Quantity or volume of output Q BEP = Break-Even Quantity SP = Specified Profit

CAPACITY PLANNING ,[object Object],[object Object],Cost-Volume Formulas TC = FC + (VC x Q) TR = R x Q P = TR – TC P = (R X Q) – [FC + (VC X Q)] Volume = SP + FC R - VC Q BEP = FC R - VC

CAPACITY PLANNING ,[object Object],[object Object],Cost-Volume Relationships

Example for Cost-Volume Analysis ,[object Object],[object Object],[object Object],[object Object]

Solution for the Cost-Volume Analysis Problem ,[object Object],[object Object],[object Object],[object Object],FC =6,000 VC = 2 per pie R =7 per pie Q BEP = FC R - VC = 6,000 7 - 2 = 1,200 pies/month P = (R X Q) – [FC + (VC X Q)] (7 X 1,000) – [6,000 + (2 X 1,000)] P = P = (1,000) P = (R X Q) – [FC + (VC X Q)] 4,000 = 7Q – (6,000 + 2Q) 5Q = 10,000 Q = 2,000 pies

CAPACITY PLANNING ,[object Object]

Example for Capacity Alternatives that Involve Step Costs ,[object Object],[object Object],[object Object],[object Object],Number of Machines Total Annual Fixed Costs Standard Processing Time per Unit (hr.) 1 9,600 0 to 300 2 15,000 301 to 600 3 20,000 601 to 900

Solution for the Problem on Capacity Alternatives that Involve Step Costs ,[object Object],[object Object],[object Object],[object Object],[object Object],Q BEP = FC R - VC = 9,600 40/unit - $10/unit = 320 units = = = 500 units = 666.67 units Q BEP Q BEP 15,000 40/unit - $10/unit Q BEP 20,000 40/unit - 10/unit

Process selection and capacity planning

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