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PRODUCTION AND OPERATIONS
       MANAGEMENT


CAPACITY PLANNING
CAPACITY
AMOUNT OF OUTPUT A SYSTEM IS CAPABLE OF
ACHIEVING OVER A SPECIFIC PERIOD OF TIME.

                     Capacity planning
Capacity planning is central to the long-term success of an
   organization. Capacity plans are made at two levels:
 (i) Long-term capacity plans :
                             which deal with investments in new
   facilities and equipments covering the requirements for at
   least two years into the future and
(ii) Short-term capacity plans :
                             which focus on work-force
   size, overtime budgets, inventories etc.
CAPACITY PLANNING
A long term strategic decision that establishes a
firm’s overall level resources.
Three major capacity decisions are:
    i.     How much capacity to be installed,
    ii.    When to increase capacity and
    iii.   How much to increase
TYPES OF CAPACITY
1)   Production capacity: Maximum rate of
     production or output of an organization.
     (e.g., 100 cars per day etc .. )
2)   Design capacity: The maximum output
     that can possibly be attained.
3)   Effective capacity: The maximum
     output given a product mix, scheduling
     difficulties, machine
     maintenance, quality
     factors, absenteeism etc.
4)   Maximum capacity: The maximum
     output that a facility can achieve under
     ideal conditions. Also known as peak
DETERMINANTS OF EFFECTIVE CAPACITY

   Many decisions about design of the production system and
    operation of the production system may have an impact on
    capacity. The main factors relate to the following:
    (i) Facilities,
    (ii) Product or services,
    (iii) Process
    (iv) Human resource considerations,
    (v) Operations and
    (vi) External forces.
ECONOMIES AND DISECONOMIES OF SCALE
 Economies   scale: The concept which states that “the
 average unit cost of product can be reduced by
 increasing the rate of output”.

 Best operating level: The annual output which results in
 the least average unit cost.

 Diseconomies    of scale: Above a certain level of
 output, additional volume of output results in ever-
 increasing average unit costs. This phenomenon is
 referred to as diseconomies of scale.
DEVELOPING CAPACITY ALTERNATIVES

   To enhance capacity management, the following
    approaches to capacity alternatives could be developed:
     1)   Designing flexibility into the system
     2)   Differentiating between new and mature
          products or services
     3)   Taking a “big-picture” approach to capacity
          changes
     4)   Preparing to deal with “chunks” of capacity
     5)   Attempting to smooth out capacity requirements
CAPACITY PLANNING

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CAPACITY PLANNING

  • 1. PRODUCTION AND OPERATIONS MANAGEMENT CAPACITY PLANNING
  • 2. CAPACITY AMOUNT OF OUTPUT A SYSTEM IS CAPABLE OF ACHIEVING OVER A SPECIFIC PERIOD OF TIME. Capacity planning Capacity planning is central to the long-term success of an organization. Capacity plans are made at two levels: (i) Long-term capacity plans : which deal with investments in new facilities and equipments covering the requirements for at least two years into the future and (ii) Short-term capacity plans : which focus on work-force size, overtime budgets, inventories etc.
  • 3. CAPACITY PLANNING A long term strategic decision that establishes a firm’s overall level resources. Three major capacity decisions are: i. How much capacity to be installed, ii. When to increase capacity and iii. How much to increase
  • 4. TYPES OF CAPACITY 1) Production capacity: Maximum rate of production or output of an organization. (e.g., 100 cars per day etc .. ) 2) Design capacity: The maximum output that can possibly be attained. 3) Effective capacity: The maximum output given a product mix, scheduling difficulties, machine maintenance, quality factors, absenteeism etc. 4) Maximum capacity: The maximum output that a facility can achieve under ideal conditions. Also known as peak
  • 5. DETERMINANTS OF EFFECTIVE CAPACITY  Many decisions about design of the production system and operation of the production system may have an impact on capacity. The main factors relate to the following: (i) Facilities, (ii) Product or services, (iii) Process (iv) Human resource considerations, (v) Operations and (vi) External forces.
  • 6. ECONOMIES AND DISECONOMIES OF SCALE  Economies scale: The concept which states that “the average unit cost of product can be reduced by increasing the rate of output”.  Best operating level: The annual output which results in the least average unit cost.  Diseconomies of scale: Above a certain level of output, additional volume of output results in ever- increasing average unit costs. This phenomenon is referred to as diseconomies of scale.
  • 7. DEVELOPING CAPACITY ALTERNATIVES  To enhance capacity management, the following approaches to capacity alternatives could be developed: 1) Designing flexibility into the system 2) Differentiating between new and mature products or services 3) Taking a “big-picture” approach to capacity changes 4) Preparing to deal with “chunks” of capacity 5) Attempting to smooth out capacity requirements