Capacity planning ppt @ bec doms

1. Capacity Planning

7. Capacity Planning Process Forecast Demand Compute Needed Capacity Compute Rated Capacity Evaluate Capacity Plans Implement Best Plan Qualitative Factors (e.g., Skills) Select Best Capacity Plan Develop Alternative Plans Quantitative Factors (e.g., Cost)

8. Types of Planning Over a Time Horizon Add Facilities Add long lead time equipment Schedule Jobs Schedule Personnel Allocate Machinery Sub-Contract Add Equipment Add Shifts Add Personnel Build or Use Inventory Long Range Planning Intermediate Range Planning Short Range Planning Modify Capacity Use Capacity * * * Limited options exist

9. Definition and Measures of Capacity Capacity: The “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time. Utilization: Actual output as a percent of design capacity. Effective capacity: Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality. Efficiency: Actual output as a percent of effective capacity.

15. Cost Structure for a Roadside Motel 25 room roadside motel 50 room roadside motel 75 room roadside motel Economies of Scale Diseconomies of Scale Number of Rooms Average Unit Cost (dollars per unit per night)

17. Approaches to Capacity Expansion Expected Demand Expected Demand Expected Demand Expected Demand Time in Years Time in Years Time in Years Time in Years Demand Demand Demand Demand New Capacity New Capacity New Capacity New Capacity Capacity leads demand with an incremental expansion Capacity leads demand with a one-step expansion Capacity lags demand with an incremental expansion Attempts to have an average capacity, with an incremental expansion

18. Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity leads demand with an incremental expansion

19. Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity leads demand with a one-step expansion

20. Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Capacity lags demand with an incremental expansion

21. Approaches to Capacity Expansion Expected Demand Time in Years Demand New Capacity Attempts to have an average capacity, with an incremental expansion

22. Breakeven Analysis Technique for evaluating process & equipment alternatives Objective: Find the point ($ or units) at which total cost equals total revenue Assumptions Revenue & costs are related linearly to volume All information is known with certainty No time value of money

24. Breakeven Chart Fixed cost Variable cost Total cost line Total revenue line Profit Breakeven point Total cost = Total revenue Volume (units/period) Cost in Dollars Loss

25. Crossover Chart Fixed cost - Process A Fixed cost - Process B Fixed cost - Process C Total cost - Process C Total cost - Process B Total cost - Process A Process A: low volume, high variety Process B: Repetitive Process C: High volume, low variety Process C Process B Process A Lowest cost process

26. Cost of Wrong Process Found Via Breakeven Analysis Fixed cost $ Variable cost Fixed cost $ Variable cost Fixed cost $ Variable cost Low volume, high variety process Repetitive process High volume, low variety process A B Volume B1 B2 B3 Total cost for low volume high variety Total cost for repetitive process Total cost for high volume, low variety process

27. Decision Tree and Capacity Decision -$90,000 $60,000 -10,000 $40,000 Market favorable (0.4) Market unfavorable (0.6) Market favorable (0.4) Market unfavorable (0.6) Market favorable (0.4) Market unfavorable (0.6) $100,000 -5,000 $0 -$14,000 $18,000 $13,000 Large Plant Medium Plant Small Plant Do nothing

30. NPV in a More Convenient Form Present value of $1.00 Year 5% 6% 7% 8% 1 0.952 0.943 0.935 0.857 2 0.907 0.890 0.873 0.857 3 0.864 0.840 0.816 0.794 4 0.823 0.792 0.763 0.735 5 0.784 0.747 0.713 0.681 6 0.746 0.705 0.666 0.630 7 0.711 0.665 0.623 0.583 8 0.677 0.627 0.582 0.540 9 0.645 0.592 0.544 0.500

33. Extras

35. Complementary Products Time (Months) Sales (Units) Jet Skis Snow-mobiles Total 0 1,000 2,000 3,000 4,000 5,000 J M M J S N J M M J S N J