C A P A C I T YDr. Dewi Nusraningrum, M.Si

CAPACITY PLANNING- Capacity is the maximum rate of output for a facility.- Capacity planning is central to the long-term success of a organization. - Too much capacity can be as agonizing as too little.

MEASURE OF CAPACITYOutput measures are the usual choice for line flow processes.Input measures are the usual choice for flexible flow processes.Capacity planning requires a knowledge of current capacity and its utilization.

Average output rateUtulization = x 100%

Maximum capacity

Peak capacity = the maximum output that a process or facility can achieve under ideal conditions.

Effective capacity = the maximum output that a process or firm can economically sustain under normal conditions.

Economies and Diseconomies of Scale

Output rate (patients per week)

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Economiesof scale

Diseconomiesof scale

500-bedhospital

250-bedhospital

750-bedhospital

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CAPACITY STRATEGIESSizing capacity cushions : amount of reserve capacity that firm maintains to handle sudden increases in demand or temporary losses of production capacity; it measures the amount by which the average utilizayion falls below 100 percent.

Timing and sizing expansion : the second issue of capacity strategy is when to expand and by how much. Two extreme strategies : expansionist strategy and wait-and-see strategy

Time

Cap

acit

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Planned unused capacity Forecast of capacity

required

Capacity increment

Time between increments

Time

Cap

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Planned use of short-term options

Forecast of capacity required

Capacity incrementTime between

increments

(a) Expansionist strategy (b) Wait-and-see strategy

Linking capacity and other decisions : Capacity decision should be closely linked to strategies and operations throughout the organization. Examples : Competitive priorities, Quality management, Capital intensity, Resource flexibility, Inventory, Scheduling.

Systematic Approach to Capacity Decisions1. Estimate future capacity requirements : The foundation for estimating long-term capacity needs is forecasts of demand, productivitry, competition, and tecnological changes that extand well into the future.2. Identify gaps by comparing requirements with available capacity : a capacity gap is any difference (positive or negative) between projected demand and current capacity.3. Develop alternative plans for filling the gaps : One alternative, called the base case, is to do nothing and simply lose orders from any demand that

exceeds current capacity. Other alternatives are various timing and sizing options for adding new capacity, including the expansionist and wait-and-see strategies.4. Evaluate each alternative, both qualitatively and quantitatively, and make

a final choice : Qualitative, concerns manager has to look at how each alternative fits the overall capacity strategy and other aspects of business not covered by financial analysis. Quantitative, manager estimates the changes in cash flows for each alternative over the forecast time horizon, compared to the base case.

Expand

Don’t expand

Tools for capacity planningWaiting Line Methode : Tend to develop in front of a work center, such as an airport ticket counter, a machine center or central computer. This method provides formulas for estimating important characteristic of waiting line, such as average customer waiting time and average facility utilization, for different facility designs.

Decision Trees : Valuable for evaluating capacity expansion alternatives when demand is uncertain and sequential decisions are involved.

Decision Trees For Capacity Expansion (Payoffs in thousands of dollars)

1

2

($148)

Small expansion

Large expansion

($109)

($148)

($135)

$40

$220High demand (0.60)

Low demand (0.40)

High demand (0.60)

Low demand (0.40)$70

$90

$135