capacity planning lab
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complete info of capacity planningTRANSCRIPT
Capacity Planning
Capacity Planning
Capacity The maximum level of output
The amount of resource inputs available relative to output requirements at a particular time
CapacityProductive Capacity, generally
measured in physical units, refers either to the maximum output rate for (products or services) or to the amounts of key resources available in each operating unit.
CapacityThe throughput, or the number of units
a facility can hold, receive, store, or produce in a period of time
Determines fixed costs
Determines if demand will be satisfied
Capacity Planning Capacity is the maximum output rate of a
production or service facility Capacity Planning is the process of
establishing the output rate that may be needed at a facility.
• Capacity is usually purchased in “Chunks”• Strategic issues: how much and when to spend
capital for additional facility and equipment• Tactical Issues: Work force and inventory
levels & day-to-day use of equipment
Capacity Planning Determination of Plant Capacity
First Level Planning
Design CapacityBased on Long Range
Forecast
System capacityOutput produced by workers and equipments
Sys.efficiency = Actual output System Capacity.
Capacity Planning The basic questions in capacity
planning are:What type of capacity is needed?How much is needed?When is it needed?How does productivity relate to capacity?
Dimension of Demand Effect on Capacity Requirement
Quantity How much capacity is needed?
Timing When should capacity be available?
Quality What kind of capacity is needed?
Location Where shoud capacity be installed?
Strategic Capacity Planning
Capacity is the ability to hold receive, store or accommodate raw material, finished products ,customers etc.
Strategic Capacity Planning is an approach for determining the overall capacity level of capital intensive resources ,including facilities, equipment and overall labor force size
Capacity EfficiencyHow well a machine or worker performs
compared to a standard output level.Capacity LoadStandard hours of work assigned to a facilityCapacity Load PercentRatio of load to capacity
Examples of Capacity Measures
Type of Measures of CapacityOrganization Inputs Outputs
Manufacturer Machine hoursper shift
Number of unitsper shift
Hospital Number of beds Number ofpatients treated
Airline Number of planesor seats
Number ofseat-miles flown
Restaurant Number of seats Customers/timeRetailer Area of store Sales dollarsTheater Number of seats Customers/time
Capacity Utilization
Capacity used rate of output actually achieved
Best operating levelcapacity for which the process was designed
(effective or maximum capacity)
Utilization = _______________Capacity Used
Best Operating Level
Utilization--ExampleDuring one week of production , a plant produces 83 units of a product. Its historic best utilization was 120 units per week what is the plant’s capacity utilization rate ?
Solution
Utilization Rate ?
Best Operating LevelExample: Engineers design engine and assembly
lines to operate at an ideal or best operating level to maximize output and minimize wear.
Best Operating Level
Underutilization
Best OperatingLevel
Averageunit costof output
Volume
Over-utilization
Best Operating LevelExample: hotel
How Much Capacity is best??
The Best Operating Level is the output that results in the lowest average unit cost.
Economies of scaleWhere the cost per unit of output drops as volume of output increasesSpread the fixed costs of buildings & equipment over multiple units, allow bulk purchasing & handling of materialsProduction or operating cost do not increase linearly with output levelsQuantity discounts are available for material purchaseOperating efficiency increases as worker gain experience
Diseconomies of scale:
Where the cost per unit rises as volume increases
Often caused by congestion (overwhelming the process with too much work-in-process ) and scheduling complexity.
Diseconomies of Distribution Diseconomies of Bureaucracy Diseconomies of Confusion Diseconomies of Vulnerability
Economies & Diseconomies of Scale
100-unitplant
200-unitplant 300-unit
plant
400-unitplant
Volume
Averageunit costof output
Long Run Average Cost Curve
Economies & Diseconomies of Scale
100-unitplant
200-unitplant 300-unit
plant
400-unitplant
Volume
Averageunit costof output
Why the average unit cost is decreasing when the volume is increasing or when the time is passing by?
The Experience Curve
Total accumulated production of units
Cost orpriceper unit
As plants produce more products, they gain experience in the best production methods and reduce their costs per unit.
Capacity Decisions (Cont..) Capacity increase depends on Volume and certainty of anticipated demand Strategic objectives Cost of expansion and operation Best Operating Level % of capacity utilization that minimizes unit
costs
Capacity Decision..Capacity Cushion % of capacity held in reserve for
unexpected occurrences
Capacity Cushion
Capacity Cushion = level of capacity in excess of the average utilization rate or level of capacity in excess of the expected demand .
Cushion = Best Operating Level Capacity Used
- 1
Large capacity cushionRequired to handle uncertainty in demand
service industries high level of uncertainty in demand (in
terms of both volume and product-mix) to permit allowances for vacations, holidays,
supply of materials delays, equipment breakdowns, etc.
if subcontracting, overtime, or the cost of missed demand is very high
Sources of Uncertainty
Customer Demand•Past performance•Market research•Analytical techniques•Promotions / Incentives
Manufacturing•Process design•Product design•Capacity•Quality
Supplier Performance•Responsiveness•Transportation•Location•Quality•Information
Customer Deliveries•Transportation•Location•Information
Example: Target 5% Cushion
- 1cushion = Best Operating LevelCapacity Used
.05 = (1800/x) - 11.05 = (1800/x) 1714.3/1800 = .95241.05x = 1800x = 1714.3
Three Important considerations in Capacity Planning
Maintaining system balanceFrequency of capacity additionExternal sources of capacity
Determining Capacity Requirements
It is the demand which is going to act as one of the guide lines in taking the decision that whether the capacity needed to be added or not.
When we take a decision regarding capacity requirement these three points to be taken under consideration:
Cont… Forecast sale (within each individual
product line) Calculate equipment and labor
requirements to meet forecasts Project equipment and labor availability
Making Capacity Planning Decisions
There are three-step procedure for making capacity planning decisions is as follows:
Step1: Identify Capacity Requirements Step2: Develop Capacity Alternatives Step3: Evaluate Capacity Alternatives
Example--Capacity Requirements
A manufacturer produces two lines of ketchup, FancyFine and a generic line. Each is sold in small and family-size plastic bottles.
The following table shows forecast demand for the next four years.
Year: 1 2 3 4FancyFine
Small (000s) 50 60 80 100Family (000s) 35 50 70 90Generic
Small (000s) 100 110 120 140Family (000s) 80 90 100 110
Example of Capacity Requirements: Equipment and Labor Requirements
Year: 1 2 3 4Small (000s) 150 170 200 240Family (000s) 115 140 170 200
Three 100,000 units-per-year machines are available for small-bottle production. Two operators required per machine.
Two 120,000 units-per-year machines are available for family-sized-bottle production. Three operators required per machine.
Year: 1 2 3 4Small (000s) 150 170 200 240Family (000s) 115 140 170 200
Small Mach. Cap. 300,000 Labor 6Family-size Mach. Cap. 240,000 Labor 6
Small
Percent capacity used 50.00%Machine requirement 1.50Labor requirement 3.00Family-size
Percent capacity used 47.92%Machine requirement 0.96Labor requirement 2.88
Question: Identify the Year 1 values for capacity, machine, and labor?
150,000/300,000=50% At 1 machine for 100,000, it takes 1.5 machines for 150,000
At 2 operators for 100,000, it takes 3 operators for 150,000
©The McGraw-Hill Companies, Inc., 2001
40
Year: 1 2 3 4Small (000s) 150 170 200 240Family (000s) 115 140 170 200
Small Mach. Cap. 300,000 Labor 6Family-size Mach. Cap. 240,000 Labor 6
Small
Percent capacity used 50.00%Machine requirement 1.50Labor requirement 3.00Family-size
Percent capacity used 47.92%Machine requirement 0.96Labor requirement 2.88
Question: What are the values for columns 2, 3 and 4 in the table below?
56.67%1.703.40
58.33%1.173.50
66.67%2.004.00
70.83%1.424.25
80.00%2.404.80
83.33%1.675.00
41
©The McGraw-Hill Companies, Inc., 2001
Breakeven Analysis
Breakeven quantity = Fixed CostsPrice - Variable Costs
Breakeven exampleThomas Manufacturing intends to increase capacity by overcoming a bottleneck operation through the addition of new equipment. Two vendors have presented proposals as follows:
Proposal Fixed Costs Variable Costs A $ 50,000 $12 B $ 70,000 $10
The revenue for each product is $20 What is the breakeven quantity for each proposal?
Breakeven Solution
BEQ = FC
P- VC
Proposal A
BEQ = = 6250$ 50,000
$20 - 12
Proposal B
BEQ = = 7000$ 70,000
$20 - 10
Breakeven Analysis
In the previous example, at what capacity would both plans incur the same cost?
Solution -consider total cost
Total cost = Fixed cost + Variable Cost (Q)
$50,000 + $12Q = $70,000 + $10 Q
Q = 10,000
Capacity Flexibility: Having the ability to respond rapidly to demand volume changes and product mix changes.
Flexible plantsFlexible processesFlexible workers
Capacity Bottlenecks
Rawmaterial
200/hour 75/hour 200/hour
Operation 1 Operation 2 Operation 3
BottleneckOperation
Determining Capacity Requirements
Forecast sales within each individual product line
Calculate equipment and labor requirements to meet the forecasts
Project equipment and labor availability over the planning horizon
Capacity Example
An automobile equipment supplier wishes to install a sufficient number of ovens to produce 400,000 good castings per year. The baking operation takes 2.0 minutes per casting, and management requires a capacity cushion of 5%. How many ovens will be required if each one is available for 1800 hours (of capacity) per year?
SolutionRequired system capacity =
400,000 good units per yearNumber of oven minutes required = 400,000 x 2 min/unit = 800,000Number of oven minutes available/oven = (1800 hrs/oven) x(60 minutes/hour) (.9524) = 102,859 minutes/oven
Number of ovens required = 800,000 min /102,859 min/oven= 7.8 or 8 ovens
How does Quality affect capacity?
Suppose a three operation process is followed by an inspection. If the average proportion of defectives produced at operations 1, 2, and 3 are .04, .01, and .02 respectively, and if the demand is 200 units, then what is the required capacity for this operation?
Capacity requirements with Yield Loss
Notation:
di = avg. proportion of defective units at operation i
n = number of operations in the production process
M= order quantity (good units only or desired yield)
B = avg. number of units at the start of the
production process
B = M
[(1-d1)(1-d2)….(1-dn)]
SolutionDesired yield = 200
Operation Defective rate1 .042 .013 .02
(1) What is the capacity required?
B = = 215200
(1-.04)(1-.01)(1-.02)
Capacity and Quality
Suppose we have a 6 process assembly line that must produce 1000 good products. Each process produces only 1% defects. How is capacity affected?
Capacity required =
= 1062 units
1000
(.99)6
Decision TreesA glass factory specializing in crystal is experiencing a substantial backlog, and the firm's management is considering three courses of action:
A) Arrange for subcontracting,B) Construct new facilities.C) Do nothing (no change)
The correct choice depends largely upon demand, which may be low, medium, or high. By consensus, management ranks the respective probabilities as .10, .50, and .40. A cost analysis that reveals the effects upon costs is shown in the following table.
Payoff Table
0.1 0.5 0.4Low Medium High
A 10 50 90B -120 25 200C 20 40 60
We start with our decisions...
A
B
C
Subcontracting
Do nothing
Construct new facilities
Then add our possible states of nature, probabilities, and payoffs
A
B
C
High demand (.4)
Medium demand (.5)
Low demand (.1)
$90k$50k
$10k
High demand (.4)
Medium demand (.5)
Low demand (.1)
$200k$25k
-$120k
High demand (.4)
Medium demand (.5)
Low demand (.1)
$60k$40k
$20k
Determine the expected value of each decision
High demand (.4)
Medium demand (.5)
Low demand (.1)
A
$90k$50k
$10k
EVA=.4(90)+.5(50)+.1(10)=$62k
$62k
Solution
High demand (.4)
Medium demand (.5)
Low demand (.1)
High demand (.4)
Medium demand (.5)
Low demand (.1)
A
B
CHigh demand (.4)
Medium demand (.5)
Low demand (.1)
$90k$50k
$10k
$200k$25k
-$120k
$60k$40k
$20k
$62k
$80.5k
$46k
Planning Service CapacityTime
Location
Volatility of Demand
Capacity Utilization & Service Quality
Best operating point is near 70% of capacity
From 70% to 100% of service capacity, what do you think happens to service quality? Why?
Two Capacity Strategies
Time between increments
Forecast of capacity needed
Forecast of capacity needed
Planned unused capacity Planned use of
short-term options
Expansionist Strategy Wait-and-See Strategy
Cap
acit
y
Cap
acit
y
Advantages/Disadvantages of each strategy
Expansionist • ahead of competition • risky if demand • no lost sales changes
Wait-and-See • no unused capacity • rely on short- • easier to adapt to term options new technologies
Advantages Disadvantages
Some Short-Term Capacity Options
lease extra space temporarily authorize overtime staff second or third shift with temporary workers add weekend shifts alternate routings, using different work
stations that may have excess capacity schedule longer runs to minimize
capacity losses
Some Short-Term Capacity Options
level output by building up inventory in slack season
postpone preventive maintenance (risky)use multi-skilled workers to alleviate
bottlenecksallow backorders to increase, extend due
date promises, or have stock-outs. subcontract work