03. 333333333333333333333Capacity Planning.ppt
- 1. Capacity Planning Capacity refers to an upper limit or ceiling on the load that an operating unit can handle The basic questions are: • What kind of capacity is needed? • How much is needed? • When it is needed? Impact on the ability of the organization to meet future demands for products & services Major determinant of initial cost – greater the capacity, larger the investment Can affect competitiveness – excess capacity or flexible capacity Affects the ease of management
- 2. Design Capacity: maximum attainable output Effective Capacity: maximum possible output with scheduling difficulties, machine maintenance & so on Utilization is always less than efficiency capacity Effective output Actual Efficiency capacity Design output Actual n Utilizatio Capacity Planning
- 3. Determinants of Effective Capacity Facilities • Design – including size & provision of expansion • Location – transportation cost, distance to market, labor supply • Layout – smoothness of flow, as will as lighting & ventilation Capacity Planning Product / services • Design – easier the design, easier to produce • Product Mix – varieties of product reduce capacity Process • Quantity – obvious determinant of capacity • Quality – low quality will require inspection & rework
- 4. Determinants of Effective Capacity Human Factor • Job content • Training/Experience • Motivation • Compensation Capacity Planning Operational • Scheduling differences in equipment capabilities • Materials management – shortage of materials/ complaints • Quality assurance – in process & incoming materials External • Product standard – can restricts increasing capacity • Safety regulations • Unions
- 5. Capacity Requirement Long term – relates to overall level of capacity e.g., facility size Short term – relates to probable variations e.g., seasonal, random Determined by forecasting demand over a time horizon, and then converting those forecasts into capacity requirement Trend - How long - Slope of trend Deviations are important as they can place severe strain to satisfy demand at sometimes & yet result in idle capacity at other times Capacity Planning
- 6. Developing Capacity Alternatives Design flexibility into systems Provisions for future expansions in the original design Capacity Planning Differentiate between new and matured products/services Matured product/services tends to be more predictable Prepare to deal with capacity chunks Capacity increases are often acquired in fairly large chunks Attempt to smooth out capacity requirement Need to identify products which can offset each other Identify the optimal operation level In terms of unit cost of output
- 7. Evaluating Alternatives Cost volume Analysis Total cost VC FC TC Variable cost U Q VC * Total revenue R Q TR * Total Profit FC U R Q ) ( * TC TR P U R FC P Q U R FC Q For breakeven Financial Analysis • Pay back period • Net present value • Internal rate of return Capacity Planning