Capacity planning The basic questions in capacity

● Capacity is the maximum output rate of a production planning

or service facility.

● Capacity also includes

● Equipment
● Space
● Employee skills

02/09/17 3

Reasons of capacity
planning

Capacity planning is the process of establishing

the output rate that may be needed at a facility.

02/09/17 5
 Importance of Capacity Decisions Measuring Capacity Examples

● Impacts ability to meet future demands

Input Measures Output Measures
● Affects operating costs Type of
of of Capacity
● Major determinant of initial costs Business
Capacity
● Involves long-term commitment Car manufacturer Labor hours Cars per shift
● Affects competitiveness
Hospital Available beds Patients per
● Affects ease of management
month
Pizza parlor Labor hours Pizzas per day

Retail store Floor space in Revenue per foot

02/09/17 7 02/09/17 square feet 8

Capacity terminology Utilization and Efficiency

Design capacity ( Max. Capacity )

is the maximum theoretical output of a system
Utilization is the percent of
Normally expressed as a rate design capacity achieved
Under ideal conditions
Utilization = Actual Output/Design Capacity
Effective capacity ( Best Operating Level ) Efficiency is the percent of
is the capacity a firm expects to achieve given
current operating constraints effective capacity achieved
Often lower than design capacity Efficiency = Actual Output/Effective Capacity
Under ideal conditions
Actual output ( Capacity Used )
is rate of output actually achieved Bothmeasuresexpressedaspercentages
Cannot exceed effective capacity.
 Ex.
Efficiency/Utilization
Calculating Capacity Utilization Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
● Measures how much of the available capacity is Actual output = 36 units/day
actually being used:
Actual output 36 units/day
Utilization  actual output rate 100%  Efficiency = =
Effective capacity
= 90%
40 units/ day
capacity
Actual output 36 units/day
Measures effectiveness Utilization = = = 72%
Designcapacity 50 units/day
Use either effective or design capacity in
denominator
02/09/17 11

Determinants of Effective Capacity Calculating Processing Requirements

● Facilities (size, location, layout, heating, lighting, ventilations) A dept. works 8- hour shift, 250 days/year
● Product and service factors (similarity of products) St n a rd
Annual p ro c a d g t i e P ro c e s i n g ti e
● Process factors (productivity, quality) P ro d u c t e d e si m ( s e d ( rm
D m an pes n h r. ne e h .)
● Human factors (training, skills, experience, motivations, r un i ) d
absentation, turnover) t
● Policy factors (overtime system, no. of shifts)
#1 400 5 .0 2 , 00
● Operational factors (scheduling problems, purchasing 0
requirements, inventory shortages)
#2 300 8 .0 2 , 00
● Supply chain factors (warehousing, transportation, 4
distribution)
#3 700 2 .0 1,4 0 0
● External factors (product standards, government agencies, a nnua l ca pa city is 2 5 0 *8 = 2 0 0 0 hours ,
5 , 00
number of machines required = 5,800 hours/2,000 hours = 2.90
pollution standard)
machines 8
then we need three machines to handle the required volume
 Capacity Planning Process Planning Over a Time Horizon
Forecast Develop Quantitative
Alternative Factors
Demand Add facilities
Plans (e.g., Cost) Long-range
planning Add long lead time equipment *
Compute Evaluate Qualitative Intermediate- Subcontract Add personnel
range Add equipment Build or use inventory
Rated Capacity Factors planning Add shifts
Capacity Plans (e.g., Skills) Schedule jobs
Short-range
Compute Select Best Implement
planning * Schedule personnel
Allocate machinery
Needed Capacity
Best Plan Modify capacity Use capacity
Capacity Plan
* Limited options exist

02/09/17 16

Economies of Scale
Production units have an optimal rate of output for minimal cost.
● Economies of scale
● If the output rate is less than the optimal level,

Average cost per unit

increasing output rate results in decreasing average unit
costs Minimum average cost per unit

● Diseconomies of scale
● If the output rate is more than the optimal level,
increasing the output rate results in increasing average
unit costs
Minimum
cost

0 Rate of output
 Minimum cost & optimal operating rate are
functions of size of production unit.
Average cost per unit

Small
plant Medium
plant Large
plant

0
Output rate

5-19 02/09/17 20

Cost Volume Analysis:

Breakeven Analysis Break-Even Analysis
Technique for evaluating process & equipment ● Fixed costs:costs that continue even if no units are
produced: depreciation, taxes, debt, mortgage
alternatives payments
Objective: Find the point at which total cost ● Variable costs: costs that vary with the volume of
equals total revenue units produced: labor, materials, portion of utilities

Assumptions
• Revenue & costs are related linearly to volume
• All information is known with certainty
• No time value of money

22
 Assumptions of Cost-Volume
Analysis
Breakeven Chart
1. One product is involved
2. Everything produced can be sold
Total revenue line
Profit
3. Variable cost per unit is the same regardless of
Breakeven point
Total cost = Total revenue volume
Total cost line
4. Fixed costs do not change with volume
Variable cost 5. Revenue per unit constant with volume
Dollars
Cost in

6. Revenue per unit exceeds variable cost per unit

Loss Fixed cost

Volume (units/period)

5-24

Decision Theory
● Helpful tool for financial comparison of alternatives
under conditions of risk or uncertainty ER
.3
Small Box Office
200,000
690,000
● Suited to capacity decisions Sign with Movie Co. .6 Medium Box Office
1,000,000
ER .1
900,000 Large Box Office
300,000

Small Box Office

ER .3 900,000
900,000
Sign with TV Network .6 Medium Box Office
900,000
.1
Large Box Office
900,000

5-25
 Financial Analysis
● Cash Flow - the difference between cash received Net Present Value
from sales and other sources, and cash outflow for
labor, material, overhead, and taxes. F = future value
P = present value
● Present Value - the sum, in current value, of all F
future cash flows of an investment proposal. i = interest rate P
N = numberof years (i 1) N

5-27

PROCESS PLANNING
Waiting-Line Analysis
● Useful fordesigning or modifying service systems Design Machine
● Waiting-lines occur across a wide variety of service Tool
systems Process
● Waiting-lines are caused by bottlenecks in the Planning
process
● Helps managers plan capacity level that will be cost-
effective by balancing the cost of having customers
wait in line with the cost of additional capacity Scheduling and Production Control

5-29
 Welding/fabrication:
What methods were used? Additive techniques
● Machining methods
● Pressworking
● Welding/fabrication
● Casting
● Powder materials
● Layered deposition
Final Product
Weld Weld
● Others Initial
Add-on Add-on
Stock

Machining Methods: Casting:

Subtractive techniques Form Methods

Final Product
Initial Slotting Drilling
Stock
ENGINEERING DESIGN MODELING INTERACTION OF
2" +0.01
-0.01 0.001 A B

10" +0.01
-0.01
PLANNING FUNCTIONS
SETUP PLANNING
A

GEOMETRIC REASONING • feature relationship

• global & local geometry
4" +0.01
-0.01

7" +0.05
-0.05 • approach directions
1'-4" +0.01
-0.01
3" +0.01
-0.01 B 5" +0.01
-0.01
• process constraints
U*
PROCESS SELECTION • fixture constraints
• process capability
S.F. 64 u inch

FIXTURE PLANNING
• process cost
• fixture element function
Fa c e
• locating, supporting, and
CUTTER SELECTION clamping surfaces
• available tools • stability
Lo o p -*
• tool dimension and geometry
• geometric constraints
Ed g e CUTTER PATH GENERATION
MACHINE TOOL SELECTION • feature merging and split
Ve rt e x • machine availability, cost • path optimization
CSG MODEL • machine capability • obstacle and
B-REP MODEL interference avoidance