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Capacity Manageme NT: Prepared by

This document discusses capacity management and its objectives of matching operations levels with demand levels to balance costs and service levels. It defines capacity as the output rate of a process and explains that capacity management deals with ensuring sufficient resources are available to meet production goals. The key benefits of capacity management include reduced risks and improved forecasting. Various strategies for managing capacity are outlined, such as changing employee hours, improving efficiency, and adjusting staffing levels. The document also covers topics like determining capacity requirements, developing capacity alternatives, and using waiting line analysis for service systems.

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Shawn Michael Doluntap
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26 views

Capacity Manageme NT: Prepared by

This document discusses capacity management and its objectives of matching operations levels with demand levels to balance costs and service levels. It defines capacity as the output rate of a process and explains that capacity management deals with ensuring sufficient resources are available to meet production goals. The key benefits of capacity management include reduced risks and improved forecasting. Various strategies for managing capacity are outlined, such as changing employee hours, improving efficiency, and adjusting staffing levels. The document also covers topics like determining capacity requirements, developing capacity alternatives, and using waiting line analysis for service systems.

Uploaded by

Shawn Michael Doluntap
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CAPACITY

MANAGEME
NT
Prepared by:

Remy B. Dimaano
Andrea D. Jaramiel

Capacity
- rate of output achieved from a process
- the capability of a manufacturing or service resource
such as a facility, process, workstation, or piece of
equipment to accomplish its purpose over a specified time
period
- measuring capacity
Number of hours that facilities are productively
employed
Percentage of available space
Productive employees

Capacity Management
- deals with the capacity of an organization's processes
- planning and controlling resources needed to meet
production objectives
Planning: determining resources needed to meet the
priority plan; selecting methods to make that capacity
available
Controlling: monitoring output, comparing it with the
plan and taking corrective action

- Objective: ..match the level of operations with the


level of demand, so as to find the best balance between
cost and service levels.

Factors that affect how much capacity is required


Fluctuations in demand over a short period of time
Variation in time taken for each transaction or service
encounter
The random arrival of customers or group of customer

Benefits of Capacity Management

Elimination of panic buying


Possibility for deferred expenditure
Reduced risk of performance Problems and failures
More confident and improved forecasting
Improved awareness of capacity issues within the
development cycle
Elimination of unnecessary spare capacity

Strategies for managing Capacity


Change the number of employees and the hours they
work
Transfer resources from one operation to another
Improve the efficiency of the work group
Use subcontractors, rent or share facilities
Change the lay out of the operation to increase
productivity
Increase or improve the use of the in the service delivery
process
Manage and influence the demand for the service

Matching Capacity and Demand


Demand Management
vary prices
change lead times
encourage/discourage business

Capacity Management

adjust staffing
adjust equipment and processes
change methods to facilitate production
redesign the product to facilitate production

4 Possible Conditions of Demand


Excess demand
Demand exceeds the optimum capacity level
Demand and supply are well-balanced at the optimum
level of capacity
Excess capacity

Defining and Measuring Capacity


Design capacity
maximum output rate or service capacity an operation,
process, or facility is designed for
Effective capacity
Design capacity minus allowances such as personal time,
maintenance, and scrap
Actual output
rate of output actually achieved-cannot
exceed effective capacity.

Actual output
Efficiency = _______________
Effective capacity
Actual output
Utilization = _______________
Design capacity
Both measures expressed as percentages

Example:
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day

Determinants of Effective Capacity

Facilities
Product and service factors
Process factors
Human factors
Policy factors
Operational factors
Supply chain factors
External factors

Forecasting Capacity Requirements


Long-term vs. short-term capacity needs
Long-term relates to overall level of capacity such as
facility size, trends, and cycles
Short-term relates to variations from seasonal, random,
and irregular fluctuations in demand

Calculating Process Requirements


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If annual capacity is 2000 hours, then we need three machines to handle


the required volume: 5,800 hours/2,000 hours = 2.90 machines

Planning Service Capacity


Need to be near customers
Capacity and location are closely tied

Inability to store services


Capacity must be matched with timing of demand

Degree of volatility of demand


Peak demand periods

In-House or Outsourcing
Outsource: obtain a good or service from an external
provider
Available capacity
Expertise
Quality considerations
Nature of demand
Cost
Risk

Developing Capacity Alternatives


Design flexibility into systems
Take stage of life cycle into account

Take a big picture approach to capacity changes


Identify the optimal operating level

.Evaluating Alternatives

Cost-volume analysis (Break-even point)


Financial analysis (Cash flow)
Decision theory
Waiting-line analysis

Bottleneck Operation
Bottleneck operation: An operation in a sequence of operations
whose capacity is lower than that of the
other operations
10/hr

Machine
Machine #1
#1

Machine
Machine #2
#2

10/hr

Machine
Machine #3
#3

Bottleneck
Bottleneck
Operation
Operation
10/hr

Machine
Machine #4
#4

10/hr

30/hr

Bottleneck

Operation 1
20/hr.

Operation 2
10/hr.

Operation 3
15/hr.

Maximum output rate


limited by bottleneck

10/hr.

Economies of scale
If the output rate is less than the optimal level,
increasing output rate results in decreasing average
unit costs

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

Financial Analysis
Cash Flow - the difference between cash received from
sales and other sources, and cash outflow for labor,
material, overhead, and taxes.
Present Value - the sum, in current value, of all future
cash flows of an investment proposal.

Waiting-Line Analysis
Useful for designing or modifying service systems
Waiting-lines occur across a wide variety of service
systems
Waiting-lines are caused by bottlenecks in the process
Helps managers plan capacity level that will be costeffective by balancing the cost of having customers wait
in line with the cost of additional capacity

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