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Capacity Planning

The document discusses key concepts in capacity planning including: 1. Capacity refers to the maximum load an operating unit can handle, while effective capacity is design capacity minus allowances like downtime. 2. Measures of capacity can be input-based, counting resources, or output-based, counting finished units. Efficiency and utilization metrics compare actual output to effective and design capacities. 3. Capacity planning establishes a firm's resource levels and involves determining needed capacity types and amounts to match demand, as well as timing of expansions using strategies like capacity lead, lag, or averaging.

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Ruth Ann Dimalaluan
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122 views

Capacity Planning

The document discusses key concepts in capacity planning including: 1. Capacity refers to the maximum load an operating unit can handle, while effective capacity is design capacity minus allowances like downtime. 2. Measures of capacity can be input-based, counting resources, or output-based, counting finished units. Efficiency and utilization metrics compare actual output to effective and design capacities. 3. Capacity planning establishes a firm's resource levels and involves determining needed capacity types and amounts to match demand, as well as timing of expansions using strategies like capacity lead, lag, or averaging.

Uploaded by

Ruth Ann Dimalaluan
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 PLANNING

CAPACITY
-refers to an upper limit or ceiling on the load that an
operating unit can handle.

DESIGN CAPACITY
-maximum designed service capacity or output rate.

EFFECTIVE CAPACITY
-design capacity minus allowances such as personal time,
and maintenance.
INPUT MEASURES OF CAPACITY

The measure selected is defined by the key input into the


process. Where the provision of capacity is fixed, it is often
easier to measure capacity by inputs.
OUTPUT MEASURES OF CAPACITY

The output measures count the finished units from the


process. This measure is best used where there is low
variety in the product mix or limited customization.
MEASURES OF CAPACITY
MEASURES OF SYSTEM
EFFECTIVENESS
Efficiency = Actual output
Effective capacity X 100%

Utilization = Actual output


Design capacity X 100%

Actual output -the rate of output actually achieved. It


cannot exceed effective capacity
EXAMPLE: EFFICIENCY AND UTILIZATION
OF THE VEHICLE REPAIR DEPARTMENT

Design capacity = 50 trucks per day


Effective capacity = 40 trucks per day
Actual output = 36 trucks per day
WHAT IS CAPACITY PLANNING?

• Establishes the overall level of productive resources for a


firm.
• Long term capacity planning is a strategic decision that
establishes a firm’s overall level of resources.
• Capacitydecisions affect product lead times, customer
responsiveness, operating costs and a firm’s ability to
compete.
THE KEY QUESTIONS IN CAPACITY
PLANNING:

1. What kind of capacity is needed?


2. How much is needed to match demand?
3. When is it needed?
THREE BASIC STRATEGIES USED FOR
THE TIMING OF CAPACITY EXPANSION
IN RELATION TO A STEADY GROWTH IN
DEMAND

1. Capacity Lead Strategy


2. Average Capacity Strategy
3. Capacity Lag Strategy
CAPACITY LEAD STRATEGY

Capacity is expanded in
anticipation of demand growth.
This aggressive strategy is used
to lure customers from
competitors who are capacity
constrained or to gain a foothold
in a rapidly expanding market.
CAPACITY LAG STRATEGY
Capacity is increased after an
increase in demand has been
documented. This conservative
strategy produces a higher
return on investment but may
lose customers in the process.
AVERAGE CAPACITY STRATEGY
Capacity is expanded to coincide
with average expected demand.
This is a moderate strategy in
which managers are certain they
will be able to sell at least some
portion of expanded output and
endure some periods of unmet
demand.
WHAT IS BEST OPERATING LEVEL?

• It is the percent of capacity utilization that minimizes


average unit costs.
• Rarely it is the best operating level at 100% of capacity
at higher levels of utilization, productivity slows and
things start to go wrong.
WHAT IS CAPACITY CUSHION?

Extra capacity used to offset demand uncertainty.

Capacity cushion = capacity – expected demand


STEPS IN THE CAPACITY PLANNING PROCESS

1. Estimate future capacity requirements.


2. Evaluate existing capacity and facilities and identify gaps.
3. Identify alternatives for meeting requirements.
4. Conduct financial analyses of each alternative.
5. Assess key qualitative issues for each alternative.
6. Select the alternative to pursue that will be best in
the long term.
7. Implement the selected alternative.
8. Monitor results.
ECONOMIES AND DISECONOMIES OF
SCALE

• Economies of scale occurs when it costs less per unit to


produce high levels of output.
• Diseconomies of scale occur when higher levels of
output cost more per unit to produce.
BEST OPERATING LEVEL OF A
HOTEL

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