Chapter 5- Capacity Planning PDF

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HST 400- OPERATIONS MANAGEMENT CHAPTER 5- CAPACTIY PLANNING AND PROCESS ANALYSIS Pages 149-164

Capacity Planning and Analysis Involves:     

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Drawing a process flow diagram for the component, and for each part into the component Determining the quantity of goods parts required at each operation while adjusting for scrap loss in each of the following operations Calculating the required overall equipment effectiveness at each operation Estimating the demonstrated OEE at each operation Ensuring that the demonstrated OEE is large than the required OEE at each operation

The quantity of good parts needed has two values: average weekly production and maximum weekly production

Capacity, Measures, Efficiency, Utilization, and Effective Capacity Capacity- is the upper limit on the workload that an operating unit can old   

This could be a plant, department, machine or store ect Usually measure as maximum production rate or throughout Different time frame: long, mid or short term o Long: determining plant size or major machines and equipment o Medium: refers to the next 12 months, include nature and level of the workforce, which in turn determines the aggregate operations plan o Short: next few days or weeks including the nature and level of staffing

Strategic Capacity Planning- the systematic determination of facility and major machine/equipment requirements to meet long term demand for goods and services   

Organizations become involved in capacity planning for the following reasons: demand, changes in technology, changes in environment, and perceived threats or opportunities A gap between current and desired capacity will result in capacity that is out of balance Overcapacity causes operating costs that are too high, while under capacity causes strained resources and possible loss of customers

The Importance of Long-Term Capacity Fundamental of all design decisions that managers must make:       

Capacity has a real impact on the ability of the organization to meet future demand for products; capacity essentially limits the rate of output Capacity affects operating costs Capacity is usually a major determinant of initial capital cost Capacity involves long term commitment of resources and when they are committed, it may be difficult to modify w/o incurring cost Capacity can affect competitiveness Capacity affects ease of management Globalization

Measuring Capacity and Some Related Performance Measures   

When selecting a measure of capacity, it is better to choose one that does not require updating Where ONLY ONE product is involved, the capacity of the productive unit is expressed in terms of that item When multiple products are involved, using a simple measure of capacity based on units of output can be misleading

Throughput Capacity- Size/Average Cycle time (average time a product spend in the productive unit) Design Capacity- the max output rate under ideal conditions Effective Capacity- the max output rate that can be sustained given work breaks, scheduling difficulties and expected delays 

Less than design capacity owing to realities of changing product mix, periodic maintenance, breaks, problems in scheduling and others

Efficiency- the ratio of actual output rate to effective capacity Utilization of a unit of a resource during a period- measures how intensely the unit was used during the period Utilization of many units of a resource at a point in time- measures the percentage of units being used at a time

Factors Influencing Effective Capacity Facilities and Machines

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Layout of the work area often determines how smoothly work can be performed and environmental factors such as heating, cool

Product Mix 

When the items are similar, the ability of the system to price those items is much great

Workers 

Experience, variety

Planning & Operational Factors 

Scheduling problems may occur

Strategic Capacity Planning Process In Organizations Capacity decisions in organizations are usually part of the annual strategic planning process. They directly influence capital budgeting. The steps taken are as follows:   

Forecast demand for products one to five years, or more, ahead Calculate Capacity requirements to meet the forecasts Measure capacity now and decide if and how to bridge the gap in capacity in the future o Generate technically feasible alternatives o Evaluate each alternative economically o Method of evaluation o Consider non economic aspects too

Forecasting Long- Term Demand When trends are identified, the fundamental issues are (1) how long the trend might persist (2) the slope of the trend If a cycle is identified, interests focus (1) the approx. length of the cycle (2) the amplitude of the cycle

Major Considerations for Developing Capacity Alternatives 1. Design Flexibility Into the System  The long term nature of capacity decisions and the risks inherent in long term forecast suggest potential benefits from designing flexible systems

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2. Differentiate Between New and Mature Products  Mature products tend to be more predictable in terms of capacity requirements, and they may have predictable life spans  This means less risk of choosing an incorrect capacity and length of life for investment

3. Take a “Big Picture” Approach to Capacity Changes 4. Choose Capacity Timing and Increments  Leading and lagging strategy  Choosing whether capacity is to be installed before, during or after demand occurs  Most chose to have it just before demand because construction is timely  Deciding whether incremental small expansion or one big expansion 5. Prepare to deal with Capacity Chunks  Capacity increases are often acquired in fairly large chunks rather than smooth increments, making it difficult to achieve a match between desired capacity and actual capacity 6. Attempt to smooth out capacity requirements  Unevenness in capacity requirements can create certain problems 7. Use Capacity Cushion  = Capacity- average demand  The size of the capacity cushion again depends on the tradeoff between cost of capacity shortage and cost of capacity excess 8. Identify the Optimal Operating Level  The level of production that has the lowest average unit cost

Planning Service Capacity 

3 Important factors o The potential need to be near customers o The inability to store services o The degree of volatility of demand

Evaluating Alternatives Break Even Analysis   

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Focus on the relationship between costs, revenue and volume of output The purpose is to determine the quantity at which the initial investment starts to make a profit Use requires identification of all costs relation to the production of a given product

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These costs are then classified as fixed or variable costs...