Post on 31-Mar-2015
Capacity Capacity PlanningPlanning
CapacityCapacity CapacityCapacity (A): (A): is the upper limit on the load that is the upper limit on the load that
an operating unit can handle.an operating unit can handle. CapacityCapacity (B): (B): the upper limit of the quantity of a the upper limit of the quantity of a
product (or product group) that an operating unit product (or product group) that an operating unit can produce can produce (= the maximum level of output)(= the maximum level of output)
CapacityCapacity (C): t (C): the amount of resource inputs he amount of resource inputs available relative to output requirements at a available relative to output requirements at a particular timeparticular time
The basic questions in capacity handling are:The basic questions in capacity handling are: What kind of capacity is needed?What kind of capacity is needed? How much is needed?How much is needed? When is it needed?When is it needed? How does productivity relate to capacity?How does productivity relate to capacity?
1.1. Impacts ability to meet future Impacts ability to meet future demandsdemands
2.2. Affects operating costsAffects operating costs3.3. Major determinant of initial costsMajor determinant of initial costs4.4. Involves long-term commitmentInvolves long-term commitment5.5. Affects competitivenessAffects competitiveness6.6. Affects ease of managementAffects ease of management7.7. Impacts long range planningImpacts long range planning
Importance of Capacity Importance of Capacity DecisionsDecisions
Examples of Capacity Examples of Capacity MeasuresMeasures
Type of Measures of CapacityOrganization Inputs Outputs
Manufacturer Machine hoursper shift
Number of unitsper shift
Hospital Number of beds Number ofpatients treated
Airline Number of planesor seats
Number ofseat-miles flown
Restaurant Number of seats Customers/timeRetailer Area of store Sales dollarsTheater Number of seats Customers/time
CapacityCapacity DesignDesigneded capacity capacity
maximum output rate or service capacity maximum output rate or service capacity an operation, process, or facility is an operation, process, or facility is designed fordesigned for
= = maximum obtainable outputmaximum obtainable output = best operating level= best operating level
Effective capacityEffective capacity Design capacity minus allowances such as Design capacity minus allowances such as
personal time, maintenance, and scrappersonal time, maintenance, and scrap Actual outputActual output = Capacity used = Capacity used
rate of output actually achievedrate of output actually achieved. It . It cannot cannot exceed effective capacity.exceed effective capacity.
Capacity Capacity Efficiency and Efficiency and Capacity Capacity UtilizationUtilization
Actual outputEfficiency =
Effective capacity
Actual outputUtilization =
Design capacity
Actual output Actual output 6 6 tons/week
EfficiencyEfficiency = = == = = 7575%%
Effective capacity Effective capacity 8 8 tons/week
Actual outputActual output 6 6 tons/week UtilizationUtilization = = ==
= = 6060%% Design capacity Design capacity 10 10 tons/week
Numeric Numeric ExampleExample
Design capacity = 10 tons/week
Effective capacity = 8 tons/week
Actual output = 6 tons/week
Determinants of Determinants of Effective CapacityEffective Capacity
FacilitiesFacilities Product and service factorsProduct and service factors Process factorsProcess factors Human factorsHuman factors Operational factorsOperational factors Supply chain factorsSupply chain factors External factorsExternal factors
Key Decisions of Key Decisions of Capacity PlanningCapacity Planning
1.1. Amount of capacity neededAmount of capacity needed
2.2. Timing of changesTiming of changes
3.3. Need to maintain balanceNeed to maintain balance
4.4. Extent of flexibility of facilitiesExtent of flexibility of facilities
Capacity CushionCapacity Cushion level of capacity in excess of the average
utilization rate or level of capacity in excess of the expected demand.
extra demand intended to offset uncertainty Cushion = (designed capacity / capacity used) -
1 High cushion is needed:
service industries service industries high level of uncertainty in demand (in terms of both volume and high level of uncertainty in demand (in terms of both volume and
product-mix)product-mix) to permit allowances for vacations,to permit allowances for vacations, holidays, supply of materials holidays, supply of materials
delays, equipment breakdowns, etc.delays, equipment breakdowns, etc. if subcontracting, overtime, or the cost of missed demand is very if subcontracting, overtime, or the cost of missed demand is very
highhigh
Steps for Capacity Steps for Capacity PlanningPlanning
1.1. Estimate future capacity Estimate future capacity requirementsrequirements
2.2. Evaluate existing capacityEvaluate existing capacity
3.3. Identify alternativesIdentify alternatives
4.4. Conduct financial analysisConduct financial analysis
5.5. Assess key qualitative issuesAssess key qualitative issues
6.6. Select one alternativeSelect one alternative
7.7. Implement alternative chosenImplement alternative chosen
8.8. Monitor resultsMonitor results (feedback) (feedback)
Sources of UncertaintySources of Uncertainty
ManufacturingManufacturing Customer deliveryCustomer delivery Supplier performanceSupplier performance Changes in demandChanges in demand
The „The „Make or BuyMake or Buy” ” problemproblem
1.1. Available capacityAvailable capacity
2.2. ExpertiseExpertise
3.3. Quality considerationsQuality considerations
4.4. Nature of demandNature of demand
5.5. CostCost
6.6. RiskRisk
Developing Capacity Developing Capacity AlternativesAlternatives
1.1. Design flexibility into systemsDesign flexibility into systems
2.2. Take stage of life cycle into accountTake stage of life cycle into account ((complementary productcomplementary product))
3.3. Take a “big picture” approach to Take a “big picture” approach to capacity changescapacity changes
4.4. Prepare to deal with capacity “chunks”Prepare to deal with capacity “chunks”
5.5. Attempt to smooth out capacity Attempt to smooth out capacity requirementsrequirements
6.6. Identify the optimal operating levelIdentify the optimal operating level
Economies of ScaleEconomies of Scale Economies of scaleEconomies of scale
If the output rate is less than the If the output rate is less than the optimal level, increasing output rate optimal level, increasing output rate results in decreasing average unit costsresults in decreasing average unit costs
Diseconomies of scaleDiseconomies of scale If the output rate is more than the If the output rate is more than the
optimal level, increasing the output rate optimal level, increasing the output rate results in increasing average unit costsresults in increasing average unit costs
Evaluating AlternativesEvaluating AlternativesProduction units have an optimal rate of output for minimal cost.
Minimum cost
Av
era
ge
co
st
per
un
it
0 Rate of output
Minimum average cost per unit
Evaluating AlternativesEvaluating Alternatives II.II.
Minimum cost & optimal operating rate are functions of size of production unit.
Av
era
ge
co
st
per
un
it
0
Smallplant Medium
plant Largeplant
Output rate
Need to be near customersNeed to be near customers Capacity and location are closely tiedCapacity and location are closely tied
Inability to store servicesInability to store services Capacity must be matched with timing Capacity must be matched with timing
of demand of demand Degree of volatility of demandDegree of volatility of demand
Peak demand periods Peak demand periods
Planning Service Planning Service CapacityCapacity
Some examples Some examples ofof
demand / demand / capacitycapacity
Adapting capacity to Adapting capacity to demand through changes in demand through changes in
workforceworkforceDEMAND
PRODUCTION RATE (CAPACITY)
Adaptation with Adaptation with inventoryinventory
DEMAND
CAPACITY
Inventory accumulation
Inventory reduction
Adaptation with Adaptation with subcontractingsubcontracting
DEMAND
PRODUCTION (CAPACITY)
SUBCONTRACTING
Adaptation with Adaptation with complementary productcomplementary product
DEMAND
PRODUCTION (CAPACITY)
DEMANDPRODUCTION (CAPACITY)
Seminar exercisesSeminar exercisesHomogeneous Machine
Designed capacity in calendar Designed capacity in calendar timetime
CCDD= N ∙ s= N ∙ snn ∙ s ∙ shh ∙ m ∙ mnn ∙ 60 ∙ 60 (mins / planning (mins / planning periodperiod) )
CCDD= designed capacity (mins / planning period)= designed capacity (mins / planning period) NN = number of = number of calendarcalendar days days in the planning period in the planning period
(≈(≈ 250 250 wwdaysdays//yr)yr) ssnn= = maximum maximum number of shiftsnumber of shifts in a day in a day (= 3 if dayshift (= 3 if dayshift
+ swing shift + nightshift)+ swing shift + nightshift) sshh= number of hours in a shift = number of hours in a shift (in a 3 shifts system, it (in a 3 shifts system, it
is 8)is 8) mmnn= number of homogenous machine groups= number of homogenous machine groups
Designed capacity in working Designed capacity in working minutes minutes
(machine minutes)(machine minutes),, with given with given work schedulework schedule
CCDD= N ∙ s= N ∙ snn ∙ s ∙ shh ∙ m ∙ mnn ∙ 60 ∙ 60 (mins / planning (mins / planning periodperiod) )
CCDD= designed capacity (mins / planning period)= designed capacity (mins / planning period) NN = number of = number of working daysworking days in the planning period in the planning period
(≈ 250 wdays/yr)(≈ 250 wdays/yr) ssnn= = number of shiftsnumber of shifts in a day (= 3 if dayshift + swing in a day (= 3 if dayshift + swing
shift + nightshift)shift + nightshift) sshh= number of hours in a shift (in a 3 shifts system, it = number of hours in a shift (in a 3 shifts system, it
is 8)is 8) mmnn= number of homogenous machine groups = number of homogenous machine groups
Effective capacityEffective capacity in working in working minutesminutes
CCEE = = CCDD - t- tallowancesallowances (mins / planning (mins / planning period) period)
CCDD= designed capacity= designed capacity
ttallowancesallowances = allowances such as personal = allowances such as personal time, maintenance, and scrap (mins / time, maintenance, and scrap (mins / planning period)planning period)
The resources we can count The resources we can count with in product mix with in product mix
decisionsdecisionsb = b = ∙ ∙ CCEE
bb = expected capacity = expected capacityCCEE = effective capacity= effective capacity
= performance= performance percentagepercentage
Produktumok
Erőforrások
T1 Ti Tn Erőforrások nagysága
(kapacitás) óra/időszak
E1 a11 a1i a1n b1 E2 a21 a2i a2n b2 Ei a i1 a i i a i n b i Em am1 am i amn bm erőforrás felhasználási
koeficiensek
Product types
Resources
Expected Capacities
Resource utilization coefficients
ExerciseExercise 1.1 1.1Set up the product-resource matrix using the following data!Set up the product-resource matrix using the following data!
RU coefficients: aRU coefficients: a1111: 10, a: 10, a2222: 20, a: 20, a2323: 30, a3: 30, a344: 10: 10 The planning period is 4 weeks (there are no holidays in it, The planning period is 4 weeks (there are no holidays in it, and no work on weekends) and no work on weekends) Work schedule: Work schedule:
EE11 and E and E22: 2 shifts, each is 8 hour long: 2 shifts, each is 8 hour long EE33: 3 shifts: 3 shifts
Homogenous machines: Homogenous machines: 1 for E1 for E11 2 for E2 for E22 1 for E1 for E33
Maintenance time: only for EMaintenance time: only for E33: 5 hrs/week: 5 hrs/weekPerformance rate: Performance rate:
90% for E90% for E11 and E and E33 80% for E80% for E22
Solution (bSolution (bii) )
EEii = = N ∙ sN ∙ snn ∙ s ∙ shh ∙ m ∙ mnn ∙ 60 ∙ 60 ∙ ∙ N=(number of weeks) N=(number of weeks) ∙ ∙ (working days per week)(working days per week)
EE11 = 4 = 4 weeksweeks ∙ ∙ 5 5 working daysworking days ∙ ∙ 2 2 shiftsshifts ∙ ∙ 8 8 hours per shifthours per shift ∙ ∙ 60 60 minutes per hourminutes per hour ∙ ∙ 1 1 homogenous machinehomogenous machine ∙ ∙ 0,9 0,9 performance performance = = = 4 = 4 ∙ ∙ 5 5 ∙ ∙ 2 2 ∙ ∙ 8 8 ∙ ∙ 60 60 ∙ ∙ 1 1 ∙ ∙ 0,9 = 17 280 0,9 = 17 280 minutes per minutes per planning periodplanning period
EE22 = 4 = 4 ∙ ∙ 5 5 ∙ ∙ 2 2 ∙ ∙ 8 8 ∙ ∙ 60 60 ∙ ∙ 2 2 ∙ ∙ 0,8 = 38 720 0,8 = 38 720 minsmins
EE33 = (4 = (4 ∙ ∙ 5 5 ∙ ∙ 3 3 ∙ ∙ 8 8 ∙ ∙ 60 60 ∙ ∙ 1 1 ∙ ∙ 0,9) – (5 0,9) – (5 hrs per weekhrs per week maintenancemaintenance ∙ ∙ 60 60 minutes per hourminutes per hour ∙ ∙ 4 4 weeksweeks) = 25 920 – ) = 25 920 – 1200 = 24 720 1200 = 24 720 minsmins
SolutionSolution (RP matrix) (RP matrix)
TT11 TT22 TT33 TT44 b (b (mins/ymins/y))
EE11 1010 17 28017 280
EE22 2020 3030 30 72030 720
EE33 1010 24 72024 720
ExerciseExercise 1.2 1.2 Complete the corporate system matrix with the Complete the corporate system matrix with the
following marketing data:following marketing data: There are long term contract to produce at least:There are long term contract to produce at least:
50 T150 T1 100 T2100 T2 120 T3120 T3 50 T450 T4
ForForeecasts says the upper limit of the market is:casts says the upper limit of the market is: 10 000 units for T110 000 units for T1 1 500 for T21 500 for T2 1 000 for T31 000 for T3 3 000 for T43 000 for T4
Unit prices: T1=100, T2=200, T3=3Unit prices: T1=100, T2=200, T3=3330, T4=1000, T4=100 Variable costs: E1=5/min, E2=8/min, E3=11/minVariable costs: E1=5/min, E2=8/min, E3=11/min
SolutionSolution (CS matrix) (CS matrix)
TT11 TT22 TT33 TT44 b (mins/y)b (mins/y)
EE11 1010 17 28017 280
EE22 2020 3030 30 72030 720
EE33 1010 24 72024 720
MIN (MIN (pcs/ypcs/y)) 5050 100100 120120 5050
MAX (pcs/y)MAX (pcs/y)
10 10 000000 1 5001 500 1 0001 000 3 0003 000
pp 100100 200200 330330 100100
ff 5050 4040 9090 -10-10
What is the optimal product What is the optimal product mix to maximize revenues?mix to maximize revenues?
TT11= = 17 280 / 10 = 1728 < 10 00017 280 / 10 = 1728 < 10 000
TT22: 200/20=10: 200/20=10
TT33: 330/30=11: 330/30=11
TT44=24 720/10=2472<3000=24 720/10=2472<3000
TT22= 100= 100 TT33= = (30 720-100∙20-120∙30)/30= 837<MAX(30 720-100∙20-120∙30)/30= 837<MAX
What if we want to What if we want to maximize profit?maximize profit?
The only difference is in TThe only difference is in T44 because because of its negative contribution margin.of its negative contribution margin.
TT44=50=50
ExerciseExercise 2 2
TT11 TT22 TT33 TT44 TT55 TT66 b (hrs/y)b (hrs/y)
EE11 66 2 0002 000
EE22 33 22 3 0003 000
EE33 44 1 0001 000
EE44 66 33 6 0006 000
EE55 11 44 5 0005 000
MIN (pcs/y)MIN (pcs/y) 00 200200 100100 250250 400400 100100
MAX (pcs/y)MAX (pcs/y) 2000020000 500500 400400 10001000 20002000 200200
p (HUF/pcs)p (HUF/pcs) 200200 100100 400400 100100 5050 100100
f (HUF/pcs) f (HUF/pcs) 5050 8080 4040 3030 2020 -10-10
SolutionSolution
Revenue max.Revenue max. TT11=333=333
TT22=500=500
TT33=400=400
TT44=250=250
TT55=900=900
TT66=200=200
Contribution max.Contribution max. TT11=333=333
TT22=500=500
TT33=400=400
TT44=250=250
TT55=966=966
TT66=100=100