© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S 7-1 Operations Management Capacity...
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© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S7-1 Operations Management Capacity Planning Supplement 7
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Transcript of © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458 S 7-1 Operations Management Capacity...
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-1
Operations Management
Capacity PlanningSupplement 7
Operations ManagementOperations ManagementSupplement 7 Capacity Planning
PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 7eOperations Management, 9e
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-3
Capacity – Definition
The “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time.
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-4
Design and Effective Capacity
Designcapacity:
The theoretical maximum output of a system in a given period.
Utilization: Actual output / Design capacity.
Effective capacity:
Capacity a firm can expect to achieve given its product mix, methods of scheduling, maintenance, and standards of quality.
Efficiency: Actual output / Effective capacity.
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-5
Requirements for
Good Capacity Decisions
¨ Forecast demand accurately¨ Understanding the technology and
capacity increments¨ Finding the optimal operating level (volume)¨ Build for change – flexibility
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-6
Cost Structure for a Hospital
250 bed hospital 500 bed
hospital
750 bed hospital
Economies of Scale
Diseconomies of Scale
Aver
age
Uni
t Cos
t(d
olla
rs p
er p
atie
nt)
250 500 750
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-7
Types of Planning Over a Time Horizon
Add FacilitiesAdd long lead time equipment
Schedule Jobs Schedule Personnel Allocate Machinery
Sub-ContractAdd EquipmentAdd Shifts
Add PersonnelBuild or Use Inventory
Long Range Planning
Intermediate Range Planning
Short Range Planning
Modify Capacity Use Capacity
*
*
* Limited options exist
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-8
¨ Vary staffing¨ Subcontracting/
joint ventures¨ Change equipment
& processes¨ Change methods¨ Redesign the product
for faster processing
Capacity Management¨ Vary prices¨ Vary promotion¨ Change lead times
(e.g., backorders)¨ Offer complementary
products
Demand Management
Managing Capacity and Demand
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-9
Complementary Products
Time (Months)
Sales (Units)
Jet Skis
Snow-mobiles
Total
0
1,000
2,000
3,000
4,000
5,000
J M M J S N J M M J S N J
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-10
Approaches to Capacity Expansion
Expected Demand Expected Demand
Expected Demand Expected Demand
Time in Years Time in Years
Time in YearsTime in Years
Dem
and
Dem
and
Dem
and
Dem
and
New Capacity
New CapacityNew Capacity
New Capacity
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-11
Linking Capacity and Other Decisions
Dem
and
Expected Demand
Time in Years
New Capacity
¨ Competitive Priorities¨ Quality Management¨ Capital Intensity¨ Resource Flexibility¨ Inventory¨ Scheduling
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-12
Breakeven Analysis (Revenue vs. Cost)
A means of finding the point, in dollars and units, at which costs equal revenues
Fixed cost
Variable cost
Total cost lineTotal re
venue line
Profit
Volume (units/period)
Cos
t in
Dol
lars
Loss
Breakeven pointTotal cost = Total revenueBEP = F P – V
X
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-13
Breakeven Analysis (Crossover Chart)
A means of finding the point, in dollars and units, at which one alternative equals the other
Fixed cost (A)
Variable cost (A) B wins
Cos
t in
Dol
lars
A winsFixed cost (B)
Variable cost (B)
Volume (units/period)
Breakeven pointTotal cost (A) = Total cost (B)
BEP = D Fixed cost
D Variable costX
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-14
Crossover Chart
Fixed cost - Process A
Fixed cost - Process B
Fixed cost - Process C
Total cost - Process CTotal cost - Process B
Total
cost
- Pro
cess
A
Process A: low volume, high varietyProcess B: Repetitive
Process C: High volume, low variety
Process CProcess BProcess A Lowest cost process
Breakeven Worksheet
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-15
Decision Tree and Capacity Decision
–$90,000
$60,000
–$10,000
–$5,000
Market favorable (0.4)
Market unfavorable (0.6)
Market favorable (0.4)
Market unfavorable (0.6)
Market favorable (0.4)
Market unfavorable (0.6)
$100,000
$40,000
$0
–$14,000
$18,000
$13,000
Large Plant
Medium PlantSmall PlantDo nothing
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458S7-16
Conclusions
¨ Capacity planning is crucial to an organization. The desirable amount of capacity utilization varies
¨ Capacity can be stated in terms of:¨ Output – useful for standardized products or services¨ Input – useful for customized products or services
¨ There are both economies of scale and diseconomies of scale
¨ Capacity at the bottleneck limits the capacity of the entire system. Bottlenecks may “float”
