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CAPAC ITY

the process options, a number of USSlJlCS remain. n the rest of t:ltuiiSwith three issues that are important Uor good process decisions. Thesee capacity, beeak-even analysis, and the investtlili\nil itself.

:

, ... ..-J.:... .4 . , .:..... ; , ,.: ;,TE HNIQUE

the offeringsservice so customers f f i t ~ l i t go wherevice isoffereJ

Ir-servicc so custer..ees examineand evaluate at thellr own paceservices that ;nay lend tlaemselvcs 0type of automatio.i

at delivery

; ) . . i i m r u i l o e ( \ ~ m . e [ : u . r l e S ~ a l l \ l U a i l i l J t ~ a l l i 1 l k . s wher.e customers g D to a.service

l i ~ l P l \ i e s e 4 i l . t a t i i v e toople.m. a mew account, to loanoilfluecltist0rloans, or tGHle11llers Jor deposits andw i t d l h ~ l ~ i a \ w a l s

SUlpef>lnankcts and.dcparnnent storesAI,u](])IiliJ.,wic teller machinesClJIS li@(IT l,iiZe vans at Jeti,ver:y rather than at[illi@

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CHAPTEr, 7 PROCESS STRATEGY AND CAPACITY PLANNING

manu{actmmg s.

c p citv

ili:iJilL . ilizati expected capacityiWIIlKtcttl\Ve ~ I C [ t y o r uti u tlon == .. capacity

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9i

Rated. capacity

Rated capacity = ( c a p c 1 d t ) i ~ l I I t Q W J W ; j l l t i o n ) ( e f f i c i e n c y ) We determine rated capacity in t h e f @ i l r u ( i ) ' \ W I ~ ' example.

Sara James Bakery has a plant fOF v ~ o c e s s j i l m J g lblFealcfast: r o ~ k The , < B K ' : ~ t i t y has,:llI1il90%, and the utilization 80'%1,. 1il1hwee PfOCes5 tmes ~ e to P(io,..the rolls. The lines operate 7 dlays a WJiiIt three ~ : ~ s l f u i i l f i t s , per thy:Gl?signed to process 120 standaJrd (tll.hl:B.11l iiS" p b . i l l E ) . ' ) I I l ~ l l $ ~ 1 I . i Il\lItw.iI1. WhatIn order to compute the ratedcoapadty, multiply ItJhc:@JW>ilJli: Qt'Y 6 w ~ ~ j K : h to the number of lines times t ~ numheJlf ,Glf: hours t ~ s , dlm ; l j \ j l I l P 1 l l l I b ~ 1 r ~ f i ~ 1 s

t i ~ thie utilization times, eilfk,uelFtiC. Each ,fi:m1il(ilhy is ,Ul8eqb 7 ~ \ Y I s \ l , t i lization1(eififfuci\lllllCi)'i),= R ~ I D 2 \ r ) i ~ 3 \ ) I ~ ~ ' 6 8 ) (.8)( .9) = 411l,5i'dJ@,u(:l[I5' w,eei.k' , ~ w ~ 1 l 1 ~ i i l i r l J J i l l D . r e n t s

i.. ....; . . ~ L . _ .-.,,_O. '_" ' ~ ~ ~ - . ".'

~ _ - ~ ~ ~ i l i l i i . ' ~ ~ ~ ~ l i ~ r f ~ i r e m e n l : f can fue :iI c()mplicated p f @ ~ e d L U l i l i e . , {)1I ilIe ~ ~ 0 G i large ~ t t @II il ~ f i , ~ / I l . ~ ,ie.land. When dema:rrnGl ,{f@ F goods and services C211Fl be forewith ~ ~ degree of precision, ~ a l D i n i n g capacity ~ 1 1 J J i l r - m e n t s can

s t r ~ i g h t ( m ~ . m l Ill,iiI mally requires two pEmalSiel). During the first ~ I l b : l l $ l , future det.ri. traditional methods siIllcllt as regression ~ m a \ ~ W J $ I i I S .. During thephase,lhi 3 1 S t is used to e t e ~ : ; ~ d t y requirements,

Once the ~ p a c i t y has been f o m - ~ ' < l l I S I t < O O ' l I , managers must dlocliidlle the size ofaddition to i t y . The s s u m p t ~ fulllie lIhat management kliill@ W$ the tech-the l ) f J e : ~ f a c i l i t i e s to be e m p t b r e ' c l i l ( ' S ~ J l 1 W Y these future dkemm mds.Figure 7.Z-shQ\ll'$ two ways .new i \ l t ~ earm, : be l P ~ a n n e d for r o w ~ h @(. future de

In Figure 7.2(a), new capacity ll$ ' ~ ' q \ i 1 i i l J . i e d l : l 1 t : ''''e beginning of y'1dlJli T h ~ $ cawill be sufficient to handle i n c ~ ~ I ~ l t l m . l ( l l l i l c l \ ~ I : i l the beginning @i" ~ I ' C R I F 2. At

beginning of year 1. new capacire lis . ~ i J i \ l : i l ~ l l l ~ i i t r r < t d . which will allow ~ l l h l @ I I . I ~ a l . l i l J i to meet demand until the b e g i M ~ ( 'fff v ~ a f t 1 J . This process can be (i:I@Illl.\l :iilt\lltlllecj}into the f u ~

An alternative i$ ~ n t e in ~ l.2':(0'lbi)i. iIlm., '''-l figure, a l a ~ e increase in cais acquired at .. ~ g i n n i n g of ~ 3 t \\WIlb.lil0fu: \ I I i . ~ 1 satisfy fU'lture demand untilbeginrung ofyeal" J. . . . , .Figure l.11a' \ i : ; } , ~ 7< .. reveal omdr ,ttw flilili3.ilil\y iwossible ah:ematives. In sr me

d e t ' _ ~ ~ l ~ ; ~ t 1 l i Q : l i l t t W ' f ~ i ~ . ~ M l ll1.'l1(j{1 d l . 1 e ' 1 i ~ ~ l f f i i g ilbetween afl::ematives can be e ; c l . \ \ ; i 7 . ~ ~ ~ i J n ~ i t f s ; ' ~ r o l 1 i 1 l l i l . l i i m ~ ittl]hte 1r0itt: liU C'(slt (if e:aleilh ( i l J f < \ t e m < a l t ~ v e andSietlectt the

i W r . # : i i l r l L ~ 1 1 t O . h t e ' I J / . ~ ~ ' t t itl@ f

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.... ----- -...... .-. . = ~ ~ ~ .C ~ . = : C - - , - . c_,-",_:c:c:c",-,, .w ., . ~ ~ : - : , c - ~ _ ~ c ~ _ c : . ' ' ' - ' ' : : ' ' = ' : > - ' ' 0 ' ; ; ~ Z ; ' ' ' ' ' ' ' ' : : : _ ~ : O ~ ' ' ' 7 ' : ' - : ' ' - ~ _ ~ ' ' ' ' ' - ' O : , o - ; ' ' ' ; ' ' ' ' L ..c"c,,;,::,:-0"",-,,,,,,; ~ ~ W f i ? W , -r *+it t,f N .....Iro '*M 'b ti ' ...... , - . .. . .. .-

( : ) O l l l i l i 1 P ~ I W i I M : ) I 1 l S ' , . lbwlillkHlilmJg ' \ i ~ i l : r i c t i o n s , fUH.lIi ' O 5 ~ GfCaJI1lfititjl!\

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states of nature, ir ts. f O J i l ~ l 9 i 1 l e , n @ . ~ ~ 1 k ; i . i O n s that maximize he expectedof the alternatives. Examp4Je 2 Sl]ru0WShtOW IiO apply decision trees to a c a t J O C i ~ y

EX MPLESouthern Hospital Supplies, a c { } l l ) J i 1 @ ~ l 1 h \ a 1 t lillla1kes hospital gqwns is COtID.5lidlelUiJmgcapacity expansion. Its major ah:ffi:iliU;iivtes ase dlo nothing, build a S i l i J j 1 I ~ 'Wil\aili1.lt,build a medium plant. or build a l < l 1 l I ; g ~ I jpi_l i . 1Ii" \fu ,J ilIW facility would ptfodtl llCe a mewtype of gown, and currently the p t 1 e i l i J j t i . i i a l ~ ( j ) i U ~ e t a b i l i t y for this pt"tlKdlWit ' \ I l l l l ~ .known. if a large plant is built and ;jl. it"awl(1)l1)illiIDIUe ~ k e t exists, a proht oi . I D 0 ~ , ( D ( j ) .could be realized. An unfavorable liliIJ:ilIldk.elI woillJJlidt yidd a $90,000 loss. Hioowe'V,e,r" amedium plant would earn a $60,COJ ;lDllioffii 1i w,iinili a,1f:ilvorable market. A $)[0,000 IGGSwould result from an unfavorable ~ 1 t l 1 . A s.Dt D ~ a n t , on the other haM, wow/ltdreturn $40,000 with favorable m a d t ~ 1 l : C ~ i l l : ~ j f ; i o S

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ChIAWFlBfR. 7 ~ R O C E S S S T R T E G Y AND CAPACITY I'LAl;--JING

FOfeG,I,stiHg CHpilCi,tycan ["I(: difficulteven i ' l ~ d ~ l : r c b t i \ C I ~ , stable electricutihly i ' l ~ d u s u r y . OPEC prilcc fixing,rcstrilCti,ons on sulfur c l ~ ~ . i 6 S l i l 0 n s [rom

C ( l ~ , I 'I,n.

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301ANALYSISURE7.3 ByCombining ProductsTll tiallt i I J 1 J a w e ' G ) l i l \ l @ t \ l ~ t i l \ ~ ' 1 l l i $ e a ~ ( j ) \ 1 l l b r e a . \ t I u , r , m

Can IDle &lttite1f OtHized. AsmOOl:he'f clemandtfor a l ~ s : : J 1 l ~ ( j ) , c o \ 1 l ; t l l ) i h u t e s , t o S i h . e d l l 1 l l i ~ l i ' l l [ g

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1_

FIGURE 7.4

90000

700600!l!"00 CO

CHAPTER 7 PRCX::ESS STRATEGY AND CAPACITY PLANNING

Basic H veatk-lEven Point

Total revenue line

Total cost line

Br'K-e"tet1 pointlTfldJaiI coot=Tetal revel1iWe\

f

HX) 200 300 400 500 00fiJ 7'@(j)- 8GO 900 100011 00Volume fWll'lilbsflll1!r flleni0d)

.!:iii V'alifiabtecost 4 ~o 300.

200100 . Fi"ed!cost

l

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'. 303The respecsive K O J r t m l \ w l ~ a l l S b o [ rhebueadt-evenpoint in units and dollars are develas follows:

BEP(x)== break-even point in UlI!llutSBEP($) == break-even point in dIo,Uh

x == number of units producedlTR = total revenue =Px,F fixed costsV == variable costs per unit

TC == total costs = F + Vxrevenue eqUtal to total COSES, we get

fTR==TCJPx= I It Vx

8 F _- v - P V /P

JFV {ll?

Profit == TR - lrC=Px ~ i J F -= P:x f - Vx

these equations, we can solve dited 11 ; j @ ~ b r e ~ e v e n pobJDl l[

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CHAPTER 7 li\JRlOOItSS STRATEGY AND CAPACITY PLANNII'

These paper machines, recendy upgraded at a cost of 500 i l i l I ~ U b i j \ i } b y I i r r n M ~ f f i J : i l J t : i . o o a l Paper inTexarkana, Texas, produce bleached board, which is usediom dgalienue ca,1i1l@li1 S, ~ j g h spharmaceutical boxes, and so on. This huge capital expmd1ltu lie w,i }I] nestl1t i m a high fixed cosr, lDl JXwill allow production of these products. at a very 10-111 'fiaJDoaljj c C0St. T l ~ e .pr..; x) = P - v = 4.,00--(1.50+.75)

Note that in this eX

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7.5 Crossover Charts. Three i l l l l f j f ~ l i e t ] l t J l l j ( j ) ~ s s e s can be expected to haveghreil \l v0'[ume,

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CHAPTER 7 PROCESS STRATEGY AND CAPACITY PLANNJiJNG

wh\fe V == v i l l J i ~ C i l l M i e coot per unitIP ==WJl',il WltiF l!ItIll!i\tIF == f i ~ \ e Q l : costW == p e'licI1l\I.t eadillD1i0mlWct is o f total dioHaif salesi == e a c i l ~ , .W!li

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. .STlR.ATEGY-DRIVEN lNVESTMiENTS 3f3 ~ 1

If

BEP($) == [( Vi)"_--- ' , f; ,L 1 Fi,' X, iWII ie$3,5tOlD x 12 $42.,DOO

== .,(ii,z'5 == .(ij15== 1 6 7 ' i 2 J . ~ G . l ..

The information given in this e X 3 l J m 1 \ l P i l i e i p : m l i e s ' t o ( j a i l . j c l i a ~ t ysales t52 \IV,;eIKS @.Itt 6 dayseach) of

6 ~ , , 2 1 ( D . = = ; $ ; ~ l 5 } 8 / ~ 312$\)'.5 "Break-even figures by produce J P l u @ w i l l t i R ~ m _ a g e r with added ~ n s i g h t as to the

realism of his or her sales forecast. l l b l ~ iim.(j{lita\t\e e ~ K d y what mu-n be $Old each day,as we have done in Example 5. .

EX MPLE. .. Using the data in Example 4, w ' l i ~ e ;ff@[i:il5lt s