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Capacity Planning and Utilization
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Lecture # 10
Capacity Planning and Utilization
Capacity Planning and Facility Location
R. Dan Reid & Nada R. Sanders3rd Edition © Wiley 2007
Session 1 of 2
© Wiley 2007
Capacity planning Capacity is the maximum output rate of a facility Capacity planning is the process of establishing
the output rate that can be achieved at a facility: Capacity is usually purchased in “chunks” Strategic issues: how much and when to spend
capital for additional facility & equipment Tactical issues: workforce & inventory levels, &
day-to-day use of equipment
© Wiley 2007
Measuring Capacity Examples
There is no one best way to measure capacity Output measures like kegs per day are easier to understand With multiple products, inputs measures work better
Type of BusinessInput Measures of
CapacityOutput Measures
of Capacity
Car manufacturer Labor hours Cars per shift
Hospital Available beds Patients per month
Pizza parlor Labor hours Pizzas per day
Retail storeFloor space in square feet
Revenue per foot
© Wiley 2007
Measuring Available Capacity
Design capacity: Maximum output rate under ideal
conditions A bakery can make 30 custom cakes per
day when pushed at holiday time Effective capacity:
Maximum output rate under normal (realistic) conditions
On the average this bakery can make 20 custom cakes per day
© Wiley 2007
How Much Capacity Is Best?
The Best Operating Level is the output that results in the lowest average unit cost
Economies of Scale: Where the cost per unit of output drops as volume of output
increases Spread the fixed costs of buildings & equipment over
multiple units, allow bulk purchasing & handling of material Diseconomies of Scale:
Where the cost per unit rises as volume increases Often caused by congestion (overwhelming the process with
too much work-in-process) and scheduling complexity
© Wiley 2007
Making Capacity Planning Decisions
The three-step procedure for making capacity planning decisions is as follows: Step 1: Identify Capacity Requirements Step 2: Develop Capacity Alternatives Step 3: Evaluate Capacity Alternatives
© Wiley 2007
Identifying capacity requirements Long-term capacity requirements based on
future demand Identifying future demand based on
forecasting Forecasting, at this level, relies on qualitative
forecast models Executive opinion Delphi method
Forecast and capacity decision must included strategic implications
Capacity cushions Plan to underutilize capacity to provide
flexibility
© Wiley 2007
Evaluating Capacity Alternatives
Capacity alternatives include Could do nothing, Expand large now (may included
capacity cushion), or Expand small now with option to
add later
© Wiley 2007
Best Operating Level and Size
Alternative 1: Purchase one large facility, requiring one large initial investment Alternative 2: Add capacity incrementally in smaller chunks as needed
© Wiley 2007
Factors Affecting Location Decisions Proximity to source of supply:
Reduce transportation costs of perishable or bulky raw materials
Proximity to customers: E.g.: high population areas, close to JIT
partners Proximity to labor:
Local wage rates, attitude toward unions, availability of special skills (e.g.: silicon valley)
© Wiley 2007
Location Factors Community considerations:
Local community’s attitude toward the facility (e.g.: prisons, utility plants, etc.)
Site considerations: Local zoning & taxes, access to utilities, etc.
Quality-of-life issues: Climate, cultural attractions, commuting time, etc.
Other considerations: Options for future expansion, local competition,
etc.
© Wiley 2007
Capacity Planning and Facility Location Across the Organization
Capacity planning and location analysis affect operations management and are important to many others Finance provides input to finalize
capacity decisions Marketing impacted by the
organizational capacity and location to customers
THE CAPACITY MANAGEMENTIntroduction to Materials Management
Arnold, Chapman & Clive6th Edition © Pearson Education 2008
Session 2 of 2
Basic Capacity Definitions Capacity Required – capacity needed to
produce a desired output in a given time period
Capacity Planning – determining the resources and methods needed to meet the priority plan
Capacity Control – monitoring production, comparing with the capacity plan, and taking appropriate corrective actions
Capacity Management – determining capacity needed as well as providing, monitoring, and controlling the capacity
Capacity Planning Levels
Resource Planning – Long range resource requirements linked to the production plan
Rough-cut Capacity Planning – Used to check feasibility of Master Production Scheduling
Capacity Requirements Planning – Detailed work center capacity plans linked to MRP
Capacity Planning Levels
Figure 5.2 Planning levels
Capacity Requirements PlanningInputs
Open Order File – found as scheduled receipts on MRP
Planned order releases from MRP – Potential future orders
Work Center file Information on capacity in the work
center Move, wait, and queue time information
Routing file – the path that the work will follow Operations to be performed Operation sequence Work centers used Potential alternative work centers Tooling needed Standard setup times and run times
Capacity Requirements PlanningInputs - Continued
Capacity Available
Impacted by: Product specification Product mix Methods used to make product Pace of work
Scheduling Orders
Back scheduling (the typical approach) – Start with the due date, use lead time to find the proper start date for each operation
Forward scheduling – Launch the order into the first (gateway) work center, then use the lead times to find when the order will be completed at each work center
Managing the Plan – Adjusting Capacity
Use Overtime or Undertime Adjust the number of workers Shift workers from other work
centers Use alternative work centers to
shift load Subcontract work
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