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Capacity planning ppt @ bec doms
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Capacity Planning
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Outline CAPACITY
Defining Capacity Capacity and Strategy Capacity Considerations Managing Demand
CAPACITY PLANNING BREAKEVEN ANALYSIS
Single-Product Case Multiproduct Case
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Outline - Continued APPLYING DECISION TREES TO CAPACITY
DECISIONS STRATEGY DRIVEN INVESTMENTS
Investment, Variable Cost, and Cash Flow Net Present Value
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Learning ObjectivesWhen you complete this supplement, you should be able
to :Identify or Define:
Capacity Design Capacity Effective Capacity Utilization
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Learning Objectives
When you complete this supplement, you should be able to:
Explain: Capacity Considerations Net Present Value Analysis Breakeven Analysis Financial Considerations Strategy-Driven Investments
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How much long-range capacity is needed When more capacity is needed Where facilities should be located (location) How facilities should be arranged (layout)
Facility planning answers:
Facility Planning
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Forecast
Demand
Compute
Needed
Capacity
Compute
Rated
Capacity
Evaluate
Capacity
Plans
Implement
Best Plan
Qualitative
Factors
(e.g., Skills)
Select Best
Capacity
Plan
Develop
Alternative
Plans
Quantitative
Factors
(e.g., Cost)
Capacity Planning Process
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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
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Definition and Measures of Capacity
Capacity:
The “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time.
Utilization: Actual output as a percent of design capacity.
Effective capacity:
Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality.
Efficiency: Actual output as a percent of effective capacity.
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Actual or Expected Output
Actual (or Expected) Output =
(Effective Capacity)(Efficiency)
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Measure of planned or actual capacity usage of a facility, work center, or machine
UtilizationActual Output
Design CapacityPlanned hours to be used
Total hours available
=
=
Utilization
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Measure of how well a facility or machine is performing when used
EfficiencyActual output
Effective CapacityActual output in units
Standard output in unitsAverage actual time
Standard time
=
=
=
Efficiency
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Implications of Capacity Changes
Changes in:• Sales• Cash flow• Quality• Supply chain• Human resources• Maintenance
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Special Requirements for Making Good Capacity Decisions
Forecast demand accurately Understanding the technology and capacity
increments Finding the optimal operating level (volume) Build for change
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Cost Structure for a Roadside Motel
25 room roadside motel 50 room
roadside motel
75 room roadside motel
Economies of Scale
Diseconomies of Scale
Number of Rooms
Aver
age
Unit
Cost
(dol
lars
per
uni
t per
nig
ht)
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Strategies for Matching Capacity to Demand
1. Making staffing changes (increasing or decreasing the number of employees)
2. Adjusting equipment and processes – which might include purchasing additional machinery or selling or leasing out existing equipment
3. Improving methods to increase throughput; and/or
4. Redesigning the product to facilitate more throughput
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Approaches to Capacity ExpansionExpected 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 Capacity New Capacity
New Capacity
Capacity leads demand with an incremental expansion Capacity leads demand with a one-step expansion
Capacity lags demand with an incremental expansionAttempts to have an average capacity, with
an incremental expansion
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Approaches to Capacity ExpansionExpected Demand
Time in Years
Dem
and
New Capacity
Capacity leads demand with an incremental expansion
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Approaches to Capacity ExpansionExpected Demand
Time in Years
Dem
and
New Capacity
Capacity leads demand with a one-step expansion
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Approaches to Capacity Expansion
Expected Demand
Time in Years
Dem
and
New Capacity
Capacity lags demand with an incremental expansion
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Approaches to Capacity Expansion
Expected Demand
Time in Years
Dem
and
New Capacity
Attempts to have an average capacity, with an incremental expansion
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Breakeven Analysis
Technique for evaluating process & equipment alternativesObjective: Find the point ($ or units) at which total cost equals total revenueAssumptionsRevenue & costs are related linearly to volumeAll information is known with certaintyNo time value of money
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Break-Even Analysis
Fixed costs: costs that continue even if no units are produced: depreciation, taxes, debt, mortgage payments
Variable costs: costs that vary with the volume of units produced: labor, materials, portion of utilities
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Breakeven Chart
Fixed cost
Variable cost
Total cost line
Total revenue line
ProfitBreakeven pointTotal cost = Total revenue
Volume (units/period)
Cost
in D
olla
rs
Loss
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Crossover Chart
Fixed cost - Process A
Fixed cost - Process BFixed cost - Process C
Total cost - Process CTotal cost - Process B
Total co
st - P
roce
ss A
Process A: low volume, high varietyProcess B: Repetitive
Process C: High volume, low variety
Process CProcess BProcess A Lowest cost process
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Cost of Wrong Process Found Via Breakeven Analysis
Fixed cost
$
Variablecost
Fixed cost
$Variable
cost
Fixed cost
$Variable
cost
Low volume, highvariety process
Repetitive process High volume, lowvariety process
A B Volume
B1
B2B3
Total cost for lowvolume high variety
Total cost for repetitive processTotal cost for high volume,
low variety process
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Decision Tree and Capacity Decision
-$90,000$60,000
-10,000
$40,000
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
-5,000
$0
-$14,000
$18,000
$13,000
Large Plant
Medium PlantSmall PlantDo nothing
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Strategy Driven Investment Select investments as part of a coordinated strategic plan Choose investments yielding competitive advantage Consider product life cycles Include a variety of operating factors in the financial return
analysis Test investments in light of several revenue projections
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Net Present Value
F = future valueP = present valueI = interest rateN = number of years
Ni
FP
)1(
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NPV in a More Convenient Form
N
N
)(i
FXP
i
FP
1
1X where
)1(
Year 5% 6% 7% 8%
1 0.952 0.943 0.935 0.857
2 0.907 0.890 0.873 0.857
3 0.864 0.840 0.816 0.794
4 0.823 0.792 0.763 0.735
5 0.784 0.747 0.713 0.681
6 0.746 0.705 0.666 0.630
7 0.711 0.665 0.623 0.583
8 0.677 0.627 0.582 0.540
9 0.645 0.592 0.544 0.500
Present value of $1.00
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Present Value of an Annuity (S)
X = Factor from Table S = present value of a series of uniform
annual receipts R = receipts that are received every year for
the life of the investment
RXS
Year 5% 6% 7% 8%
1 0.952 0.943 0.935 0.926
2 1.859 1.833 1.808 1.783
3 2.723 2.673 2.624 2.577
4 3.546 3.465 3.387 3.312
5 4.329 4.212 4.100 3.993
6 5.076 4.917 4.766 4.623
7 5.786 5.582 5.389 5.206
8 6.843 6.210 5.971 5.747
9 7.108 6.802 7.024 6.247
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Limitations of Net Present Value Investments with the same present value may
have significantly different project lives and different salvage values
Investments with the same net present values may have different cash flows
We assume that we know future interest rates - which we do not
We assume that payments are always made at the end of the period - which is not always the case
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Extras
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Vary staffing 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 Existing Capacity
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Complementary Products
Time (Months)
Sales (Units)
Jet Skis
Snow-mobiles
Total
01,000
2,000
3,000
4,0005,000
J M M J S N J M M J S N J