Wk4 Capacity Plg

7/27/2019 Wk4 Capacity Plg

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StrategicCapacity

Planning


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Capacity the Issue

2

The fundamental problem of operations

management is balancing capacity and demand

How much and when should capacity be added?

What type of capacity should be added?

Where should additional capacity be added?


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Capacity Planning

Capacity denotes in general the extent of availability of theseresources for use by various processes

It also denotes the maximum output of products andservices one can achieve using these resources

Capacity planning is a systematic approach to:

Estimate the amount of capacity required,

Evaluation of alternative methods of augmenting capacity

Devise methods to use capacity effectively

Capacity planning is important. It has a significant impacton the cost of operation of the system due to large fixedcosts associated with capacity

Economies of scale is an concept in economics related to

capacity


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Economies of ScaleAn illustration

2000 units

per month

5000 units

per month

10,000 units

per month

Units of output

2000 units

per month

Average

unitcostofoutput


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Capacity Strategy

A capacity strategy is a long range plan that

details how a firm will satisfy the demand of

its goods and services.

Greenfield expansion

Mergers and acquisitions

Debottlenecking


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6

Issues

Flexibility: with regard to product, volume, mix

Make-or-Buy: Vendoring, long-term identity

Basic Capacity Calculations: stand-alone capacities and

congestion effects (e.g., blocking)


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Capacity terminologiesDesign CapacityMaximum output per unit of time that the process can

achieve under ideal conditions

Actual or Operating Capacity

Average actual output per unit of time over the

immediate past periods.

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Capacity terminologies (contd.)Capacity Utilization a measure of the degree to which a system is used: (capacity used

/ design capacity)

Capacity Cushion

the difference between projected requirements and actualcapacity

Bottleneck Capacity

Effective throughput of the system through the bottleneck process

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Paradigm shift.The Japanese way ..

Capacity = work + waste

The different wastes could be because of

operations, defects, materials, labour etc.

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An illustration

Waste as a percentage of turn over 31.70%

Source of waste Amount (Rs. Lacs)Waste due to human resources 19.55

Waste due to materials 215.27

Waste due to operations 14.71

Waste due to start up 52.35

Waste due to equipment 128.96

Total of the above

430.84

Divisional turnover 1359.03

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11

Insights

Managing capacity is a very strategic issue for all

firms

Manage both capacity and demand

Manage demand through forecasting, pricing,

advertising


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12

Capacity Augmentation strategies


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A Systematic Approach to Capacity

Strategy

Estimate future capacity requirements.

Identify gaps by comparing requirements with availablecapacity.

Develop alternative plans for filling the gaps.

Evaluate each alternative, both qualitatively and quantitatively

and make a final choice.


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Estimate Capacity Requirements

Forecasts of demand

Productivity

Competition

Technological developments


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Strategic Capacity Planning at Intel

Every nine months a new fabrication facility is added

to its operations

Factories are built about two years in advance of

needing them

Deters rivals from entering the business and blocks

them from gaining a toehold


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Overcapacity NOW

Automotive

Communication Airlines

Consumer electronics

Chronic overcapacity almost always results in

price erosion.


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Overcapacity - Auto Industry

Worldwide demand is for 50 million, capacity

is for 74 million.

Excess capacity is one of the driving forces

behind mergers.

Most of the overcapacity is in Southeast Asia. If a company waits until demand equals

capacity, it may miss the market.

Source: Fortune, December 1997


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Marketing

Planning

Strategic

Planning

Financial

Planning

Aggregate Production

Planning

Resource

Planning

Demand

Management

Master Production

Schedule (MPS)

Rough-Cut Capacity

Planning (RCCP)

Material Requirements

Planning (MRP)

Capacity Requirements

Planning

Production Activity

Control

Capacity

Control

Manufacturing Planning and Control


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Managing Capacity

Disaggregate the capacity management problems Example:

Resource requirements planning -- check the

production plan in aggregate units.Rough cut capacity planning -- check the master

schedule in shop hours.

Capacity requirements planning -- check the

materials plan in shop hours.


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Short and Long-Term Capacity

Management

Short-Term:

overtime, floating labor, added shifts

sub-contracting

workforce supplements (e.g., temps) Intermediate Term:

efficiency improvements

product re-design

marketing emphasis Long-Term:

equipment additions

facility expansions

workforce policies (e.g., long-term hiring)


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CONCLUSION Capacity decisions have a strategic impact on the

competitiveness of the manufacturing operation.

Look at utilization vs. performance.

Reducing variability can sometimes have similar

logistical effects as adding capacity.


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The End

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Wk4 Capacity Plg