14.0 Capacity Planning

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Capacity Planning.

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Capacity Planning

Capacity Planning 

Pro Produc duction capac pacity is defi defin ned as the maximum production production rate rate of a facility facility or or a plant. Types of Capacity 1. Fixed Fixed capaci capacity ty 2. Adjust Adjustabl able e capac capacity ity 3. Design Design capaci capacity ty 4. Syst System em capaci capacity ty 5. Poten otenti tial al capa capaci city ty 6. Imme Immedi diat ate e capa capaci city ty 7. Effec ffecti tive ve capa capaci city ty 8. Normal Normal capacity capacity or rated rated capacity capacity 9. Actual or utilize utilized d capacity capacity 2

System efficiency  is the ratio of the actual measured output of goods/services to the system capacity

System efficiency = Actual Output System capacity

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Capacity Planning

Capacity Decisions 

Major

considerations in capacity decisions

are a. What size of plant? How much capacity to install? b. When capacity is needed? When to phasein capacity or phase-out capacity? c. At what cost? How to budget for the cost? 4

Capacity Planning

Factors

1.

Affecting Determination of Plant Capacity :

Market demand for

a product/service.

2. The amount of capital that can be invested. 3. Degree of automation desired. 4. Level of integration (i.e., vertical integration). 5. Type of technology selected. 6. Flexibility for capacity additions. 5

Capacity Planning

Capacity planning involves activities such as: a. Assessing existing capacity b. Forecasting future capacity needs c. Identifying alternative ways to modify capacity d. Evaluating financial, economical and technological capacity alternatives e. Selecting a capacity alternative most suited to achieve the strategic mission of the firm. f. Capacity planning involves capacity decisions that must merge consumer demands with human, material and financial resources of the organization. 6

Capacity Planning



Four Types

of Capacity Planning are:

1.

Long term Capacity Planning

2.

Short-term Capacity Planning

3.

Finite Capacity Planning

4.

Infinite Capacity Planning.

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Capacity Planning

Two catagories of factors affecting capacity planning are:  Controllable Factors  Less Controllable Factors.

Capacity Requirement Planning (CRP): A technique to determine the labour and equipment capacities needed to meet the objectives

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Method

of Capacity Planning.

Process of Capacity Planning  Capacity

planning is concerned with defining the long-

term and the short-term capacity needs of an organization and determining how those needs will be satisfied. 

Capacity planning decisions are taken based upon the consumer demand and this is merged with the human, material and financial resources of the organization.

 Capacity

requirements can be evaluated from two

perspectives 

long-term capacity strategies and 



short-term capacity strategies. 9

Method

1.



of Capacity Planning.

LONG-TERM CAPACITY STRATEGIES .

Long-term capacity requirements are more difficult to determine because the future demand and technology are uncertain.



Forecasting for five or ten years into the future is more risky and difficult.



Even sometimes companys todays products may not be existing in the future.



Long range capacity requirements are dependent on marketing plans, product development and life- cycle of the product.



Long-term capacity planning is concerned with accommodating major changes that affect overall level of the output in long-term.

 Marketing

environmental assessment and implementing the long-

term capacity plans in a systematic manner are the major responsibilities of management . 10

Method

Following parameters will

of Capacity Planning.

affect long range capacity decisions.

1.

Multiple products:



Companys produce more than one product using the same facilities in order to increase the profit.



The manufacturing of multiple products will reduce the risk of  failure.



Having more than one product helps the capacity planners to do a better job.



Because products are in different stages of their life-cycles, it is easy to schedule them to get maximum capacity utilization.

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Method

2.



of Capacity Planning.

Phasing in capacity:

In high technology industries, and in industries where technology developments are very fast, the rate of obsolescence is high.



The products should be brought into the market quickly.



The time to construct the facilities will be long and there is no much time as the products should be introduced into the market quickly. Here the solution is phase in capacity on modular basis.



Some commitment is made for building funds and men towards facilities over a period of 35 years.



This is an effective way of capitalizing on technological breakthrough.

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Method

3.Phasing



of Capacity Planning.

out capacity:

The outdated manufacturing facilities cause excessive plant closures and down time.



The impact of closures is not limited to only fixed costs of plant and machinery.



Thus, the phasing out here is done with humanistic way without affecting the community.



The phasing out options makes alternative arrangements for men like shifting them to other jobs or to other locations, compensating the employees, etc.

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Method

of Capacity Planning.

SHORT-TERM CAPACITY STRATEGIES.  Managers

often use forecasts of product demand to estimate the

short-term workload the facility must handle.  Managers

looking ahead up to 12 months, anticipate output

requirements for different products, and services.  Managers

then compare requirements with existing capacity and

then take decisions as to when the capacity adjustments are needed. 

For short-term periods of up to one year, fundamental capacity is fixed.

 Major  Many

facilities will not be changed.

short-term adjustments for increasing or decreasing

capacity are possible. 

Contd 14

Method



 

of Capacity Planning.

The adjustments to be required depend upon the conversion process like whether it is capital intensive or labour intensive or whether product can be stored as inventory. Capital intensive processes depend on physical facilities, plant and equipment. Short-term capacity can be modified by operating these facilities more or less intensively than normal.



In labor intensive processes short-term capacity can be changed by laying off or hiring people or by giving overtime to workers.



The strategies for changing capacity also depend upon how long the product can be stored as inventory.

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Method

of Capacity Planning.

The short-term capacity strategies are: 1.

Inventories: Stock of finished goods during slack periods to meet

the demand during peak period. 2. Backlog:

During peak periods, the willing customers are requested

to wait and their orders are fulfilled after a peak demand period. 3.

Employment level (hiring or firing): Hire additional employees

during peak demand period and layoff employees as demand decreases. 4. Employee training: Develop multi-skilled employees through

training so that they can be rotated among different jobs. The multi-skilling helps as an alternative to hiring employees. 5. Subcontracting: During peak periods, hire the capacity of other

firms temporarily to make the component parts or products. 6. Process design: Change job contents by redesigning the job. 16

Method

of Capacity Planning.

Planning Over a Time Horizon Long-range planning

Add facilities Add long lead time equipment

Intermediaterange planning

Subcontract Add equipment Add shifts

Add personnel Build or use inventory

Schedule jobs Schedule personnel Allocate machinery

Short-range planning Modify capacity

Use capacity

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Capacity Utilization 

Capacity utilization rate = Capacity used Best operating level



Capacity used  ±



rate of output actually achieved

Best operating level  ±

capacity for which the process was designed 18

Method

Best

of Capacity Planning.

Operating Level

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The Experience Curve As plants produce more products, they gain experience in the best production methods and reduce their costs per unit.

Cost or   price  per unit

Total

accumulated pr oduction of  units 20

Method

of Capacity Planning

Capacity Flexibility: Having the ability to respond rapidly to demand volume changes and product mix changes. Flexible plants Flexible processes Flexible workers

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Determining Capacity Requirements.  Forecast sales within

each individual

product line.  Calculate equipment and labor

requirements to meet the forecasts.  Project equipment and

labor availability over the planning horizon . 22

Capacity Planning Process Forecast

Demand

Develop Alternative

Quantitative Factors

Plans

(e.g., Cost) Qualitative

Rated

Evaluate Capacity

Capacity

Plans

(e.g., Skills)

Compute Needed

Select Best

Capacity

Plan

Compute

Capacity

Factors

Implement Best

Plan

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Large capacity cushion Required to handle uncertainty  in demand 

service industries  high level of uncertainty in demand (in terms of both volume and product-mix)  to permit allowances for vacations, holidays, supply of materials delays, equipment breakdowns, etc.  if subcontracting, overtime, or the cost of  missed demand is very high

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Sources of Uncertainty Manufacturing Process design Product design Capacity Quality

Customer Deliveries

Supplier Performance Responsiveness Transportation Location Quality Information

Customer Demand Past performance Market research Analytical techniques Promotions / Incentives

Transportation Location Information

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Small capacity cushion Unused capacity still incurs the fixed costs  highly capital intensive businesses  time perishable capacity

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Thank You.

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