Capacity Planning 2003

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55-1 1 Capa paci citty Pla Plan nni ning  ng 

Capacity Planning

 

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Capacity Planning •



Capacity planning is the process of  determining the production capacity needed by an organization to meet changing demands for 

its products. The basic questions in capacity handling are: •





What kind of capacity is needed? How much is needed? When is it needed?

 

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Importance of Capacity Decisions 1. 2.

Impacts ability to meet future demands Affects operating costs

3. 4. 5.

Involves long-term commitment Affects competitiveness Affects ease of management

 

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Capacity •

Design capacity •



maximum output rate or service capacity an operation, process, or facility is designed for 

Effective capacity Design capacity minus allowances such as  personal time, maintenance, and scrap





Actual output •

rate of output actually achieved--cannot exceed effective capacity.

 

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Efficiency and Utilizati Utilization on Efficiency =

Utilization =

Actual output Effective capacity Actual output Design capacity

Both measures expressed as percentages

 

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Efficiency/Utiliz Efficiency/Utilization ation Example Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day Actual output = 90% Efficiency

36 units/day =

 

Utilization =

=

Effective capacity Actual output

40 units/ day =

36 36 units/day =

72%

Design capacity

50 units/day

 

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Determinants of Effective Capacity •











Facilities (equipments , tools) Product and service factors Human factors Operational factors Supply chain factors External factors

 

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Key Decisions of Capacity Planning 1. 2.

Amount of capacity needed Timing of changes

3.

Need to maintain balance

4.

Extent of flexibility of facilities

 

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Steps for Capacity Planning

2.

Estimate future capacity requirements Evaluate existing capacity

3.

Identify alternatives

4.

Conduct financial analysis

5.

Assess key qualitative issues

6. 7.

Select one alternative Implement alternative chosen

8.

Monitor results

1.

 

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Economies of Scale •

Economies of scale •

If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs



Diseconomies of scale •

If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs

 

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Evaluating Alternatives Figure 5.4 Minimum cost & optimal operating rate are functions of size of production unit. ti

n u r

ep

g ar

s o c e

t

Small plant

Medium plant

Large plant

ve A

0

Output rate

 

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Cost-Volume Relationship Relationships s  Figure 5.5a

)

$( u o m A

nt

 C   F    +  C +  C  )  s  t    t =   =  V     t (     V (   o s  t   o    c c    c c   l  e  e   l    a a   t   b  a  a   i   T o  r  a   v     l  a   t a  o   T Fixed cost (FC)

0

Q (volume in units)

 

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Cost-Volume Relationships Figure 5.5b

)

$( t

un o m A

0

  e   u   n   e   v   e   r     t  a  l   t   l    T o

Q (volume in units)

 

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Cost-Volume Relationship Relationships s Figure 5.5c

)

$( t

un o m A

0

    e   u   n  t   i t   e  f   v  o   e   P r   r     t  a    l  o s t   o    c c    T  l    a a  t   T o

BEP units Q (volume in units)

 

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Break-Even Problem with Step Fixed Costs Figure 5.6a

 T C  T  =   =  C  +  V    F C + 

 C   T    =  =  C    +  V  +  C   F

 =   =  C   V      + +  F C   T C

3 machines

2 machines

1 machine Quantity Step fixed costs and variable costs.

 

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Break-Even Problem with Step Fixed Costs Figure 5.6b

$

BEP

3

TC

BEP2

TC 3

TC   R   T

2 1

Quantity Multiple break-even points

 

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Assumptions of Cost-Volume Analysis 1. 2. 3.

4. 5. 6.

One product is involved Everything produced can be sold Variable cost per unit is the same regardless of volume Fixed costs do not change with volume Revenue per unit constant with volume Revenue per unit exceeds average cost per  unit

 

5-1 5-18 8 Ca Capac pacity ity Plannin Planning  g 

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