Post on 23-Nov-2014
Capacity PlanningCustomer the foundations of an
process operations mgmt system
capacity
we shall now address Capacity
a. Creating New Capacity
b. Expanding Capacity
Three Basic Questions
How much Capacity ?
How ?? In What Stages ?
Overall Economy - Financial Implications
Flexibility
Single Plant
Single Location Multiple Plants
Multiple Locations
In several countries ?
The Combination Of :
Equipment
process
Accessories
Workflow And Culture
Employee Skill Levels
How much of what and in how much time a firm can produce is capacity.
PROCESSCAPACITYCONSISTENCY
CUSTOMER
Productive Resources To Meet
Sales Goals
Service Goals
Physical Plant Resources, Human Resources, Material Resources And Knowledge Resources Are The Four Which Make Up For Capacity (And Capability).
Here we will concentrate on;
physical plant resources.
Short Term Capacity Issues are discussed by you in Aggregate Planning
Here we shall focus on medium term and long term issues.
Capital Investment AnalysisSome Terms and Issues
Break Even
Compound Interest
Present Value of Rupee
Equivalent Annual Cost (To compare proposals with different life times)
Internal Rate of Return.
Cash Flow
Depreciation
Debt service coverage ratio
Obsolescence
Opportunity costs
Rate contract possibilities
Supply chain creation - an alternative ?Decision tree, Risk Analysis
Criteria for Capacity Management Decision
1. Number of Units that internal and external factories must satisfy
2. Timing of Demand
a. Ability / desirability of postponing demand
b. Seasonal or cyclical variations in the demand pattern
c. Effects of the product life cycle on demand
d. Ability to forecast total market demand
e. Stability of Market Share
1. Locations to expand or contract capacity in the customer-service system, including production, distribution and retailing operations
2. Timing of capacity adjustments
a. Time required to expand or contract capacity
b. Feasible increments of expansion or contraction
c. Capacity adjustments to lead or lag anticipated changes in demand
5.Value Tradeoffs for these decisions.
Capacity is rate of output per unit of time.
(Capability….What all and how much you
can do ? )
(Capacity ……How much you can do ?)
Capacity is sometimes stated on input rate………sometimes on output rate.
Example:
1.Sugar Mills……so much of sugarcane crushing per day.
2.Steel Mills…..so much of steel produced per day.
Types of Capacity
Maximum Capacity / Design Capacity
Effective Capacity / Planned Capacity
Demonstrated Capacity
Maximum Capacity or Designed Capacity assumes ideal theoretical situation like
No Break Down
No Power Shut down
No Absenteeism
No set up time lost……etc.
Effective Capacity
Management ‘Plan’ to operate at a capacity lower than maximum or design capacity ;
(a) To give allowance for unexpected happenings like,
Breakdown . Absenteeism
Preventive Maintenance
Design Problem solving etc.,
Operator’s Need for Breaks
(b) To provide for unexpected high demand.
Effective Capacity = Maximum x utilisation x
efficiency
Utilisation = Actual Hours / Scheduled Available hours
Efficiency = Standard Time / Actual Time
Maximum Capacity = Hours per shift x shifts per day x days per month x planned OT x Output per hour of critical resource.
(Note the word critical resource which has to be identified)
Demonstrated Capacity
= Average Recorded Figures of Actual output
Demonstrated Capacity Differs from Effective and Maximum Capacity due to
Product Mix, Operator Skill and experience, Equipment condition, variation in material quality and other problems like;
Starvation
Blockage
Rejections and Rework
Training Time
New Development and Trials
In an effective and efficient and well designed
OMS, Gap between maximum and effective and
demonstrated capacity should be;
as per company’s plan and strategy.
Problems with Capacity Insufficient Capacity
Excess Capacity
Desire to use “Existing” Not so suitable capacity
Capacity audit and bottleneck diagnosis helps to solve these problems
When Capacity is insufficient and is being over utilised, in the short term there is a very good return on investment and cash flow will be very attractive, but there are associated problems.
• Any small upset in the process, like breakdown, non-receipt of materials in time creates a chain of problems / confusion.
• High overtime payments to labour tends to create “OT Fixation”.
• Rejections and deviations may increase.• Customer Service level drops.• Over Taxes machines and people.• Inadequate maintenance• Innovations / improvements suffer
Similarly having excess capacity is also a curse.1. Low ROI2. People getting adjusted to low work load may
not change their speed even when needed.3. Postponement of tasks inviting uncertain
outcome.4. More Rejections and more waste.5. Higher employee cost per unit of production
and will keep increasing.6. Overall , sets a “Lazy” or laid back culture.
Similarly the problems connected with desire to use existing capacity may lead to ineffective / inefficient working unless “re-engineered”.
OPTION FOR INCREASING CAPACITYUse over time Run multiple shifts
Part of the processSubcontract
Complete process Buy the components ( Make buy decisions ) Increase labour force Add machines Modify process Expand Acquire facilities Acquire capacity Lease equipment
Out source theProducts or
services
ECONOMICS OF PLANT SIZE C = V + F / R C = average cost per unit of productionV = variable costF = fixed cost of the systemR = planned capacity
Small Plant Large PlantMedium-sized Plant
Range 1 Range 2 Range 3
Costs
Level of ProductionForecasting the expected volume is a key issue.Notice the BE point BW RangesWhen you consider multiple locations transport costs also to be considered.
?
CAPACITY EXPANSION STRATEGIES
Demand
Plant Capacity
A. CAPACITY LEAD STRATEGY
Cost
Time
DemandPlant Capacity
B. CAPACITY LAG STRATEGY
Cost
Time
CAPACITY EXPANSION STRATEGIES…CONTD
Plant Capacity
C. CAPACITY STRADDLE STRATEGY
Cost
Time
CAPACITY EXPANSION STRATEGIES…CONTD
Demand
Flow Serve Corporation USACapacity Creation Strategy
HQ USA
Plants in
USA
South America
Europe
Middle East
Asia
Several Components
Several
countries
“Best Cost Producer”……Who?
Leading to Global Capacity Plans
This is at one level
At “Plant Level”
“ Quick Response Service Units” (In Spare Time also produce some components)
Which are small shops catering to cluster of industries.
Human Capital
Tradeoffs
Major ValueEnhancementCapabilities
Invest in HRD for Rebuilding Future
Upgrade Facility (As Needed)
Employee Skills and Culture Valuable
Employee Skills and Culture as Liability
Relocate (Start from Scratch)
Rebuild in same Location
Limited Value Enhancement Capabilities
Plant, Equipment, and Logistic Tradeoffs
PLANT REJUVENATION TRADEOFFS
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