Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the...

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Capacity Planning Dr. Richard Jerz © 2012 rjerz.com 1

Transcript of Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the...

Page 1: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Capacity Planning

Dr. Richard Jerz

© 2012 rjerz.com1

Page 2: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Product Design & Manufacturing

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Page 3: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Capacity Planning

• Capacity is the upper limit or ceiling on the load that an operating unit can handle.

• 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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Page 4: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Importance of Capacity Decisions

• Impacts ability to meet future demands• Affects operating costs• Major determinant of initial costs• Involves long-term commitment• Affects competitiveness• Affects ease of management

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Page 5: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Capacity

• Design capacity• maximum obtainable output

• Effective capacity• Maximum capacity given product mix, scheduling

difficulties, and other doses of reality.• Actual capacity

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

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Page 6: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Efficiency and Utilization

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Actual outputEfficiency =

Effective capacity

Actual outputUtilization =

Design capacity

Actual outputEfficiency =

Effective capacity

Actual outputUtilization =

Design capacity

Page 7: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Efficiency/Utilization Example

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Design capacity = 50 trucks/dayEffective capacity = 40 trucks/dayActual output = 36 units/day

Actual output = 36 units/day Efficiency = = 90%

Effective capacity 40 units/ day

Utilization = Actual output = 36 units/day = 72%

Design capacity 50 units/day

Page 8: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Determinants of Effective Capacity

• Facilities• Products or services• Processes• Human considerations• Operations• External forces

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Page 9: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Strategy and Capacity

• Capacity planning linked to strategy• Product demand patterns• Growth rate and variability• Technological changes• Availability of capital and other inputs• Behavior of competitors• Make versus buy

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Page 10: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Decisions of Capacity Planning

• Amount of capacity needed• Timing of changes• Need to maintain balance between resource

utilization and company flexibility

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Page 11: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Steps for Capacity Planning

1. Estimate future capacity requirements2. Evaluate existing capacity3. Identify alternatives4. Conduct financial analysis5. Assess key qualitative issues6. Select one alternative7. Implement alternative chosen8. Monitor results

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Page 12: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Developing Capacity Alternatives

• Design flexibility into systems• Consider which “life-cycle” stage• Consider interaction of parts and bottlenecks• Attempt to smooth out capacity

requirements• Determine the optimal operating level

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Page 13: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Evaluating Alternatives

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Minimumcost

Aver

age

cost

per

uni

t

0 Rate of output

Production units have an optimal rate of output for minimal cost.

Figure 5-3

Page 14: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Planning Service Capacity

• Need to be near customers• Capacity and location are closely tied

• Inability to store services• Capacity must be matched with timing of

demand • Degree of volatility of demand

• Peak demand periods

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Page 15: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Evaluating Alternatives

• Cost-volume analysis (break-even)• Financial analysis (engineering

economics/financial analysis)• Others• “Resource Consumption Model”

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Page 16: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Break-even Analysis

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Page 17: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Assumptions of Cost-Volume Analysis

• 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 variable cost per

unit

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Page 18: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Financial Analysis

• Cash Flow - the difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes.

• Present Value - the sum, in current value, of all future cash flows of an investment proposal.

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Page 19: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Engineering Economics

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Page 20: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

Resource Consumption Model

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0.0

2.5

5.0

7.5

10.0

12.5

15.0

10000 20000 30000 40000 50000 60000 70000 80000 90000 100000

Average Part Cost($) vs Production VolumeProj= Should the tandem or single torch robotic system be purchased? , for Selected Alternatives

Avera

ge P

art

Cost(

$)

Production Volume

Tandem Torch Single Torch Manual Welding

Single Torch Op2 Tandem Torch Op2

Page 21: Capacity Planning - rjerz.comCapacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • The basic questions in capacity handling

End

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