Chap 5 Capacity Planning
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Transcript of Chap 5 Capacity Planning
5-1
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Chapter 5
Capacity Planning
5-2
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
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?
5-3
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
• Impacts ability to meet future demands
• Affects operating costs
• Major determinant of initial costs
• Involves long-term commitment
• Affects competitiveness
• Affects ease of management
Importance of Capacity Decisions
5-4
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Capacity
• Design capacity– maximum obtainable output
• Effective capacity– Maximum capacity given product mix,
scheduling difficulties, and other doses of reality.
• Actual output– rate of output actually achieved--cannot
exceed effective capacity.
5-5
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Efficiency and Utilization
Actual outputEfficiency =
Effective capacity
Actual outputUtilization =
Design capacity
5-6
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual 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
Efficiency/Utilization Example
5-7
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Determinants of Effective Capacity
• Facilities
• Products or services
• Processes
• Human considerations
• Operations
• External forces
5-8
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Some Possible Growth PatternsV
olu
me
Vo
lum
e
Vo
lum
e
Vo
lum
e
0 0
0 0
Time Time
Time Time
Growth Decline
Cyclical Stable
Figure 5-1
5-9
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Developing Capacity Alternatives
• Design flexibility into systems
• Take a “big picture” approach to capacity changes
• Prepare to deal with capacity “chunks”
• Attempt to smooth out capacity requirements
• Identify the optimal operating level
5-10
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Evaluating Alternatives
Minimumcost
Av
era
ge
co
st
per
un
it
0 Rate of output
Production units have an optimal rate of output for minimal cost.
Figure 5-3
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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Evaluating Alternatives
Minimum cost & optimal operating rate are functions of size of production unit.
Av
era
ge
co
st
per
un
it
0
Smallplant Medium
plant Largeplant
Output rate
Figure 5-4
5-12
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
• Need to be near customers– Capacity and location are closely tied
• Inability to store services– Capacity must me matched with timing of
demand
• Degree of volatility of demand– Peak demand periods
Planning Service Capacity
5-13
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Calculating Processing Requirements
P r o d u c tA n n u a l
D e m a n d
S t a n d a r dp r o c e s s i n g t i m e
p e r u n i t ( h r . )P r o c e s s i n g t i m e
n e e d e d ( h r . )
# 1
# 2
# 3
4 0 0
3 0 0
7 0 0
5 . 0
8 . 0
2 . 0
2 , 0 0 0
2 , 4 0 0
1 , 4 0 0 5 , 8 0 0
P r o d u c tA n n u a l
D e m a n d
S t a n d a r dp r o c e s s i n g t i m e
p e r u n i t ( h r . )P r o c e s s i n g t i m e
n e e d e d ( h r . )
# 1
# 2
# 3
4 0 0
3 0 0
7 0 0
5 . 0
8 . 0
2 . 0
2 , 0 0 0
2 , 4 0 0
1 , 4 0 0 5 , 8 0 0
5-14
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Cost-Volume Relationships
Am
ou
nt
($)
0Q (volume in units)
Total cost = VC + FC
Total variable cost (V
C)
Fixed cost (FC)
Figure 5-5a
5-15
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Cost-Volume Relationships
Am
ou
nt
($)
Q (volume in units)0
Total r
evenue
Figure 5-5b
5-16
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Cost-Volume Relationships
Am
ou
nt
($)
Q (volume in units)0 BEP units
Profit
Total r
even
ue
Total cost
Figure 5-5c
5-17
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Break-Even Problem with Step Fixed Costs
Quantity
FC + VC = TC
FC + VC = TC
FC + VC =
TC
Step fixed costs and variable costs.
1 machine
2 machines
3 machines
Figure 5-6a
5-18
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
Break-Even Problem with Step Fixed Costs
$
TC
TC
TCBEP2
BEP 3
TR
Quantity
1
2
3
Multiple break-even points
Figure 5-6b
5-19
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
• 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
Assumptions of Cost-Volume Analysis
5-20
McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Capacity Planning
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.