POM Ch-7

PRODUCTION AND OPERATIONS

MANAGEMENT

Chapter 7LONG-RANGE CAPACITY

PLANNING

Himalaya Publishing HouseProduction and Operations ManagementBy K. Aswathappa & K. Shridhara Bhat

Chapter 7Long-Range Capacity

Planning

Amount of output a system is capable of achieving over a specific period of time.

Capacity



Planning

Capacity planning

Capacity planning is central to the long-term success of an organisation. Capacity plans are made at two levels: (i) Long-term capacity plans which deal with investments in new facilities and equipments covering the requirements for at least two years into the future and (ii) Short-term capacity plans which focus on work-force size, overtime budgets, inventories etc.



Planning

Long-Range Capacity Planning

A long term strategic decision that establishes a firm’s overall level resources.

Three major capacity decisions are:i. How much capacity to be installed,

ii. When to increase capacity and

iii. How much to increase.



Planning

Types of Capacity

• Production capacity: Maximum rate of production or output of an organisation.

• Design capacity: The maximum output that can possibly be attained.

• Effective capacity: The maximum output given a product mix, scheduling difficulties, machine maintenance, quality factors, absenteeism etc.

• Maximum capacity: The maximum output that a facility can achieve under ideal conditions. Also known as peak capacity.



Planning

Determinants of Effective Capacity

Many decisions about design of the production system and operation of the production system may have an impact on capacity. The main factors relate to the following:(i) Facilities, (ii) Product or services, (iii) Process (iv) Human resource considerations, (v) Operations and (vi) External forces.



Planning

Economies and Diseconomies of Scale

• Economies scale: The concept which states that “the average unit cost of product can be reduced by increasing the rate of output”.

• Best operating level: The annual output which results in the least average unit cost.

• Diseconomies of scale: Above a certain level of output, additional volume of output results in ever-increasing average unit costs. This phenomenon is referred to as diseconomies of scale.



Planning

• Economies of scope: The ability of a firm to produce many product types in one highly flexible manufacturing facility at a lesser cost than in separate production facilities

• The experience curve: The concept that allows a firm to increase its production capacity without additional capital investment.



Planning

Developing Capacity Alternatives

To enhance capacity management, the following approaches to capacity alternatives could be developed:

i. Designing flexibility into the systemii. Differentiating between new and mature products

or servicesiii. Taking a “big-picture” approach to capacity

changesiv. Preparing to deal with “chunks” of capacityv. Attempting to smooth out capacity requirements

POM Ch-7

Documents

Transcript of POM Ch-7