Wk4 Capacity Plg
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Transcript of Wk4 Capacity Plg
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StrategicCapacity
Planning
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Capacity the Issue
2
The fundamental problem of operations
management is balancing capacity and demand
How much and when should capacity be added?
What type of capacity should be added?
Where should additional capacity be added?
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Capacity Planning
Capacity denotes in general the extent of availability of theseresources for use by various processes
It also denotes the maximum output of products andservices one can achieve using these resources
Capacity planning is a systematic approach to:
Estimate the amount of capacity required,
Evaluation of alternative methods of augmenting capacity
Devise methods to use capacity effectively
Capacity planning is important. It has a significant impacton the cost of operation of the system due to large fixedcosts associated with capacity
Economies of scale is an concept in economics related to
capacity
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Economies of ScaleAn illustration
2000 units
per month
5000 units
per month
10,000 units
per month
Units of output
2000 units
per month
Average
unitcostofoutput
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Capacity Strategy
A capacity strategy is a long range plan that
details how a firm will satisfy the demand of
its goods and services.
Greenfield expansion
Mergers and acquisitions
Debottlenecking
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Issues
Flexibility: with regard to product, volume, mix
Make-or-Buy: Vendoring, long-term identity
Basic Capacity Calculations: stand-alone capacities and
congestion effects (e.g., blocking)
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Capacity terminologiesDesign CapacityMaximum output per unit of time that the process can
achieve under ideal conditions
Actual or Operating Capacity
Average actual output per unit of time over the
immediate past periods.
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Capacity terminologies (contd.)Capacity Utilization a measure of the degree to which a system is used: (capacity used
/ design capacity)
Capacity Cushion
the difference between projected requirements and actualcapacity
Bottleneck Capacity
Effective throughput of the system through the bottleneck process
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Paradigm shift.The Japanese way ..
Capacity = work + waste
The different wastes could be because of
operations, defects, materials, labour etc.
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An illustration
Waste as a percentage of turn over 31.70%
Source of waste Amount (Rs. Lacs)Waste due to human resources 19.55
Waste due to materials 215.27
Waste due to operations 14.71
Waste due to start up 52.35
Waste due to equipment 128.96
Total of the above
430.84
Divisional turnover 1359.03
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Insights
Managing capacity is a very strategic issue for all
firms
Manage both capacity and demand
Manage demand through forecasting, pricing,
advertising
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Capacity Augmentation strategies
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A Systematic Approach to Capacity
Strategy
Estimate future capacity requirements.
Identify gaps by comparing requirements with availablecapacity.
Develop alternative plans for filling the gaps.
Evaluate each alternative, both qualitatively and quantitatively
and make a final choice.
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Estimate Capacity Requirements
Forecasts of demand
Productivity
Competition
Technological developments
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Strategic Capacity Planning at Intel
Every nine months a new fabrication facility is added
to its operations
Factories are built about two years in advance of
needing them
Deters rivals from entering the business and blocks
them from gaining a toehold
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Overcapacity NOW
Automotive
Communication Airlines
Consumer electronics
Chronic overcapacity almost always results in
price erosion.
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Overcapacity - Auto Industry
Worldwide demand is for 50 million, capacity
is for 74 million.
Excess capacity is one of the driving forces
behind mergers.
Most of the overcapacity is in Southeast Asia. If a company waits until demand equals
capacity, it may miss the market.
Source: Fortune, December 1997
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Marketing
Planning
Strategic
Planning
Financial
Planning
Aggregate Production
Planning
Resource
Planning
Demand
Management
Master Production
Schedule (MPS)
Rough-Cut Capacity
Planning (RCCP)
Material Requirements
Planning (MRP)
Capacity Requirements
Planning
Production Activity
Control
Capacity
Control
Manufacturing Planning and Control
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Managing Capacity
Disaggregate the capacity management problems Example:
Resource requirements planning -- check the
production plan in aggregate units.Rough cut capacity planning -- check the master
schedule in shop hours.
Capacity requirements planning -- check the
materials plan in shop hours.
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Short and Long-Term Capacity
Management
Short-Term:
overtime, floating labor, added shifts
sub-contracting
workforce supplements (e.g., temps) Intermediate Term:
efficiency improvements
product re-design
marketing emphasis Long-Term:
equipment additions
facility expansions
workforce policies (e.g., long-term hiring)
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CONCLUSION Capacity decisions have a strategic impact on the
competitiveness of the manufacturing operation.
Look at utilization vs. performance.
Reducing variability can sometimes have similar
logistical effects as adding capacity.
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The End