POM - J.

Galvn 1
PRODUCTION AND
OPERATIONS
MANAGEMENT
Ch. 8: Capacity Planning

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Definition and Measures of Capacity
Capacity:
Designed
Capacity:
Effective capacity
or utilization:

Rated Capacity:
The maximum output of a system in a
given period
The maximum capacity that can be
achieved under ideal conditions
The percent of design capacity actually
expected
Maximum usable capacity of a
particular facility
RC = (Capacity)(Utilization)(Efficiency)
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Measure of planned or actual
capacity usage of a facility, work
center, or machine
Utilizatio n
Expected c
apacity
Capacity
Planned ho urs to be used
Total hour s availabl e
=
=
Utilization
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Measure of how well a facility or
machine is performing when used
Efficiency
Actual out put
Effective capacity
Actual out put in uni ts
Standard o utput in u nits
Average ac tual time
Standard t ime
=
=
=
Efficiency
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Forecast
Demand
Compute
Needed
Capacity
Compute
Rated
Capacity
Evaluate
Capacity
Plans
Implement
Best Plan
Qualitative
Factors
(e.g., Skills)
Select Best
Capacity
Plan
Develop
Alternative
Plans
Quantitative
Factors
(e.g., Cost)
Capacity Planning Process
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WHY PLANNING CAPACITY?
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TYPICAL QUESTIONS
How many machines should be purchased?
How many workers should be hired?
Consequences of a 20% increase in demand?
How many counters should be opened to
maintain customer wait below 10 minutes?
How many assembly stations are needed to
maintain backorders below 20?
How often will all 6 operating rooms be full?
How will congestion at Logan change if a 5th
runway is built?



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Add Facilities
Add long lead time equipment
Schedule Jobs
Schedule Personnel
Allocate Machinery
Subcontract
Add Equipment
Add Shifts
Add Personnel
Build or Use Inventory

Long Range
Planning
Intermediate
Range Planning
Short Range
Planning
Modify Capacity Use Capacity
*
*
*Limited options exist
CAPACITY ALTERNATIVES
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Theory of Constraints
1. Identify the system
bottleneck(s)
2. Exploit the bottleneck(s)
3. Subordinate all other
decisions to step 2
4. Elevate the bottleneck(s)
5. Do not let inertia set in

4-9
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Capacity Bottlenecks
Inputs
To
customers
(a) Operation 2 a bottleneck
50/hr
1 2 3
200/hr 200/hr
4-10
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(b) All operations bottlenecks
2 3 1
Inputs
To
customers
200/hr 200/hr 200/hr
Capacity Bottlenecks
4-11
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Capacity Cushion
Reserve capacity used to deal with
sudden increases in demand
(100% - Average Utilization %)
Primary Disadvantage
unused capacity costs money
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Output rate (patients per week)
Economies & Diseconomies of
Scale
250-bed
hospital
A
v
e
r
a
g
e

u
n
i
t

c
o
s
t

(
d
o
l
l
a
r
s

p
e
r

p
a
t
i
e
n
t
)

500-bed
hospital
Economies
of scale
750-bed
hospital
Diseconomies
of scale
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Capacity Strategy
Expansionist
Strategy
Looking to
capture strong
economies of
scale
Positive learning
Time
Planned Capacity
Expected Demand
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Capacity Strategy
Build-to-Forecast
Strategy
Trying to match
capacity and
demand
Time
Planned Capacity
Expected Demand
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Capacity Strategy
The Maximize
Utilization
Strategy
Maintains little or
no capacity
cushion
Time
Planned Capacity
Expected Demand
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Systematic Approach to Capacity
Decisions
1. Estimate Capacity Requirements
2. Identify Gaps
3. Develop Alternatives
4. Evaluate Alternatives
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Capacity Decisions
Estimate Capacity Requirements
Item Client X Client Y
Annual demand forecast (copies) (D) 2000.00 6000.00
Standard processing time (hour/copy)(p) 0.50 0.70
Average lot size (copies per report)(Q) 20.00 30.00
Standard setup time (hours)(s) 0.25 0.40
Example 4.1
[Dp + (D/Q)s]
product 1
+ ... + [Dp + (D/Q)s]
product n

N[1 (C/100)]
M =
4-18
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Item Client X Client Y
Annual demand forecast (copies) 2000.00 6000.00
Standard processing time (hour/copy) 0.50 0.70
Average lot size (copies per report) 20.00 30.00
Standard setup time (hours) 0.25 0.40
[2000(0.5) + (2000/20)(0.25)]
client X
+ [6000(0.7) + (6000/30)(0.4)]
client Y

(250 days/year)(1 shift/day)(8 hours/shift)(1.0 15/100)
M =
Capacity Decisions
4-19
Estimate Capacity Requirements
Example 4.1
Used capacity: 85%
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Item Client X Client Y
Annual demand forecast (copies) 2000.00 6000.00
Standard processing time (hour/copy) 0.50 0.70
Average lot size (copies per report) 20.00 30.00
Standard setup time (hours) 0.25 0.40
M = = 3.12 4 machines
5305
1700
Capacity Decisions
4-20
Estimate Capacity Requirements
Example 4.1
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Waiting-Line Models
Often used in Capacity
Planning
Balances customer service & the cost of
extra capacity
Use probability distributions
to estimate:
Avg.Customer Delay
Avg. Length of Waiting Lines
Work Center Utilization
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Simulation
A tool that helps identify:
Process Bottlenecks
Capacity Cushions
More effective for
complex waiting-line
problems
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Capacity Decisions
Simulation
Figure 6.5(a)
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Figure 4.8
Capacity Decisions
Simulation
4-24
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Vary staffing
Change equipment
& processes
Change methods
Redesign the product
for faster processing
Capacity Management
Vary prices
Vary promotion
Change lead times
(e.g., backorders)
Offer complementary
products
Demand Management
Managing Existing Capacity
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Complementary Products
Time (Months)
Sales (Units)
Light clothes
Heavy
clothes
Total
0
1,000
2,000
3,000
4,000
5,000
J M M J S N J M M J S N J
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Matching Capacity to Demand
Demand Management
vary prices
change lead times
encourage/discourage business
Capacity Management
adjust staffing
adjust equipment and processes
change methods to facilitate production
redesign the product to facilitate
production