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8/3/2019 Capacity Planning Module - 5
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Module - 5
Capacity Planning
Prepared by
Darshan jayswal
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Concept of Aggregation
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Hotels
Room Nights Per Month
ignores the number of guests in each room and their
individual requirements
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Units Per Month
ignores size, color, and style variations
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Revenue Per Month
ignores variation in spend, number of items and
gross margin of items, per customer transaction
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Meaning of Aggregation
• The important characteristic of capacity
planning & control is that it is concerned with
setting capacity levels over the medium &
short terms in aggregated plan.
• Aggregate plans assume that the mix of
different products & services will remain
relatively constant during the planning period.
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Introduction to Capacity Planning
• Capacity is the rate of productive capability of
a facility. Capacity is usually expressed as
volume of output per time period. Operations
managers are concerned with capacity for
several reasons:
1) Sufficient capacity
2) Cost of maintaining the facility
3) Capacity requires an investment of capital
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Definition of CapacityPlanning
According to APICS, “Capacity planning or
capacity requirements planning is the function
of establishing, measuring and adjusting limits
or levels of capacity. The term ‘Capacity
Requirement Planning’ in this context is the
process of determining how much labor and
machine resources is required to accomplishthe tasks of production”
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Meaning of Capacity Planning
• Capacity Planning is a long-term strategicdecision that establishes a firm’s overall level
of resources.
• The decisions are strategic, because they oftencommit the resources of the organization for
long periods.
•For example, Reliance decision to put up anethylene cracker required an investments of
hundreds of corers of rupees.
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Capacity and value creation
• Begins with understanding what current and
potential future customer’s value.
• Value driven capacity starts from the outside,
the market.
• It strives to ensure that the company’s
product/service bundles match customer
needs and, once matched, that these value
profiles drive the shape and nature of internal
decisions.
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Financial impact of capacitydecision
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Financial impact of capacitydecision(cont…)
• Increase in flexibility
• Increase in value
• Enhanced market share• Increase in net sales
• Increase in net income
• Increase in return on assets
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Procedure of Aggregate Planning
1) Concept of Aggregation
For example, Steel producer , Paint
industry 1) Goals for Aggregate Planning
2) Aggregate Demand Forecasts
3) Interrelationships among Decision
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Types of Aggregate plans
1) ‘Level capacity’ plan
2) ‘Matching capacity with aggregate
demand’ plan
3) ‘Varying utilization’ plan, Mixed plan
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1. ‘Level capacity’ plan
• This strategy attempts to maintain an average
production level and use the inventory as abuffer.
• In months where demand is low production willexceed demand, with the balance going into
inventory.
• In months were demand exceeds production theinventory is drawn down to replace the missing
production.• The strategy emphasis is not to disturb the
existing production system at all.
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2. ‘Matching capacity with aggregate demand’ plan,Chase plan
• The chase strategy attempts to match production to
meet demand in each time period, using overtime,layoffs and new hires, temporary help, orcontractors.
• In a chase strategy the supply-demand mismatch is
addressed during each period by employing avariety of capacity related alternatives.
• The chase strategy does not use any changes ininventory.
• This strategy keeps investment in inventory quitelow but the effort required by planners can be veryhigh.
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3. ‘Varying utilization’ plan, Mixed plan
• The mixed strategy employs a combination of
the available alternatives.• Illustrations:
• Mixed strategy 1: Hire a certain no. of workers at
the beginning of the planning horizon, maintain aconstant production rate & utilize inventory
based alternatives to match supply with demand.
• Mixed strategy 2: Do not hire or lay-off workers,adjust the production rate by varying the no. of
shifts, use inventory & sub-contracting to match
supply with demand.
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• Mixed strategy 3: Do not hire or lay-off
workers, use sub-contracting during the
periods of high demand & build inventory
during periods of low demand.
• All the above examples, seeks to maintain level
production during the periods of low demand
by building inventory &
• Chase the demand by additional inventory
alternatives during periods of high demand.
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CAPACITY REQUIREMENTPLANNING
• A Technique to determine the labor and
equipment capacities needed to meet the
objectives.
• MRP and CRP—establish specifically what
materials and capacities are needed and when
they are needed.
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•
•
AGGREGATE
PLANResource planning
MPSRough-cut capacity planning
MRP
PLANNED ORDERS
AND RELEASE ORDERS
JOB(WORK)ORDERSS
VENDOR
(PURCHASE)ORDERS
IS
CAPACITY
MODIFI
CATION
FEASIBL
E?
NO
CRP
Work centre
status fileShop routing file
Load projection
report
Is
Capacity
adequate
Workload report
Input/output control
yes
yesn
o
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CRP inputs:
• (a)planned orders and released orders from
MRP system
• (b)Loading information from the work
centre status file• (c)Routing information from the shop
routing file
• (d) changes which modify capacity, givealternative routings or altered planned
orders
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Planning activity:
• Infinite loading and finite loading
CRP outputs:
• Rescheduling information which call forcapacity modification or revision of MPS.
• Verification of planned orders for MRP
system
• Load reports.
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Planning Hierarchies In OperationsBusiness Plan
Marketing Plan Financial Plan
Production Plan
(rough cut capacity)
Master Production Schedule
Material Requirement Plan Capacity Requirement Plan
Detailed scheduling
Shop Floor Control
Level 1
Level 2
Level 3
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Aggregate Planning
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Aggregate Planning
• Aggregate planning is an operational activity
which does an aggregate plan for the
production process, in advance of 2 to 18
months, to give an idea to management as towhat quantity of materials and other
resources are to be procured and when, so
that the total cost of operations of theorganization is kept to the minimum over that
period.
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Purpose of aggregate planning
• Information on the required level of O/P to be
produced, inventory levels to be maintained
and backlogs based on the business plan.
• Capacity under-utilization may lead to
wastage of resources.
• The company’s objectives and its policies
regarding its employees should be in line with
its aggregate plan.
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Necessary of Aggregate planning
• Its helps in fully load facilities and minimizes
over loading and under loading.
• Make sure enough capacity available to satisfy
expected demand.
• Get the most output for the amount of
resources available.
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Importance of aggregate plans
• It serve as a foundation for future short-range
type planning.
• It helps in balancing capacity and demand in
such a way that costs are minimized.
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Managerial Importance of Aggregate
PlansOperations
Current Machines Capacities
Plans for Future Capacities
Workforce capacities
Current Staffing Levels
Materials
Suppliers Capabilities
Storage Capacity
Material Availability
Engineering
New Products
Product Design Changes
Machine
Distribution and Marketing
Customer Needs
Demand Forecasts
Competition
Accounting and Finance
Cost Data
Financial Condition of Firm
Human Resources
Labour-Market conditions
Training Capacity
Aggregate
Plan
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Alternatives for managing demand
and supply in Aggregate Planning
• For managing demand
– Differential pricing
– Advertising and sales promotion
– Backlogs
– Development of complimentary product
• For managing supply
– Inventory based alternative
– Capacity adjustment alternatives
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Strategies for Matching
Capacity and Demand
• Shifting Demand to Match Capacity
• Adjusting Capacity to Meet Demand
- Dwayne D. Gremler
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Strategies for Shifting Demand
to Match Capacity
• Use signage to communicate busydays and times
• Offer incentives to customers forusage during non-peak times
• Take care of loyal or regularcustomers first
• Advertise peak usage times and
benefits of non-peak use
• Charge full price for the service--no discounts
• Use sales and advertising toincrease business from currentmarket segments
• Modify the service offering toappeal to new market segments
• Offer discounts or price reductions
• Modify hours of operation
• Bring the service to the customer
- Dwayne D. Gremler
Demand Too High Demand Too LowShift Demand
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Strategies for Adjusting Capacity
to Match Demand
• Stretch time, labor, facilities andequipment
• Cross-train employees
• Hire part-time employees
• Request overtime work fromemployees
• Rent or share facilities
• Rent or share equipment
• Subcontract or outsourceactivities
• Perform maintenance renovations
•Schedule vacations
• Schedule employee training
• Lay off employees
- Dwayne D. Gremler
Demand Too High Demand Too LowAdjust Capacity
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Steps for Capacity Planning
• Estimate future capacity requirements
• Evaluate existing capacity
• Identify alternatives• Conduct financial analysis
• Assess key qualitative issues
• Select one alternative
• Implement alternative chosen
• Monitor results
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Developing Capacity Alternatives
• Design flexibility into systems
• Take stage of life cycle into account
• Take a “big picture” approach to capacity
changes
• Prepare to deal with capacity “chunks(large
amount)”
• Attempt to smooth out capacity requirements
• Identify the optimal operating level
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STEPS
• Determine the demand
• Determine the aggregate demand
• Transform the aggregate demand for each
time period• Identify company policies
• Determine unit costs
• Develop alternative resource plans• Select the resource plan
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MATERIAL REQUIREMENTS
PLANNING
• COMPUTER BASED INFORMATION SYYSTEM
FOR ORDERING AND SCHEDULING OF
DEPENDENT DEMAND INVENTORIES.
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OBJECTIVES
• TO IMPROVE CUSTOMER SERVICE
• TO REDUCE INVENTORY COSTS BY
REDUCING INVENTORY LEVELS
•
TO IMPROVE PLANT OPERATING EFFICIENCYBY BETTER USE OF PRODUCTIVE
RESOURCES
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PURPOSE
• CONTROL INVENTORY LEVELS
• ASSIGN OPERATING PRIORITIES
• ASSIGN CAPACITY TO LOAD PRODUCTION
SYSTEM.
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ADVANTAGES
• REDUCED INVENTORY
• REDUCED IDLE TIME
• REDUCED SET UP TIME
• ABILITY TO CHANGE THE MASTER
• PRODUCTION SCHEDULE
•BETTER CUSTOMER SERVICE
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DISADVANTAGES:
• LACK OF TOP MANAGEMENT COMMITMENT
• PROBLEMS EVALUATING MRP SOFTWARE
• IT DOESN’T AUTOMATICALLY CHECK STATUS
OF ORDERS AND EXPEDITE THEM.
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BILLS OF MATERIAL
LISTS ALL OF THE SUBASSEMBLIES
PARTS, AND RAW MATERIALS THAT GO
INTO A PARENT ASSEMBLY SHOWING THE
QUANTITIES REQUIRED.TYPES:
• SINGLE –LEVEL BOM :
that displays the assembly or sub-assembly withonly one level of children. Thus it displays thecomponents directly needed to make theassembly or sub-assembly
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• MULTI-LEVEL BOM :
that displays the highest-level item closest to
the left margin and the components used in
that item indented more to the right
• MULTI-LEVEL INDENTED BOM :
It can also be visually represented by a
product structure tree, although they are
rarely used in the workplace
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Advantage of Capacity Planning
• Lowers the cost
• More consistency
• Improved service quality
• Better outcomes
• Better margins for revenues
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Disadvantage of Capacity Planning
• Diseconomies of scale (poor co-ordination,
communication, etc.)
• Time consuming
• Includes more risk
• Difficult to predict
•
Miscellaneous
Conclusion
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Conclusion
Thus Capacity Planning
has a tremendous efficiency in the business
scenario. Hundreds of methods for capacity
planning are practiced in a variety of organizations, depending on the necessity of
the production units as well as products. This
tool improves productivity by enablingautomatic detection and self-correction of
many problems.
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