PARUL INSTITUTE OF MANAGEMENT & RESEARCH

Faculty Guid :-

Prof. Niyati Patel

Submitted By :-

Disha Patel 27Kalpan Patel 28

Section : - C

TOPIC :- CAPACITY PLANNING SUB. :- Production & Operation Management

MEANING & DEFINITION

• The capacity of a facility is defined as the maximum load that can be handled by it during a given period.

• The load can be expressed in terms of the amount of inputs or output.

• Example :- Sugar Mill .• The suitable measure here is in terms of input.

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CAPACITY

• Design capacity– maximum output rate or service capacity an

operation, process, or facility is designed for• Effective capacity

– Design capacity minus allowances such as personal time, maintenance, and scrap

• Actual output– rate of output actually achieved--cannot

exceed effective capacity.

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• Capacity Planning is a long-term strategic decision that establishes a firm’s overall level of resources.

• The decisions are strategic, because they often commit the resources of the organization for long periods.

• Capacity Planning is the study of the level of capacity the organization provides at each stage of the production or service delivery system to meet its objectives.

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Need for the capacity

Planning

To find the optimal

capacity of the facility so that the

sum of costs of under and over capacity

is the minimum.

To keep the initial

investment in the facility

as low as possible to

achieve lower break

even volume.

Investments in

facility capacity are long-term and cannot be reversed

easily.

To satisfy the future demand of the products

without any shortages.

Types of Capacity Design capacity: represents the maximum rate of output that

can be achieved under ideal conditions. Effective capacity: is the maximum rate of output which can

be practically achieved under the constraints of time consumed in set-ups, oiling & cleaning, defective items, etc. Effective capacity is always lesser than the design capacity.

Actual capacity: is the maximum output rate which is actually achieved under the constraints of machine breakdowns, labor inefficiencies & absenteeism, defective products, late deliveries of materials by the supplier, and so on. Actual capacity can be equal to or less than the effective capacity.

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Efficiency and Utilization

Actual outputEfficiency =

Effective capacity

Actual outputUtilization =

Design capacity

Both measures expressed as percentages

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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

Design capacity = 50 trucks/day

Effective capacity = 40 trucks/day

Actual output = 36 units/day

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Ways of Increasing Effective Capacity

Proper facility location, layout, and internal working conditions

By making products & services as uniform as possible in design so that number of set-ups required are less (batch sizes will be large)

Proper process quality control so that there are less defective items requiring rework

Good training, high motivation, less absenteeism & high turnover on part of workers

Good coordination with suppliers for timely & defect-free supplies and proper scheduling of products on machines

By properly following the environmental and pollution norms, which results in lesser inspections by government enforcement agencies and, thus, lesser disruption of production activities

Ways of Increasing Effective Capacity

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Time

TimeTime

Time

Demand forecast

Demand forecast

Demand forecast

Demand forecast

Growth trend

Decline trend

Cyclical trend

Stable trend

Time

Demand forecast

Product A

Product B

Products A & B

Role of Forecasting in Capacity Planning : Trends in Demand Forecasts

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Output rate

Average cost per unit of the product

Optimal output rate0

Output rate 0

Average cost per unit of the product

Small-sized Plant

Medium-sized Plant

Large-sized Plant

Part a

Part b

Optimal Capacity Determination

1. Process design2. Product design3. Product variety4. Product quality5. Product scheduling6. Material management7. Maintenance8. Job design and personnel management

Factors affecting capacity Planning

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