Capacity Planning

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Capacity

• Capacity is the ability / rate at which the system can deliver desired output

• Creation of capacity is an investment decision• Centralised and decentralised capacity• The concept of capacity is thus invariably connected with

the weakest link in the chain• Capacity has to do some thing with making in-house or

subcontracting from outside

Capacity of a facility is a limiting capability to produce an output over a period of time

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Importance of capacity

• Operations manager are concerned with capacity because:

They want sufficient capacity to meet market demands on time

Capacity effects cost efficiency of operations It dictates the ease and difficulty of scheduling output Cost of maintaining the facility Capital investment

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Measurement of capacity

• Tangible single products – units or numbers per unit of time (electricity in MW, transistor in units, Steel in MT)

• Tangible multiple products – in terms of constrains in capacity (Jobshop in max labour hours, hospitals in bed days)

• Tangible services – units or numbers per unit of time (Insurance co in policies per year)

• Heterogeneous services – capacity of constrains (man hours per month for a bank branch)

• Capacity can also be measured on output rate & input rate

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Types of capacity

• Fixed capacity – Capital assets (equipments & building) are known as fixed capacity

• Adjustable capacity – Size of workforce, number of working hours and extent of subcontracting

• Design capacity – Planned rate of output of goods or services under normal operating conditions. It is also known as installed capacity

• System capacity – max output of a product or product mix the system is capable of producing. It is equal to or less than design capacity

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Types of capacity . . . contd

• Effective capacity – capacity which is used within the current budgeted period. Also known as practical capacity or operating capacity

• Normal capacity or rated capacity – estimated output done be industrial engineering department

• Actual or utilised capacity – Actual output achieved during a particular time period

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Capacity decisions

Market Environment

Material Requirements

Capacity Requirements

Master Prod Schedule (MPS)

Aggregate production plan

Forecast & customer order

Capacity (mtl, labour, capital)

Resource base & technology Long range (1-15 yrs).

Major Capacity additions, product & process decisions

Intermediate range (6-18 mths) Workforce, overtime plans, inventory & subcontracting levels, minor capacity changes

Short range (upto 6 mnths) detailed scheduling, routings, alternate workcentres, overtime etc

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Importance of capacity decisions

• Capacity decisions are important because: They have a long term impact Capacity determines the selection of appropriate

technology, type of labour & equipments Right capacity ensures commercial viability of business

venture Capacity influences the competitiveness of the firm

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Factors affecting determination of plant capacity

• Market demand for a product / service• Amount of capital that can be invested• Degree of automation desired• Level of integration• Type of technology selected • Dynamic nature of all factors affecting plant capacity:

Changes in product design Market conditions Product life cycle Process Technology

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Factors affecting determination of plant capacity . . contd

• Difficulty in forecasting future demand and technology• Obsolesce of product & technology over a period of time• Present demand and future demand in

Long range Intermediate range Short range

• Flexibility of capacity additions

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Dovetailing of plans

Plan 1

Uni

ts

Plan 2Plan 3

TimeDemand

Plans Cost of Operational changes Inventory Related cost Total

1 5,50,000 15,000 5,65,000

2 - 1,55,000 1,55,000

3 60,000 75,000 1,35,000

Market Demands

Production Capacities

Match the two optimally

Plan 1 = Matching capacity Plan

Plan 2 = Leveling capacity plan

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Ways of changing capacity

• Capacity Addition Sub-contracting certain components Acquisition Developing new sites, buildings & equipments Reactivating facilities

• Capacity Reduction Selling of facilities Layoff and transfer Developing new products

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Capacity planning & Control

• Capacity planning is determining the necessary resources to meet the production objectives of a firm

• Capacity or facility planning includes determination of: How much long range production capacity is needed When additional capacity is needed Where production facilities should be located Layout and characteristics of facilities

• Capacity control is monitoring output, comparing it with capacity plan, determining if variations exceed limits and taking corrective action

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Factors effecting capacity planning

•Controllable factorsLabour employedFacilities installedMachines & toolsNumber of shiftsOvertime policySubcontractingPreventive maintenanceProduction set-ups

•Less controllable factorsAbsenteeismLabour performanceMachine breakdownsMaterial shortagesRejects & reworkAccidentsStrikes

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Capacity Planning Process

• Future capacity requirement: prediction Forecasting, mature products are subject to better

prediction

• Multiple outputs Demand forecasting for specific output is easier than

multiple Demand of each output is estimated and then summed up

• Capacity plans: generation process Decide to expand capacity or lose some sales Alternative sources

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Capacity Planning Process . . contd

• Capacity enhancement: size Should capacity be added in many small doses or in one large dose

• Cost Volume relationship Identify break even volume

• Evaluation of various alternative plans Financial analysis Risk analysis

• Final decision

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Formulas

• System efficiency = Actual output / System Capacity

• Standard run hrs = setup time + Run time

EBQ

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Problem 1

430 410350380

Actual o/p = 310 per day

1. What is the system capacity?

2. What is the system efficiency?

Solution:

System capacity is the capacity of the bottle neck = 350 per day

System efficiency = Actual output / System capacity

= 310 / 350 = 0.8857

= 88.57%

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Problem 2

A work centre operates 5 days a week on a 2 shift per day basis, each shift of 8 hrs duration. There are five machines of the same capacity in the work centre. If the machines are utilised 80% and system efficiency is 90% what is the rated output on hrs per week

Solution:

Rated o/p per machine per week = (5) x (2) x (8) x 0.8 x 0.9

= 57.6 hrs

Rated o/p of system = 5 x 57.6 = 288 std hrs

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Problem 3

Two product groups A & B have product trees as shown:

A

ECDC

B

The process sheets are shown in table with setup time and run time standards. Along with the said details economic batch quantity and demand for each item is given in the table. The standard work hrs per week is 500. Calculate the number of each machine required

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Problem 3 .. contd

Item Opr. Descr Setup hrs Run Hrs EBQ Demand / wk

A Assembly 0 2.00 15 3000

B Assembly 0 3.00 10 2000

C Milling 0.3 0.14 25

Drilling 2.4 0.40

Milling 2.7 0.23

Grinding 1.0 0.21

D Milling 0.40 0.15 20

Drilling 2.8 0.35

Grinding 2.2 0.24

E Milling 0.3 0.18 30

Drilling 2.1 0.39

Milling 2.5 0.26

Grinding 1.3 0.23

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Problem 3 - Solution

Item Opr. Descr Setup hrs Run Hrs EBQ Std run hrs / unit

A Assembly 0 2.00 15 2.00

B Assembly 0 3.00 10 3.00

C Milling 0.3 0.14 25 0.152

Drilling 2.4 0.40 0.50

Milling 2.7 0.23 0.338

Grinding 1.0 0.21 0.25

D Milling 0.40 0.15 20 0.17

Drilling 2.8 0.35 0.49

Grinding 2.2 0.24 0.35

E Milling 0.3 0.18 30 0.19

Drilling 2.1 0.39 0.46

Milling 2.5 0.26 0.34

Grinding 1.3 0.23 0.27

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Problem 3 - Solution

Calculate product wise work load on each machine per unit

Machine Product A Product B

Milling 0.66 1.02

Drilling 0.99 0.96

Grinding 0.60 0.52

Assembly 2.00 3.00

Standard run hrs per unit

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Problem 3 - Solution

Calculate product wise work load on each machine per week for demand of A = 3000 and B = 2000

Machine Product A Product B W/L of A W/L of B Total W/L

Milling 0.66 1.02 1980 2040 4020

Drilling 0.99 0.96 2970 1920 4890

Grinding 0.60 0.52 1800 1040 2840

Standard run hrs per week

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Problem 3 - Solution

Calculate required number of machines to fulfill demand

Machine Total Hrs Available Hrs

No of m/c’s

Milling 4020 500 8.04 ~ 8

Drilling 4890 500 9.78 ~ 10

Grinding 2840 500 5.68 ~ 6

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Problem 4 - Practice

Clark & co makes 3 products on different type of machines. The matrix of operating times & job set up times, demand per month and economic lot sizes are shown in table. The machine utilisation factor is 90% and operator efficiency is 105%. How many machines are needed if the plant works for forty hrs/ week.

Equipment Product A Product B Product C

Punch

Set up hrs 0.75 0.600

Run Hrs 0.04 0.060

Grind

Set up hrs 0.750

Run Hrs 0.020

Screw

Set up hrs 0.400 0.520

Run Hrs 0.030 0.050

Demand / month 1200 2000 1000

EBQ 300 500 250