Capacity Planning & Control Decisions

7/28/2019 Capacity Planning & Control Decisions

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Capacity Planning


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Capacity Planning

Capacity:In general business sense, it is viewed as the amount of output

a system is capable of achieving over a specific period oftime.

It is the ability of a plant to meet the demand in terms ofproducts or services offered by the plant.

It represents the maximum rate of output of a facility

It affects the companys ability to meet market demand, thetype of markets it can enter & its ability to compete in thosemarkets.

Capacity Planning:

It is concerned with defining thei) long term &ii) short term capacity needs of a firm & determining howthese needs will be met.


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Capacity Planning:

The need for capacity planning

It is necessary when an organization decides to

i) increase its production or

ii) introduce new products in to the market

Once capacity is evaluated & a need for new or expanded facilities isdetermined, decision regarding facility location & process technologyselection are taken

Capacity Planning Decisions: Involves activities such as : -

a) Assessing existing capacity

b) Forecasting future capacity needs

c) Identifying alternate ways to modify capacity

d) Evaluating financial, economical & technological capacity alternatives

e) Selecting a capacity alternative most suited to achieve the strategicmission of the firm.

Capacity planning involves capacity decisions that must merge consumerdemands with human, material & financial resources of the organisation


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Capacity Planning:

Capacity planning decisions are based on the consumerdemand & this is merged with human, material & financialresources of the organization. The process of capacityplanning is shown in the following figure:

Environmental Scanning

Demand Forecasting

Estimation of present capacity

Alternate capacity to meet the demand

Select the best plan

Implement

Quantitative & Economic Analysis of various plans


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Capacity Planning:

Input to capacity planning

Market Considerations Resources available

Capacity decision

Classification of Capacity planning:a) Long term capacity planning ]b) Short term capacity planning ] Based on time horizon

c) Finite capacity planning ] Based on amount ofd) Infinite capacity planning ] resources employed


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Capacity Planning:

Long term capacity planningIt s concerned with accommodating major changes that affect

the overall level of output.Major changes could be to i) develop new product lines,

ii) expand existing facilities & iii) construct or phase outproduction plants

Short term capacity planning

It is concerned with responding to relatively immediate variationin demandIn short term planning horizon, capacity concerns involve thefluctuations in demand due to seasonal or economic factors.Ways to adjust capacity under this are: i) use of overtime or

idle time ii) Increase the number of shifts / day to meettemporary strong demand & iii) Sub-contracting to other firms

Service industries use flexible working hours, part timeemployees, over time work schedule to meet peak demands


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Capacity Planning:

Short term capacity strategies-Inventories: Stock finished goods during slack period to meet demand

during peak period

-Backlogs: During peak periods, the willing customers are requested to

wait & their orders are fulfilled after the peak demand period.-Employment level (hiring & firing): Hire additional employees during peakdemand period & lay off employees as demand decreases.

-Employees training: Develop multi-skilled employees through training sothat they can be rotated among different jobs. This helps as alternative

to hiring employees.-Workforce utilisation: Employees are made to work over time during peak

hours & work fewer hours during slack period ( Flexible work hours)

-Subcontracting: During peak periods, hire the capacity of other firmstemporarily to make the component parts of products.

-Process design: Change job content by redesigning the job.

-Maintenance: Temporarily discontinue routine maintenance so that thistime can be utilised for production.


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Capacity Planning:

Finite capacity planning & Infinite capacity planningIn operation planning two conflicting constraints are

i) time & ii) capacity

If time is fixed by the customers required delivery date, or processing cycle,

it is possible to accept time as the primary constraint & plan backwards toaccommodate these times. In such cases planning backwards to infinitecapacity offers a potential solution to the problem

If processing time is not a constraint -cases where products are produced tostock & sell, it is simpler to use a forward plan based on finite capacity i.e

based on available resources.

Factors affecting capacity planning:i) Controllable factors - e.g amount of labour employed, facilities installed,machines, tooling, shifts worked per day, days worked per week, overtime

work, subcontracting, alternative routing of work, preventive maintenance,& number of production set ups.ii) Less controllable factors e.g. absenteeism, labour performance,machine breakdowns, material shortage, scrap & rework, unexpectedproblems like strike, lock out, fire accidents etc.


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Capacity time horizon

Productionactivity

control

i) Capacity control of inputs-output & operationsequencing (Uses finite loading) Managing via over

time, idle time, work force re-allocation,subcontracting, alternative tooling.

3) ShortRange

Aggregateplans &MPS items

& productsMRP items

i) Resources requirement planning of total resourcesneeded to satisfy master production schedule (MRP-II), uses load profiles of each product & simulation of

alternate MPS. Managing thru work force re-allocation

ii) CRP of labour & equipment in key work centers(uses finite loading) managing through employment &work force re-allocation, inventory, subcontracting,

make buy decisions, alternative routing & moretooling.

2)Mediumrange

Business /corporateobjectives

Resources planning of land, facilities, equipment &human resourcesInvolves strategy of changing facilities& employmentlevels over long range time horizon

1) LongRange

Applies toTechnique & StrategiesTimeFrame


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Ways of Changing Long-range Capacity

i) Selling off existing facilities, selling inventories &laying off or transferring employees to other units.

ii) Developing & Phasing in new products asdemand for other products decline.

2 Reduction

i) Subcontracting with other companies to becomesuppliers of the expanding firms components orentire products

ii) Acquiring other companys facilities or resources

iii) Developing new sites, constructing newbuildings, buying new equipments,

iv) Re-activating facilities on stand-by status.

1Expansion

Ways of accommodating Long-range Capacitychanges

Type ofcapacitychange


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Capacity Planning:Factors favoring over capacity & Under capacity:

It is very difficult to forecast demand as there is uncertainty associated with thedemand.

The forecasted demand will be either higher or lower than the actual demand.There fore there is a risk involved in creating capacity based on projecteddemand. This gives rise to either over capacity or under capacity.

The over capacity is preferred when:i) Fixed cost of the capacity is not very high.

ii) Subcontracting is not possible due to secrecy of design &/or qualityrequirements.

iii) Time required to add capacity is long.

iv) The company cannot afford to miss the delivery & cannot afford to loose thecustomer.

v) There is a economic capacity size below which it is not economical to operatethe plant.

The under capacity is preferred when:

i) The time to build capacity is short.

ii) Shortage of products does not affect the company.

iii) Technology changes fast i.e the rate of obsolescence of plant & equipment ishigh.

iv) The cost of creating the capacity is prohibitively high.

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Capacity Planning & Control Decisions