Capacity planning

● Capacity is the maximum output rate of a production

or service facility.

● Capacity also includes

● Equipment
● Space
● Employee skills

02/09/17 3
The basic questions in capacity
planning
Capacity planning is the process of establishing
the output rate that may be needed at a facility.

02/09/17 5
Reasons of capacity
planning
 Importance of Capacity Decisions

● Impacts ability to meet future demands

● Affects operating costs
● Major determinant of initial costs
● Involves long-term commitment
● Affects competitiveness
● Affects ease of management

02/09/17 7
 Measuring Capacity Examples

Input Measures Output Measures

Type of of of Capacity
Business
Capacity
Car manufacturer Labor hours Cars per shift
Hospital Available beds Patients per
month
Pizza parlor Labor hours Pizzas per day

Retail store Floor space in Revenue per foot

02/09/17 square feet 8
 Capacity terminology
Design capacity ( Max. Capacity )
is the maximum theoretical output of a system
Normally expressed as a rate
Under ideal conditions
Effective capacity ( Best Operating Level )
is the capacity a firm expects to achieve given
current operating constraints
Often lower than design capacity
Under ideal conditions
Actual output ( Capacity Used )
is rate of output actually achieved
Cannot exceed effective capacity.
 Utilization and Efficiency

Utilization is the percent of

design capacity achieved
Utilization = Actual Output/Design Capacity

Efficiency is the percent of

effective capacity achieved
Efficiency = Actual Output/Effective Capacity

Both measures expressed as percentages

 Calculating Capacity Utilization

● Measures how much of the available capacity is

actually being used:

Utilization 
actual output rate
100%
capacity

Measures effectiveness
Use either effective or design capacity in
denominator
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Ex. Efficiency/Utilization
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day

Actual output 36 units/day

Efficiency = = = 90%
Effective capacity 40 units/ day

Actual output 36 units/day

Utilization = = = 72%
Design capacity 50 units/day
 Determinants of Effective Capacity
● Facilities (size, location, layout, heating, lighting, ventilations)
● Product and service factors (similarity of products)
● Process factors (productivity, quality)
● Human factors (training, skills, experience, motivations,
absentation, turnover)

● Policy factors (overtime system, no. of shifts)

● Operational factors (scheduling problems, purchasing
requirements, inventory shortages)
● Supply chain factors (warehousing, transportation,
distribution)
● External factors (product standards, government agencies,
pollution standard)
Calculating Processing Requirements

A dept. works 8- hour shift, 250 days/year

St n a rd
Annual p ro c a d g t i e P ro c e s i n g ti e
P ro d u c t e d e si m ( s e d ( rm
D m an pes n h r. ne e h .)
r un i ) d
t

#1 400 5 .0 2 , 00
0
#2 300 8 .0 2 , 00
4
#3 700 2 .0 1,4 0 0
annual capacity is 250* 8 = 2000 hours,
5 , = 02. 90
number of machines required = 5, 800 hours/ 2, 000 hours 0
machines 8
then we need three machines to handle the required volume
Capacity Planning Process
Develop Quantitative
Forecast
Alternative Factors
Demand
Plans (e.g., Cost)

Compute Evaluate Qualitative

Rated Capacity Factors
Capacity Plans (e.g., Skills)

Compute Select Best

Implement
Needed Capacity
Best Plan
Capacity Plan
 Planning Over a Time Horizon
Long-range Add facilities
planning Add long lead time equipment *
Intermediate- Subcontract Add personnel
range Add equipment Build or use inventory
planning Add shifts

Short-range Schedule jobs

planning
* Schedule personnel
Allocate machinery

Modify capacity Use capacity

* Limited options exist

02/09/17 16
Economies of Scale
● Economies of scale
● If the output rate is less than the optimal level,
increasing output rate results in decreasing average unit
costs
● Diseconomies of scale
● If the output rate is more than the optimal level,
increasing the output rate results in increasing average
unit costs
Production units have an optimal rate of output for minimal cost.

Average cost per unit

Minimum average cost per unit

Minimum
cost

0 Rate of output
 Minimum cost & optimal operating rate are
functions of size of production unit.
Average cost per unit

Small
plant Medium
plant Large
plant

0
Output rate

5-19
02/09/17 20
Cost Volume Analysis:
Breakeven Analysis
Technique for evaluating process & equipment
alternatives
Objective: Find the point at which total cost
equals total revenue
Assumptions
•Revenue & costs are related linearly to volume
•All information is known with certainty
•No time value of money
Break-Even Analysis
● Fixed costs: costs that continue even if no units are
produced: depreciation, taxes, debt, mortgage
payments
● Variable costs: costs that vary with the volume of
units produced: labor, materials, portion of utilities

22
Breakeven Chart
Total revenue line
Breakeven point Profit
Total cost = Total revenue
Total cost line

Variable cost
Dollars
Cost in

Loss Fixed cost

Volume (units/period)
 Assumptions of Cost-Volume
Analysis
1. One product is involved
2. Everything produced can be sold
3. Variable cost per unit is the same regardless of
volume
4. Fixed costs do not change with volume
5. Revenue per unit constant with volume
6. Revenue per unit exceeds variable cost per unit

5-24
Decision Theory
● Helpful tool for financial comparison of alternatives
under conditions of risk or uncertainty
● Suited to capacity decisions

5-25
 Small Box Office
ER .3 200,000
690,000
Sign with Movie Co. .6 Medium Box Office
1,000,000
ER .1
900,000 Large Box Office
300,000

Small Box Office

ER .3 900,000
900,000
Sign with TV Network .6 Medium Box Office
900,000
.1
Large Box Office
900,000
 Financial Analysis
● Cash Flow - the difference between cash received
from sales and other sources, and cash outflow for
labor, material, overhead, and taxes.
● Present Value - the sum, in current value, of all
future cash flows of an investment proposal.

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Net Present Value
F = future value
P = present value
F
i = interest rate P
N = number of years (i  1) N
Waiting-Line Analysis
● Useful for designing or modifying service systems
● Waiting-lines occur across a wide variety of service
systems
● Waiting-lines are caused by bottlenecks in the
process
● Helps managers plan capacity level that will be cost-
effective by balancing the cost of having customers
wait in line with the cost of additional capacity

5-29
PROCESS PLANNING
Design Machine
Tool
Process
Planning

Scheduling and Production Control

What methods were used?
● Machining methods
● Pressworking
● Welding/fabrication
● Casting
● Powder materials
● Layered deposition
● Others
 Welding/fabrication:
Additive techniques

Final Product
Weld Weld
Initial
Add-on Add-on
Stock
Machining Methods:
Subtractive techniques

Final Product
Initial Slotting Drilling
Stock
Casting:
Form Methods
ENGINEERING DESIGN MODELING
2" +0.01
-0.01 0.001 A B

10" +0.01
-0.01

4" +0.01
-0.01

7" +0.05
-0.05

3" +0.01
-0.01 B
1'-4" +0.01 5" +0.01
-0.01
-0.01

U*
S.F. 64 u inch

Fa c e

Lo o p -*

Ed g e

V e rt e x
CSG MODEL
B-REP MODEL
INTERACTION OF
PLANNING FUNCTIONS
SETUP PLANNING
GEOMETRIC REASONING • feature relationship
• global & local geometry • approach directions
• process constraints
PROCESS SELECTION • fixture constraints
• process capability
• process cost FIXTURE PLANNING
• fixture element function
• locating, supporting, and
CUTTER SELECTION clamping surfaces
• available tools • stability
• tool dimension and geometry
• geometric constraints
CUTTER PATH GENERATION
MACHINE TOOL SELECTION • feature merging and split
• machine availability, cost • path optimization
• machine capability • obstacle and
interference avoidance