Chapter 5: Capacity Planning Flashcards
Capacity
The maximum sustainable flow-rate of output of a process or a system
determines possible throughput
Long term capacity planning considerations
Economies and diseconomies of scale
Capacity timing and sizing
Capacity cushions
Trade off between customer service and capacity utilization
Short term constraint management considerations
- theory of constraints
- identification and management of bottlenecks
- product mix decisions using bottlenecks
-managing constraint in a line process
Output measures of capacity
Capacity measured in terms of outputs. Best utilized for individual processes within a firm or when a firm provides a relatively small number of standardize services/ products
Becomes less useful as variety in product mix increases
Input measures of capacity
Generally used for low volume, flexible processes
Issue is that demand is generally expressed as an output rate and must be converted
Utilization
Aka capacity utilization
The degree to which a resource is currently being used
= Average output rate / max capacity (expressed as a percent)
(= throughput / theoretical capacity)
Output rate and capacity must be measured in the same terms
Maximum capacity for the utilization equation
Greatest level of output that a process can reasonably sustain for a longer period using realistic schedules and current equipment
Exceeding maximum capacity can be done for peaks but cannot be sustained
Economies of scale
The average unit cost of a good or service can be reduced by increasing it’s output rate because:
- spread out fixed costs
- reducing construction costs
- cutting costs of purchased materials (volume discounts)
- finding process advantages (line processes) (can afford to dedicate resources)
Diseconomies of scale
Occur when the average cost per unit (at the best operating level) increases as a facility’s size increases
Size can bring complexity, loss of focus, inefficiency
Three dimensions of capacity strategy
- sizing capacity cushions
- timing and sizing expansion
- linking process capacity and other operating decisions
Capacity cushions
Provide a buffer against uncertainty
Amount of reserve capacity a process uses to handle sudden increase in demand or temporary losses in production capacity.
= 100% - average utilization rate %
Size of capacity cushion
Varys by industry
Often smaller in capital intensive industries and larger where service time is paramount.
Large cushions important when demand varies or future demand is uncertain and resource flexibility is low or if prompt customer service is a competitive priority
But unused capacity costs money
Small cushions may uncover inefficiencies, usually implies less risk and less idle capacity
Expansionist strategy for expanding capacity
Large, infrequent jumps in capacity. Attempts to stay ahead of demand and minimize loss to insufficient capacity
aka capacity lead strategy
Wait-and-see strategy for expanding capacity
Smaller, more frequent jumps in capacity. Focus on short term options for increases: lags behind demand
Reduced risk for overexpansion/ obsolete technology but risks being preempted by a competitor
aka capacity lag strategy
Four step procedure for making capacity decisions
- Estimate future capacity requirement
- Identify gaps by comparing requirements with available capacity
- Develop alternative plans for reducing gaps
- Evaluate each alternative qualitatively and quantitatively before making a final choice
Capacity requirement
What a process’s capacity should be for some future time period to meet the demand of customers (internal or external) given the firm’s desired capacity cushion
Can be measured by output or input
Planning horizon
The set of consecutive time periods considered for planning purposes
When input measures are appropriate
- Product variety and process divergence is high.
- product or service mix is changing
- productivity rates are expected to change
- significantly learning effects are expected
Capacity requirement equation
For a single service or process, with a time period of a year
= (Processing hours required for years demand) / (hours available from a single capacity unit after deducting the desired capacity cushion)
Alternate capacity requirement equation
Number of input units required = (demand forecast * processing time) / (total number of hours available in a year from one unit of capacity * (1-capacity cushion as a decimal))
Setup time
The time required to change a process or operation from making one service or product to another
Equation for setups per year
Number of set ups per year= (Number of units forecast per year / number of units made in each lot requiring setup)
