Operations Management Capacity Design - PowerPoint PPT Presentation

Operations management capacity design
1 / 21

  • Uploaded on
  • Presentation posted in: General

Operations Management Capacity Design. Long Range Planning. Add Facilities. Intermediate Range Planning. Sub-Contract Add Equipment Add Shifts. Add Personnel Build or Use Inventory. Schedule Jobs Schedule Personnel Allocate Machinery. Short Range Planning.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

Download Presentation

Operations Management Capacity Design

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript

Operations management capacity design

Operations ManagementCapacity Design

Types of planning over a time horizon

Long Range Planning

Add Facilities

Intermediate Range Planning


Add Equipment

Add Shifts

Add Personnel

Build or Use Inventory

Schedule Jobs

Schedule Personnel

Allocate Machinery

Short Range Planning

Modify Capacity

Use Capacity

Types of Planning Over a Time Horizon

Definition and measures of capacity

Definition and Measures of Capacity



The maximum “throughput,” or number of units a facility can produce in a period of time.

Capacity a firm can expect to achieve given its product mix, methods of scheduling, maintenance, and standards of quality.

Effective capacity:


Actual output as a percent of design capacity.


Actual output as a percent of effective capacity.



Measure of planned or actual capacity usage of a facility, work center, or machine

Actual Output



Design Capacity



Measure of how well a facility or machine is performing when used

Actual output



Effective Capacity



Facility produces breakfast rolls

  • Last week, produced 148,000 rolls

  • Effective capacity is 175,000 rolls

  • Line operates 7 days a week with three 8-hour shifts per day

  • Line designed to produce 1200 rolls per hour

  • Determine

    • Design Capacity

    • Utilization

    • Efficiency

Calculating actual output

Calculating actual output

Same facility adding one more line due to increase in demand for deluxe rolls

  • Effective capacity is 175,000 rolls of this line

  • Efficiency of this second line will be 75%

  • What is the expected output?

Managing demand

Managing Demand

  • Demand exceeds capacity – curtail demand by raising prices, scheduling long lead times, etc

  • Capacity exceeds demand – stimulate demand through price reductions, aggressive marketing, etc

  • Adjusting to seasonal demands– offer products with complementary demand patterns – pdts for which demand is high for one when low for the other

Managing capacity

Managing Capacity

  • Making staffing changes (increasing or decreasing the number of employees)

  • Adjusting equipment and processes – which might include purchasing additional machinery or selling or leasing out existing equipment

  • Improving methods to increase throughput; and/or

  • Redesigning the product to facilitate more throughput

Breakeven analysis

Breakeven Analysis

  • Technique for evaluating process & equipment alternatives

  • Objective: Find the point ($ or units) at which total cost equals total revenue

  • Assumptions

    • Revenue & costs are related linearly to volume

    • All information is known with certainty

Break even analysis

Break-Even Analysis

  • Fixed costs: costs that continue even if no units are produced: depreciation, taxes, debt, mortgage payments, salaries, etc

  • Variable costs: costs that vary with the volume of units produced: labor wages, materials, portion of utilities

Breakeven chart

Breakeven Chart

Total revenue line


Breakeven point

Total cost = Total revenue


Total cost line

Cost in Dollars

Variable cost


Fixed cost

Volume (units/period)

Crossover chart

Process A: low volume, high variety

Process B: Repetitive

Process C: High volume, low variety

Total cost - Process A

Total cost - Process B

Total cost - Process C

Fixed cost - Process C

Fixed cost - Process B

Fixed cost - Process A

Lowest cost process

Process A

Process B

Process C

Crossover Chart

Break even contd

Break Even Contd..

  • BEPx= FC (units)


    BEPrs.= FC (amount)


    BEPrs.= FC (multi product)


    P=Selling price, V=variable cost

    FC=fixed cost

Bep calc

BEP Calc.

  • A company has fixed costs of 10000/- this period. Direct costs are 1.5/- per unit and material cost is 0.75/- per unit. The selling price is 4/- per unit. Calculate the BEPs.

Bep calc in multi product case

BEP Calc. in multi product case

Operations management capacity design

  • If the fixed costs are 3500,

  • BEPrs.= FC ∑[(1-Vi/Pi)*(Wi)]

    3500*12 = 67200


Decision trees application

Decision trees application

  • A company is considering capacity expansion. it has 3 alternatives. the new facility would produce new type of product and currently the marketability of the product is unknown.

  • Types of plant favorable mkt. unfavorable mkt.

  • Large plant100 k-90k

  • Medium plant60k-10k

  • Small plant40k-5k

  • The probability of fav and unfav. Markets are 0.4 and 0.6 respectively.

Operations management capacity design

  • EMV (large plant)=0.4(100k)+(.6)(-90k)=-14k

  • EMV (medium plant)=0.4(60k)+(.6)(-10k)=18k

  • EMV (small plant)=0.4(40k)+(.6)(-5k)=13k

  • Based on Expected market value, the company should build a medium plant

Net present value

Net Present value

  • A co. having two capacity expansion alternatives A and B have useful lives of 4 years. Initial outlay for A is 25k and that for B is 26k. The cost of capital is 8%.the cash flow pattern is as follows.





    47k 9k

  • Login