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Capacity Planning

Capacity Planning. Capacity refers to on upper limit or ceiling on the load that an operating unit can handle. The basic questions are: What kind of capacity is needed? How much is needed? When it is needed?.

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Capacity Planning

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  1. Capacity Planning Capacity refers to on upper limit or ceiling on the load that an operating unit can handle • The basic questions are: • What kind of capacity is needed? • How much is needed? • When it is needed? • Impact on the ability of the organization to meet future demands for products & services • Major determinant of initial cost – greater the capacity, larger the investment • Can affect competitiveness – excess capacity or flexible capacity • Affects the ease of management

  2. Capacity Planning Design Capacity:maximum attainable output Effective Capacity:maximum possible output with scheduling difficulties, machine maintenance & so on Effective capacity is always less than design capacity

  3. Capacity Planning Determinants of Effective Capacity • Facilities • Design – including size & provision of expansion • Location – transportation cost, distance to market, labor supply • Layout – smoothness of flow, as will as lighting & ventilation • Product / services • Design – easier the design, easier to produce • Product Mix – varieties of product reduce capacity • Process • Quantity – obvious determinant of capacity • Quality – low quality will require inspection & rework

  4. Capacity Planning Determinants of Effective Capacity • Human Factor • Job content • Training/Experience • Motivation • Compensation • Operational • Scheduling differences in equipment capabilities • Materials management – shortage of materials/ complaints • Quality assurance – in process & incoming materials • External • Product standard – can restricts increasing capacity • Safety regulations • Unions

  5. Capacity Planning Capacity Requirement Long term – relates to overall level of capacity e.g., facility size Determined by forecasting demand over a time horizon, and then converting those forecasts into capacity requirement • How long • Slope of trend Trend Short term – relates to probable variations e.g., seasonal, random Deviations are important as they can place severe strain to satisfy demand at sometimes & yet result in idle capacity at other times

  6. Capacity Planning Developing Capacity Alternatives Design flexibility into systems Provisions for futures expansions in the original design Differentiate between new and mature products/services Mature product/services tends to be more predictable Attempt to smooth out capacity requirement Need to identify products which can offset each other Prepare to deal with capacity chunks Capacity increases are often acquired in fairly large chunks Take a big picture approach to capacity change Important to consider how parts of the system interrelate Identify the optimal operation level In terms of unit cost of output

  7. Capacity Planning Evaluating Alternatives Financial Analysis Cost volume Analysis Total cost • Pay back period • Net present value • Internal rate of return Variable cost Total revenue Total Profit For breakeven

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