Chapter 6 – Planning Capacity

chapter 6 supply capacitance electrical capacitance the maximum rate of output of a mould or a system. Acquisition of new electrical subject requires extensive planning, and often involves real expenditure of resources and magazine. Capacity ratiocinations mustiness be do in come of several bulky-term issues much(prenominal) as the firms economies and diseconomies of shield, subject matter cushions, measure and sizing strategies, and trade-offs between customer do and substance utilization. Planning susceptibility across the organizationAccounting provide cost information needed to appreciate condenser intricacy Finance financial analysis of proposed capacity involution investments and raises funds Marketing assume forecasts needed to identify capacity gaps. operations selection of capacity strategies that can be implemented to effectively join future pick out. Human Resources hiring and training employees needed to support internal capacity plans. planning long-term capacity When choosing a capacity scheme How more or less(prenominal) of a cushion is needed to handle variable or doubtful read? Should we expand capacity ahead of necessitate, or check until demand is more certain? easures of capacity and utilization railroad siding Measures Are outperform utilized when applied to individual processes within the firm, or when the firm provides a relatively small descend of standardized overhauls and crossings. For example, a machine manufacturing plant may measure capacity in terms of the number of cars produced per day. Inputs Measures Are gived for low-volume, flexible processes (custom products). For example a custom article of furniture maker might measure capacity in terms of inputs such as number of workstations or number of workers. The problem of input measures is that demand is expressed as an output rate.If the furniture maker wants to keep up with demand, he must convert the businesss annual demand for furnitur e into labor hours and number of employees ask to fulfill those hours. Utilization leg to which a resource (equipment, space, worker) is currently beingness used. Utilization= Average Output RateMaximum Capacityx blow% The numerator and the denominator should be measured in the same units. A process can be operated above the 100%, with over while, extra shifts, overstaffing, subcontracting, etc, but this is non sustainable for long. Economies of scaleEconomies of scale The average unit cost of a serve up or good can be reduced by qualify magnitude its output rate. Why? * Spreading set(p) be same fixed be divided by more units * Reducing saying costs doubling the size of it of the facility usually doesnt double construction costs (building permits, architects fees, rental) * Cutting costs of purchased materials better bargain position and quantity discounts * Finding process advantages speed up the knowledge effect, lowering inventory, improving process and job design s, and reduction the number of varyovers. diseconomies of scaleDiseconomies of scale The average cost per unit increases as the facilitys size increases. The reason is that excessive size can bring complexity, loss of focus, and inefficiencies. capacity timing and sizing strategies sizing capacity cushions Capacity cushion=100%-Average Utilization rate (%) When the average utilization rate draw c fall asleepes 100% for long periods, its a signal to increase capacity or decrement order acceptance to avoid declining productivity. The optimal capacity cushion depends on the industry. Particularly, in front-office processes where customers expect fast service times, large cushions be vital (more variable demand).For capital-intensive firms, minimizing the capacity cushion is vital (unused capacity costs money). timing and sizing expansion Two strategies * Expansionist strategy large, infrequent jumps in capacity. Is ahead of demand, and minimizes the chance of sales lost to insuff icient capacity * Wait-and-see strategy smaller, more frequent jumps. It lags behind demand. To meet whatever shortfalls, it relies on short-run operations (overtime, temporary workers, subcontractors, postponement of preventive maintenance on equipment).It reduces the essay of overexpansion based on overly optimistic demand forecasts, obsolete technology, or inaccurate assumptions regarding the competition. This strategy fits the short-term outlook but can erode market sh ar over the long run. Timing and sizing of expansion be related if demand is increasing and the time between increments increases, the size of the increments must excessively increase. An intermediate strategy can be check the leader, so nobody gains a competitive advantage for being ahead of demand, and everyone shares the agony of overcapacity in the otherwise case. inking capacity and other decisions Capacity cushions in the long run buffer the organization against uncertainty, as do resource flexibilit y, inventory, and longer customer lead times. If a change is made in any one decision area, the capacity cushion may also need to be changed to compensate. For example Lower volume of toil (more capacity cushion) to raise prices or vice versa. a systematic approach to long-term capacity decisions 4 touchstones 1. Estimate future capacity requirements 2. Identify gaps by comparing requirements with available capacity 3. Develop ersatz plans for reducing the gaps . Evaluate each alternative, two qualitatively and quantitatively, and make a final choice step 1 foretell capacity requirements A processs capacity requirement is what its capacity should be for some future time period to meet the demand of the firms customers (external or internal), given the firms desired capacity cushion. larger requirements are practical for processes or workstations that could potentially be bottlenecks in the future, and counselling may even plan for longer cushions than normal. Capacity require ments can be expressed in * Output measure * Input measureEither way, the foundation for the estimate is forecasts of demand, productivity, competition, and technological change. The further ahead you look, the more chance you have of do an inaccurate forecast. Using output measures Demand forecasts for future years are used as a basis for extrapolating capacity requirements into the future. If demand is anticipate to double in the next 5 years, then the capacity requirements also double. For example Actual demand 50 customers per day expected demand = 100 customers per day desirable cushion = 20%. So capacity should be (100)/(1-0. )=125 customers per day. Using input measures Output measures may be insufficient in these situations * Product variety and process divergence is extravagantly (customized products) * The product or service mix is changing * Productivity pass judgment are expected to change * Significant learning effects are expected In these cases, an input measure s hould be used (number of employees, machines, trucks, etc) unmatchable product neat When just one service or product is processed at an operation and the time period is a finicky year, the capacity requirement (M) is M=DpN1-C100D=demand forecast for the year (number of customers served or units produced) p=processing time (in hours per costumer served or unit produced) N=Total number of hours per year during which the process operates C=desired capacity cushion (expressed as a percent) M=number of input units required and should be calculated for each year in the time aspect Many products processed Setup time time required to change a process or an operation from making one service or product to making another. To calculate the total setup time D/Q*s Where D=demand forecast for the yearQ= number of units processed between setups s= time per setup For example, if the demand is 1200 units, and the average bundle size is 100, there are 1200/100=12 setups per year. Accounting for b oth processing and setup times for multiple products, we get M=Dp+DQsproduct 1+Dp+DQsproduct 2++Dp+DQsproduct nN1-C100 When M is not an integer and we are talking well-nigh number of machines, you can round up the fractional part, unless it is cost in effect(p) to use short-term options, such as overtime or stockouts.But if we are talking around number of employees and we get 23. 6, we can use 23 employees and use a little overtime (in this case, 60% of a regular person). step 2 identify gaps A capacity gap is any difference (positive or negative) between projected capacity requirements (M) and current capacity. step 3 develop alternatives Develop alternative plans to cope with projected gaps. bingle alternative is the base case do nothing and simply lose orders from any demand that exceeds current capacity or incur costs because capacity is too large.Other alternatives various timing and sizing options (expansionist or wait-and-see strategies) expanding at a different location and using short term options. For reducing capacity, the alternatives include closing plants, laying off employees, reducing days or hours of operations. step 4 evaluate the alternatives Evaluate qualitatively and quantitatively. Qualitative concerns The four-in-hand looks at how each alternative fits the overall capacity strategy and other aspects of the business not covered by the financial analysis (uncertainties about demand, competitive reaction, technological change, and cost estimates).Some of these factors cant be quantified and must be assessed on the basis of judgment and experience. Quantitative concerns The manager estimates the change in cash flows for each alternative over the forecast time horizon compared to the base case. tools for capacity planning waiting-line models Are useful in high customer-contact processes. Waiting-line models use probability distributions to provide estimates of average customer wait time, average length of waiting lines, and utilization o f the work center.Managers can use this information to choose the most cost-effective capacity, balancing customer service and the cost of adding capacity. This topic will be treated more profoundly in the appendix (siguiente resumen) simulation Simulations can identify the processs bottlenecks and appropriate capacity cushions, even for complex processes with random demand patterns and predictable flows in demand during a typical day. decision trees A decision tree can be particularly valuable for evaluating different capacity extension alternatives when demand is uncertain and sequential decisions are involved.