Summary Capacity Planning Revision Poster

ME20026: CAPACITY AND INVENTORY PLANNING:

DEFINITIONS: LONG TERM CAPACITY PLANNING: MEDIUM TERM CAPACITY PLANNING
 Definition
Capacity  Manufacturing operations must decide on the size of o Deciding the level of production in a time period at
o Maximum level of value-added activity over a the operations in terms of capacity which a manufacturing system should operate
period of time that the manufacturing process can  Things that affect this decision
achieve under normal operating conditions o Capital available to the company  Steps to planning the capacity of a manufacturing system
Design capacity o Economies and scale o Measure aggregate demand and capacity
o Maximum attainable output o Diseconomies of scale o Identify the alternative capacity plans
Effective capacity  Economies of scale o Choose the most appropriate capacity plan
o Maximum capacity with product mix, scheduling o Decrements in unit cost with the increase of cost
challenges and other issues taken into account  Diseconomies of scale  Options for planning the capacity of a manufacturing
Actual output o Increments of unit cost resulting from increase of operation in the face of fluctuating demand
o Rate of output that is actually achieved  can volume o Level capacity plan
never exceed effective capacity  Example:  Fluctuations are ignored
Utilisation  Activity levels kept constant
o Indicator of how close the facility is functioning  When non-perishable materials are processed but
with regards to its design capacity not immediately sold, they can be transferred to
Actual Output finished good inventory in anticipation of future
Utilisation= sales
Design Capacity o Chase demand plan
 Attempt is made to match capacity closely to
Efficiency varying levels of forecasted demand
o Indicates how close the facility is functioning to  E.g. hiring/firing or using part time staff
the effective capacity o Manage demand plan
Actual Output  Attempt is made to change and level demand
Efficiency= through price manipulation
EffectiveCapacity  E.g. promotions for off-season tickets
EFFECT OF QUALITY ON CAPACITY:  Sometimes the available resources can produce
Best operating point is usually near 70% of the capacity  Existence of defective products in the manufacturing process alternative products and services in off-peak times
increases the required capacity  E.g. university halls of residence being used
o Company must produce more than the demand for conference accommodation in the summer
 Equation to model capacity requirements with yield loss
M
B=
( 1−d 1) ( 1−d 2 ) …(1−d n)
 B is the average number of produced parts
 M is the number of good products made
 n is the number of operations in the production process
ME20026: CAPACITY AND
 d i is the average proportion of defective units at operation i INVENTORY PLANNING:
SHORT TERM CAPACITY OPTIONS: CAPACITY EXPANSION STRATEGIES:
 This increases capacity on a short term basis  Company may decide to move resources to different tasks as needed at the
Option Notes entrepreneurial stage.
Lease extra space If resource bottleneck is the result of lack of space, o In case of suppliers to companies, the production might shift to customers
temporarily this could resolve the constraint  Services might be added to existing site
Company usually has to pay more money for a short o New machines and facilities purchased
term lease  Duplicate existing services to additional sites
 Relocate to more suitable e.g. larger premises
Authorise overtime Useful when the capacity shortfall is in human
Expansionist Wait-and-see
resources and the amount is not substantial

Constant overtime could hinder productivity Definition Capacity is increased before Capacity is only increased once