capacity pln

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  • 7/27/2019 Capacity Pln



  • 7/27/2019 Capacity Pln


    Capacity planning

    Amount of output a system is capable of achieving over a

    specific period of time.


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    Capacity planning

    Capacity planning is central to the long-term success

    of an organisation. Capacity plans are made at two

    levels: (i) Long-term capacity plans which dealwith investments in new facilities and equipments

    covering the requirements for at least two years into

    the future and (ii)Short-term capacity plans which

    focus on work-force size, overtime budgets,

    inventories etc.

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    Capacity Planning

    The basic questions in capacity planning are:

    What type of capacity is needed?

    How much is needed?

    When is it needed?

    How does productivity relate to capacity?

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    Types of Capacity

    1. Fixed capacity

    2. Adjustable capacity

    3. Design capacity

    4. System capacity

    5. Immediate capacity

    6. Effective capacity

    7. Normal capacity or rated capacity

    8. Actual or utilised capacity

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    Actual Output

    System efficiency is the ratio of the actual measured

    output of goods/services to the system capacity

    System efficiency =

    System capacity

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    Capacity Utilisation Rate = Actual output/

    Effective capacity

    Capacity= ( No. of machine or workers) * (No

    of shifts ) * (Utilisation) * (Efficiency)

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    Capacity Decisions

    Major considerations in capacity decisions are

    a. What size of plant? How much capacity to install?

    b. When capacity is needed? When to phase-in capacity orphase-out capacity?

    c. At what cost? How to budget for the cost?

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    Factors Affecting Determination of

    Plant Capacity

    1. Market demand for a product/service.

    2. The amount of capital that can be invested.

    3. Human resource considerations.

    4. Type of technology selected.5. Flexibility for capacity additions.

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    Capacity Planning

    Capacity planning involves activities such as:

    a. Assessing existing capacity

    b. Forecasting future capacity needs

    c. Identifying alternative ways to modify capacityd. Evaluating financial, economical and technological

    capacity alternatives

    e. Selecting a capacity alternative most suited to achievethe strategic mission of the firm. Capacity planning

    involves capacity decisions that must merge consumerdemands with human, material and financial resourcesof the organization.

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    Capacity Requirement Planning

    Capacity Requirement Planning (CRP): A

    technique to determine the labour and

    equipment capacities needed to meet the


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    Capacity Requirement Planning (CRP)

    ProcessCapacity Requirement Planning Process (Flow Chart)

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    Aggregate planning involves planning the best quality toproduce in the intermediate-range horizon (3 months toone year)

    Objectives of Aggregate Planning

    i. The overall objective is to balance conflicting

    objectives involving customer service, work forcestability, cost and profit.

    ii. To establish company-wide strategic plan forallocating resources.

    iii.To develop strategy to meet customer demand.

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    Master Production Scheduling

    Objectives of Master Production Scheduling

    1. To schedule end items to be completed promptlyand when promised to customers.

    2. To avoid overloading or underloading the

    production facility so that production capacity isefficiently utilized and low production costs result.

    Functions of MPS:

    Translating aggregate plans

    Evaluating alternative master schedules

    Generating material and capacity requirements Facilitating information processing

    Maintaining priorities

    Utilizing the capacity effectively.

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    Material requirement planning

    MRP serves as a key component in an

    information system for planning and

    controlling production operation and

    procurement of material

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    Practical Question

    A steel plant has a design capacity of 50,000

    tons of steel perday, effective capacity is

    40,000tons of steel perday and actual output

    is of 36,000 steel perday. Compute theefficency and utilisation of plant

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    Practical Question

    A work centre operates 5 days a week on a 2

    shift perday basis, each shift of 8 hrs duration.

    There are 5 machine of the same capacity in

    the work centre. If machine are utilised 80% ofthe time at a system efficiency of 90%. What is

    the rated output in standard hours per week

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    Breakeven Analysis

    Breakeven quantity =Fixed Costs

    Price - Variable Costs

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    Breakeven example

    Thomas Manufacturing intends to increase capacityby overcoming a bottleneck operation through theaddition of new equipment. Two vendors havepresented proposals as follows:

    Proposal Fixed Costs Variable Costs

    A RS 50,000 Rs12

    B Rs 70,000 RS10

    The revenue for each product is Rs20

    What is the breakeven quantity for each proposal?

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    Breakeven Solution

    BEQ =FC

    P- VC

    Proposal A

    BEQ = = 6250Rs 50,000

    Rs20 - 12

    Proposal B

    BEQ = = 7000Rs 70,000

    Rs20 - 10

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    Breakeven Analysis

    In the previous example, at what capacity wouldboth plans incur the same cost?

    Total cost = Fixed cost + Variable Cost (Q)

    50,000 + 12Q = 70,000 + 10 Q

    Q = 10,000