CHAPTER:8 CAPACITY

CAPACITY: Capacity is the maximum rate of output for a process the operations manager must provide the capacity to meet current and future demand; otherwise the organization will miss opportunities for growth and profits. CAPACITY PLANNING: Every processes must need to plan for processing. capacity planning is central to the long- term successes of an organization. Capacity plan are made at two levels. 1.LONG-TERM CAPACITY: This plans cover at least two years into the future, but constructions lead times alone can force much longer time horizons. Service industries account for more than 68%of the total. 2.SHORT-TERM CAPACITY:\ This plan are focus on work force size, overtime budgets, inventories and other types of decisions. THE RELATION BETWEEN CAPACITY AND CAPACITY PLANNING: We know capacity is the maximum rate of output for a process. without planning no work or decision cannot give a good result. So before the capacity process we need to capacity planning. -Capacity planning is help to the organization to get opportunity. -It is help to make profit. -It is help to know the future condition of an organization. -Capacity planning shows the workforce size, overtime budgets etc. ECONOMIC OF SCALE: Historically, organizations have accepted a concept known as economics of scale which state that the average units cost of good or service can be reduced by increasing its output rate. ADVANTAGES OF ECONOMIC SCALE:

-SPREADING FIXED COST: In the short term, certain cost do not vary with changes in the out put rate. These fixed cost include heating cost, debt service and management salaries. Depreciation of plant and equipment already owned is also a fixed cost in the accounting sense. -REDUCING CONSTRUCTION COST: Certain activities and expenses are required in building small and large facilities alike: building permits, architects, fees, rental of building equipment, and the like. Doubling the size of the facilities usually does not double construction costs. CUTTING COST OF PURCHASED MATERIALS: Higher volumes can reduce the cost of purchased materials and service. They give the purchaser a better bargaining position and the opportunity to take advantage of quantity discount. FINDING PROCESS ADVANTAGES: High volume production provides many opportunities for cost reduction. At a higher output rate the process shifts toward a line process, with resources dedicated to individual products. Firms may be able to justify the expense of more efficient technology or more specialized equipment.