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# CAPACITY PLANNING

## CAPACITY PLANNING DECISIONS

1. Assessing existing capacity
2. Forecasting capacity needs
3. Identifying alternative ways to modify capacity
4. Evaluating financial, economical and technological
capacity alternatives
5. Selecting a capacity alternative most suited to
achieving strategic mission
MEASURES OF OPERATING CAPACITY

ORGANISATION MEASURE
Automobile manufacturer ► Number of cars
Brewery ► Barrels of beer
Cannery ► Tons of food
Power Company ► Megawatts of electricity
Airline ► Number of seats
Hospital ► Number of beds
Job Shop ► Labour &/or machine hours
Warehouse ► Square or cubic feet of
storage space
STRATEGIES FOR MODIFYING CAPACITY

## SHORT TERM RESPONSES

TYPE ACTION
Inventories Stock pile
Backlogs Ask willing customers to wait
Employee levels Hire / Lay-off
Work force utilisation Work overtime
Employee training Train each in several tasks
Process design Change job content/increase productivity
Subcontracting Hire other firms temporarily
Maintenance Preventive maintenance

## LONG TERM RESPONSES Expansion

CAPACITY PLANNING
MODELING
SHORT TERM CAPACITY

• Linear Programming
• Computer Simulation

EXAMPLE

## Multiband Enterprises manufactures two products, a

Available resources and possible uses (in a month):

## Resource Resource needed to Resource

Produce one unit of Available
Product (in hours) (in hours)
CB PR
Subassembly labor 0.40 0.50 316
Assembly labor 0.40 0.30 354
Inspection labor 0.05 0.10 62
If all resources are devoted to produce CBs :
Subassembly labor can produce= 790 units
Assembly labor can produce = 708 units
Inspection labor can produce = 1240 units

## If all resources are devoted to produce PRs :

Subassembly labor can produce= 632 units
Assembly labor can produce = 1180 units
Inspection labor can produce = 620 units
Multi Bands capacity alternatives are :

## 1. 708 CBs 2. 620 PRs

3. Combination of CBs and PRs

## Objective function = (\$50) x No. of CBs(c)

+ (\$40) x No. of PRs(p)
= 50c + 40p
Resource Resources Resource Available
Used (in hours) (in hours)

## Subassembly labor 0.40c + 0.50p ≤ 316

Assembly labor 0.40c + 0.30p ≤ 354
Inspection labor 0.05c + 0.10p ≤ 62

for PRs = 126

## Objective function = (50X632) + (40x126)

= \$36,640
DECISION TREE ANALYSIS

1. TREE DIAGRAMMING
– Identify all decision points and then the order in
which they occur
– Identify alternative decisions for each decision
point
– Identify the chance events that can occur after
each decision
– Develop a tree diagram showing the sequence of
decisions and chance events
2. ESTIMATION
• Estimate the probability for each possible
outcome of each chance event
• Estimate the financial consequences of each
possible outcome and decision alternative

## 3. EVALUATION & SELECTION

• Calculate the expected value of each decision
alternative
• Select the decision alternative offering the most
attractive expected value.
EXAMPLE :

## City transit system in Small town operates its bus

system at a \$400,000 deficit annually. The city
council has decided to raise bus fares to help offset
the deficit. The Director of the city transit believes
the fare increase will decrease ridership unless
transit system capacity is expanded.
Influential council member suggests an increase in
fare now but delay the capacity expansion for two
years.
The Director has decided to use a decision tree
analysis to evaluate this problem for an 8-year time
horizon (the desired planning period).
The expected cost associated with c
ECc = (0.4)(600) + (0.5) (1800) + (0.1)(3000)
= 1440

## The expected cost of event a is the sum of the

weighted costs of its possible outcomes
ECa = (0.3)(500+1890) + (0.7) (800+2220)
= 717 + 2114
= 2831
******