Professional Documents
Culture Documents
Operations Management
William J. Stevenson
8th edition
5-2 Capacity Planning
CHAPTER
5
Capacity Planning
For Products and Services
Capacity Planning
Capacity
Design capacity
maximum output rate or service capacity an
operation, process, or facility is designed for
Effective capacity
Design capacity minus allowances such as
personal time, maintenance, and scrap
Actual output
rate of output actually achieved--cannot
exceed effective capacity.
5-6 Capacity Planning
Actual output
Efficiency =
Effective capacity
Actual output
Utilization =
Design capacity
Efficiency/Utilization Example
Facilities
Product and service factors
Process factors
Human factors
Operational factors
Supply chain factors
External factors
5-9 Capacity Planning
Strategy Formulation
Facilities
Cost of building and operating
Technological changes
Rate and direction of technology changes
Behavior of competitors
Availability of capital and other inputs
5-10 Capacity Planning
Make or Buy
1. Available capacity
2. Expertise
3. Quality considerations
4. Nature of demand
5. Cost
6. Risk
5-13 Capacity Planning
Economies of Scale
Economies of scale
If the output rate is less than the optimal level,
increasing output rate results in decreasing
average unit costs
Diseconomies of scale
If the output rate is more than the optimal level,
increasing the output rate results in increasing
average unit costs
5-15 Capacity Planning
Evaluating Alternatives
Figure 5.3
Production units have an optimal rate of output for minimal cost.
Average cost per unit
Minimum
cost
0 Rate of output
5-16 Capacity Planning
Evaluating Alternatives
Figure 5.4
Minimum cost & optimal operating rate are
functions of size of production unit.
Average cost per unit
Small
plant Medium
plant Large
plant
0 Output rate
5-17 Capacity Planning
Cost-Volume Relationships
Figure 5.5a
Amount ($)
0
Q (volume in units)
5-19 Capacity Planning
Cost-Volume Relationships
Figure 5.5b
Amount ($)
0
Q (volume in units)
5-20 Capacity Planning
Cost-Volume Relationships
Figure 5.5c
Amount ($)
0 BEP units
Q (volume in units)
5-21 Capacity Planning
3 machines
2 machines
1 machine
Quantity
Step fixed costs and variable costs.
5-22 Capacity Planning
$
BEP
3
TC
BEP2
TC
3
TC
2
1
Quantity
Multiple break-even points
5-23 Capacity Planning
Assumptions of Cost-Volume Analysis
Financial Analysis
Standard
Annual processing time Processing time
Product Demand per unit (hr.) needed (hr.)