You are on page 1of 38

Mata kuliah : J0444 - Manajemen Operasional

Tahun : 2010

Capacity Planning
Pertemuan 04
Learning Objectives

• Explain the importance of capacity planning.

• Discuss ways of defining and measuring
• Describe the determinants of effective capacity.
• Discuss the major considerations related to
developing capacity alternatives.
• Briefly describe approaches that are useful for
evaluating capacity alternatives
Capacity Planning

• Capacity is the upper limit or ceiling on the load

that an operating unit can handle.
• Capacity also includes
– Equipment
– Space
– Employee skills
• The basic questions in capacity handling are:
– What kind of capacity is needed?
– How much is needed?
– When is it needed?
Capacity Planning Process

Develop Quantitative
Alternative Factors
Plans (e.g., Cost)

Compute Evaluate Qualitative

Rated Capacity Factors
Capacity Plans (e.g., Skills)

Compute Select Best

Needed Capacity
Best Plan
Capacity Plan
Types of Planning Over a Time

Long Range Planning

Add Facilities *
Add long lead time equipment

Intermediate Range Planning

Sub-Contract Add Personnel
Add Equipment Build or Use Inventory
Add Shifts

* Schedule Jobs
Short Range Planning
Schedule Personnel
Allocate Machinery

Modify Capacity Use Capacity

*Limited options exist
Importance of Capacity
1. Impacts ability to meet future demands
2. Affects operating costs
3. Major determinant of initial costs
4. Involves long-term commitment
5. Affects competitiveness
6. Affects ease of management
7. Globalization adds complexity
8. Impacts long range planning
Definition and Measures of Capacity

Capacity: The “throughput,” or number of units a

facility can hold, receive, store, or
produce in a period of time.
Effective Capacity a firm can expect to receive given its
capacity: product mix, methods of scheduling,
maintenance, and standards of quality.
Actual output as a percent of design

Efficiency: Actual output as a percent of effective capacity.


Measure of planned or actual capacity

usage of a facility, work center, or

Actual Output
Utilization =
Design Capacity
Planned hours to be used
Total hours available

Measure of how well a facility or machine is

performing when used

Actual output
Efficiency =
Effective Capacity
Actual output in units
Standard output in units
Average actual time
Standard time

Design capacity = 50 trucks/day

Effective capacity = 40 trucks/day
Actual output = 36 units/day

Actual output = 36 units/day

Efficiency = =
Effective capacity 40 units/ day

Utilization = Actual output = 36 units/day

= 72%
Design capacity 50 units/day
Determinants of Effective
• Facilities
• Product and service factors
• Process factors
• Human factors
• Policy factors
• Operational factors
• Supply chain factors
• External factors
Strategy Formulation
• Capacity strategy for long-term demand
• Demand patterns
• Growth rate and variability
• Facilities
– Cost of building and operating
• Technological changes
– Rate and direction of technology changes
• Behavior of competitors
• Availability of capital and other inputs
Key Decisions of Capacity Planning

1. Amount of capacity needed

• Capacity cushion (100% - Utilization)
1. Timing of changes
2. Need to maintain balance
3. Extent of flexibility of facilities

Capacity cushion – extra demand intended to

offset uncertainty
Steps for Capacity Planning

1. Estimate future capacity requirements

2. Evaluate existing capacity
3. Identify alternatives
4. Conduct financial analysis
5. Assess key qualitative issues
6. Select one alternative
7. Implement alternative chosen
8. Monitor results
Forecasting Capacity
• Long-term vs. short-term capacity needs
• Long-term relates to overall level of capacity such
as facility size, trends, and cycles
• Short-term relates to variations from seasonal,
random, and irregular fluctuations in demand
Calculating Processing
S t a n d a r d
A n n u a p l r o c e s s i n g P tr i om c ee s s i n g
P r o d u cD t e m a n dp e r u n i t ( h rn . )e e d e d ( h r

# 1 4 0 0 5 . 0 2 , 0 0 0

# 2 3 0 0 8 . 0 2 , 4 0 0

# 3 7 0 0 2 . 0 1 , 4 0 0
5 , 8 0 0

If annual capacity is 2000 hours, then we need three machines to handle the
required volume: 5,800 hours/2,000 hours = 2.90 machines
Planning Service Capacity

• Need to be near customers

– Capacity and location are closely tied
• Inability to store services
– Capacity must be matched with timing of demand
• Degree of volatility of demand
– Peak demand periods
In-House or Outsourcing

Outsource: obtain a good or service

from an external provider

1. Available capacity
2. Expertise
3. Quality considerations
4. Nature of demand
5. Cost
6. Risk
Implications of Capacity Changes

Changes in:
• Sales
• Cash flow
• Quality
• Supply chain
• Human resources
• Maintenance
Special Requirements for Making Good
Capacity Decisions

• Forecast demand accurately

• Understanding the technology and capacity
• Finding the optimal operating level (volume)
• Build for change
Approaches to Capacity
Expected Demand Expected Demand

New Capacity New Capacity


Time in Years Time in Years

Capacity leads demand with an incremental expansion Capacity leads demand with a one-step expansion

Expected Demand Expected Demand

New Capacity
New Capacity


Time in Years Time in Years

Attempts to have an average
Capacity lags demand with an incremental expansion
capacity, with an incremental
Approaches to Capacity Expansion

Expected Demand

New Capacity

Time in Years

Capacity leads demand with an incremental expansion

Approaches to Capacity Expansion

Expected Demand

New Capacity

Time in Years
Capacity leads demand with a one-step expansion
Approaches to Capacity Expansion

Expected Demand
New Capacity

Time in Years
Capacity lags demand with an incremental expansion
Approaches to Capacity Expansion

Expected Demand
New Capacity

Time in Years
Attempts to have an average capacity, with an
incremental expansion
Evaluating Alternatives

• Cost-volume analysis
– Break-even point
• Financial analysis
– Cash flow
– Present value
• Decision theory
• Waiting-line analysis
Break-Even Analysis

• Fixed costs: costs that continue even if no units

are produced: depreciation, taxes, debt,
mortgage payments
• Variable costs: costs that vary with the volume of
units produced: labor, materials, portion of
Breakeven Chart

Total revenue line

Breakeven point Profit
Total cost = Total revenue
Cost in Dollars

Total cost line

Variable cost

Loss Fixed cost

Volume (units/period)
Crossover Chart
Process A: low volume, high variety
Process B: Repetitive
Process C: High volume,A low variety
o c sB
- Pr Proc e
t t-
os Tot
a l c
lc ro c e ss C
ota l c ost -
T Tot a

Fixed cost - Process C

Fixed cost - Process B
Fixed cost - Process A

Process A Process B Process C Lowest cost process

Assumptions of Cost-Volume

1. One product is involved

2. Everything produced can be sold
3. Variable cost per unit is the same regardless of
4. Fixed costs do not change with volume
5. Revenue per unit constant with volume
6. Revenue per unit exceeds variable cost per
Financial Analysis

• Cash Flow - the difference between cash

received from sales and other sources, and
cash outflow for labor, material, overhead, and
• Present Value - the sum, in current value, of all
future cash flows of an investment proposal.
Net Present Value

F = future value F
P= N
P = present value (i + 1)
I = interest rate
N = number of years
NPV in a More Convenient Form
Present value of $1.00

Year 5% 6% 7% 8%
P= N
1 0.952 0.943 0.935 0.857
(i + 1)
2 0.907 0.890 0.873 0.857

P = FX 3 0.864 0.840 0.816 0.794

where X = 4 0.823 0.792 0.763 0.735
(i + 1 ) N
5 0.784 0.747 0.713 0.681
Present Value of an Annuity (S)
Year 5% 6% 7% 8%
• X = Factor from Table
1 0.952 0.943 0.935 0.926
• S = present value of a
series of uniform 2 1.859 1.833 1.808 1.783
annual receipts
• R = receipts that are 3 2.723 2.673 2.624 2.577
received every year for
the life of the 4 3.546 3.465 3.387 3.312
S = RX 5 4.329 4.212 4.100 3.993

6 5.076 4.917 4.766 4.623

Decision Theory

• Helpful tool for financial comparison of

alternatives under conditions of risk or
• Suited to capacity decisions
• See Chapter 5 Supplement
Decision Tree and Capacity Decision

-$14,000 Market favorable (0.4) $100,000

a nt Market unfavorable (0.6) -$90,000

P l
r g e
La $18,000 Market favorable (0.4) $60,000
Medium Plant
all Market unfavorable (0.6) -10,000
nt $13,000
Market favorable (0.4) -5,000

Market unfavorable (0.6) $40,000


Waiting-Line Analysis

• Useful for designing or modifying service systems

• Waiting-lines occur across a wide variety of service
• Waiting-lines are caused by bottlenecks in the
• Helps managers plan capacity level that will be
cost-effective by balancing the cost of having
customers wait in line with the cost of additional
The End