Plant capacity decisions

Plant capacity decisions

INTRODUCTION
 Plant capacity may be defined as the ability to provide a pre designated or planned level of
output. The output units vary with the product.
 It may be simply numbers, as number of automobiles, washing machines, personal computers or
number of air Conditioners production capacity per year. The output units may be a specific type
of measure such as square yards of cloth, tons of cement, tons of paper or tons of steel rolled
sections per year.
 A plant capacity may even be simply the maximum number of hours available for service to the
customers.
 A plant with specific design configuration may be defined to have different capacity depending
on the single shift or continuous operation.
 Plant capacity decisions are very significant as they involve a commitment of large magnitude of
resources.
 Too large capacity would result into under utilization and low capital productivity or
profitability.
 On the other hand too small capacity of plant will result in opportunity loss. costing of products
is an important function of an organization.
STRATEGIES FOR CAPACITY PLANNING
Plant capacity may be decided with short term or long term considerations of the
demand forecast. Various strategies for capacity planning include the following:
Lead Strategy
This strategy is based on the demand forecast and has long view focus on
demand projections. The organization, in forward planning can manage the
resources to develop the required capacity. The forward planning provides the
time cushion to select the most efficient and cost effective solution for the
required capacity.
Lag Strategy
In this strategy back orders or unsatisfied demand leads to capacity increase
decisions. In this strategy usually the risk involved is less. The capacity increase
is incremental steps. The advantage of larger and more efficient plant is lost.
STRATEGIES FOR CAPACITY PLANNING

Match Strategy
This strategy focuses on short term demand fulfilment and not to loose
immediate demand opportunities. The capacity is increased in small incremental
steps.
Profitability Based Strategy
In this strategy the goal for the level of profit is fixed. Break-even analysis and
demand forecast data are used to determine the plant capacity mathematically
for a pre-set goal of profit or margin of safety to reduce the risk of loss
BASIC REQUIREMENTS FOR CAPACITY
PLANNING
In order to efficiently and effectively utilize the proposed / designed capacity,
various factors must be considered before making capacity decisions.
i. Availability of Raw Materials
The quantity of raw material available during the planned life period of the plant,
determines the capacity of the plant. This is particularly relevant to the mineral
based plants. Examples of such plants include coal thermal power plants, cement
factories and steel mills.
ii. Logistics and Infrastructure
Availability of rail, road, water supply, gas and electricity may limit the size of
the plant. The size of steel melting furnace depends on the power supply
available from the grid. The industries with bulk material requirement may find
limited capacity of rail or roads as capacity constraint.
BASIC REQUIREMENTS FOR CAPACITY
PLANNING
iii. Availability of Manpower
The availability of skilled manpower is an important factor for capacity decisions in labour intensive
industries such as garment industries and electronic goods
iv. Product Life
Rapid development in technology reduces product life. New products replace old ones. High investment
in large size plants of short life products involves greater risk and may not be economically feasible.
v. Competitors Strategy
The competitor's existing capacity and future plans of expansion are critical in deciding the capacity of
a new plant or capacity increase plans. Truly speaking, the demand and supply gap forecast is
important for capacity decisions.
vi. State Regulations
State regulation such as taxes based on capacity or production can influence capacity decisions. Other
mandatory requirements may increase fixed cost factor and small capacity plants may not be feasible.
vii. Environmental Factor
Business constraints of ISO 14000 certification may require effluent treatment such as in paper
industry and tanneries. These constraints may limit the minimum capacity of the plants.
STRATEGIES FOR CAPACITY
ENHANCEMENT
The capacity of a plant, factory or system depends on several factors. Any or
many of the following factors can be used to increase the capacity.
Workforce
The first option for capacity increase, with no capital investment is to increase
the workforce, changing over from single shift to double shift or continuous 3
shift operation. This is the least cost solution for capacity increase and is
particularly important where high capital investment has been involved in the
equipment.
Machines
When the existing equipment and machinery are fully utilized, an increase in the
number of machines becomes essential for capacity enhancement.
Materials
Poor quality, materials result in high rates of rejection. Review of material
specifications and improving quality of incoming materials can help to reduce
rejections and rework and hence increase the marketable product output
Technology and Innovation
The output of existing equipment can be increased by introducing innovative features
to the machines such as
 High speed tools, increasing rate of output.
 Jig and fixtures, saving loading and unloading time
 Form tools
 Combination or multiple operation tools
 Jidoka, automatic stoppage of machine when a fault or error occurs
New equipment
When the production requirements are increased sufficiently new high speed mass
production equipment may be economically feasible. When process involves multiple
operations, automatic multi-station transfer machine or production lines integrated
with material handling may be feasible. As these systems involve heavy capital
investment a thorough analysis for various alternates is necessary to make sure high
capital productivity and profitability
Capacity planning procedure
Demand Forecast.
Demand forecast with seasonal variations and trend is the first step for
estimating the capacity of new plants as well as the decisions relating to
expansion of existing capacity
Current Capacity Where expansion in capacity is involved, the existing capacity
of the plant must be estimated. In case of new plants the current capacity is
zero.
New Capacity
The difference of the demand forecast and the existing capacity establishes the
capacity expansion requirement.
 EFFECT OF OEE ON CAPACITY
Equipment requirement increases with a decrease effectiveness. There are
several factors which decrease OEE and hence create need for more machines or
capacity enhancement. Control of the factors which reduce OEE is necessary to
avoid unnecessary capital investment in capacity expansion
Downtime Due to Breakdowns The non productive time due to breakdown or
machine failure can be reduced by amore effective preventive maintenance
Machine Stops
Workers may stop the machines due to personal and system requirement, such as
going to washroom going to tool store or having a chat with following worker.
Running the Machines at Lower Than Standard Speed
Many workers run the machines at speeds lower than standard as an extra care to
prevent early tool or machine failure
Tool Setting
Change of tools and dies or resetting to compensate for wear causes loss of
productive machines time and hence reduction of OEE.
Start up Rejections
Starting a machine with a new tool or die for trial production and adjustment of
tooling may lead to one or a few component which may be rejected or may require
rework. This non productive time spent in producing a defective part can be
reduced by improving the design of tools and dies.
Rejections during regular production
The time spent to produce defective parts is a loss of the effective production
capacity. To avoid the production of defective parts, quality improvement tools
such as six sigma may be used.