Chapter 9– Capacity Planning

& Facility Location

Operations Management
by
R. Dan Reid & Nada R. Sanders
2nd Edition © Wiley 2005

PowerPoint Presentation by R.B. Clough - UNH

 Capacity planning
 Capacity is the maximum output rate of a
production or service facility
 Capacity planning is the process of establishing the
output rate that may be needed at a facility:
 Strategic issues: how much and when to spend

capital for additional facility & equipment

 Tactical issues: workforce & inventory levels, &

day-to-day use of equipment

 Measuring Capacity Examples
 There is no one best way to measure capacity
 Output measures like kgs per day are easier to understand
 With multiple products, inputs measures work better

Input Measures of Output Measures

Type of Business
Capacity of Capacity
Car manufacturer Labor hours Cars per shift
Hospital Available beds Patients per month
Pizza parlor Labor hours Pizzas per day
Floor space in
Retail store Revenue per foot
square feet
 Capacity Information Needed
 Design capacity:
 Maximum output rate under ideal conditions
 A bakery can make 30 custom cakes per day
when pushed at holiday time
 Effective capacity:
 Maximum output rate under normal (realistic)
conditions
 On the average this bakery can make 20
custom cakes per day
Calculating Capacity Utilization
 Measures how much of the available
capacity is actually being used:
actual output rate
Utilization  100%
capacity

 Measures effectiveness
 Use either effective or design capacity in
denominator
Example of Computing Capacity Utilization: In the
bakery example the design capacity is 30 custom cakes
per day. Currently the bakery is producing 28 cakes per
day. On the average this bakery can make 20 custom
cakes per day under realistic/normal conditions. What is
the bakery’s capacity utilization relative to both design
and effective capacity?
 actual output 28
Utilization effective  (100%)  (100%)  140%
effective capacity 20

actual output 28
Utilization design  (100%)  (100%)  93%
design capacity 30

 The current utilization is only slightly below its design

capacity and considerably above its effective capacity
 The bakery can only operate at this level for a short
period of time
 How Much Capacity Is Best?
 The Best Operating Level is the output that results in
the lowest average unit cost
 Economies of Scale:
 Where the cost per unit of output drops as volume of output
increases
 Spread the fixed costs of buildings & equipment over multiple
units, allow bulk purchasing & handling of material
 Diseconomies of Scale:
 Where the cost per unit rises as volume increases
 Often caused by excess of much work-in-process materials) and
scheduling complexity or wastes of materials
Economies and Diseconomies
of Scale
 Designing Assembly Lines
 Step 1:
Identify tasks & immediate predecessors
 Step 2:
Determine the desired output rate
 Step 3:
Calculate the cycle time
 Step 4:
Compute the theoretical minimum number
of workstations
 Step 5: Assign tasks to workstations (balance the
line)
 Step 6: Compute efficiency, idle time & balance
delay
 Example: Vicki’s Pizzeria
Assembly Line

Example 10.4 Vicki's Pizzeria and the Precedence Diagram

Immediate Task Time
Work Element Task Description Predecessor (seconds
A Roll dough None 50
B Place on cardboard backing A 5
C Sprinkle cheese B 25
D Spread Sauce C 15
E Add pepperoni D 12
F Add sausage D 10
G Add mushrooms D 15
H Shrinkwrap pizza E,F,G 18
I Pack in box H 15
Total task time 165
Step 1: Draw the Precedence
Diagram
 Determine the Line’s Cycle Time
 Step 2: Determine output rate
 Vicki needs to produce 60 pizzas per hour
 Step 3: Determine cycle time
The amount of time each workstation is allowed to
complete its tasks
available time sec./hour 
Cycle time (sec./unit)  
desired output  units/hr 
60 min/hr x 60 sec/min
 60 sec./unit
60 units/hr
The Maximum Output

The maximum output is limited by the bottleneck task

(the longest task in a process):

available time
Maximum output  
bottleneck task time
3600 sec./hr.
 72 units/hr
50 sec./unit
Determine the Minimum
Number of Stations
 Step 4: Compute the theoretical minimum
number of stations
 TM = number of stations needed to
achieve 100% efficiency (every second is
used)

TM 
 task times   165 seconds
 2.75, or 3 stations
cycle time 60 sec/station

 Always round up (no partial workstations)

 Assign Tasks to Stations
 Step 5: Assign tasks to workstations
 Start at the first station & choose the longest eligible task following
precedence relationships
 Continue adding the longest eligible task that fits without going over the
desired cycle time
 When no additional tasks can be added within the desired cycle time, begin
assigning tasks to the next workstation until finished
Workstation Eligible task Task Selected Task time Idle time
A A 50 10
1
B B 5 5
C C 25 35
2 D D 15 20
E, F, G G 15 5
E, F E 12 48
F F 10 38
3
H H 18 20
I I 15 5
 Calculate the Line’s Efficiency
 Step 6: Compute efficiency and balance delay
 Efficiency (%) is the ratio of total productive
time divided by total time

Efficiency (%) 
 t

165 sec.
100  91.7%
NC 3 stations x 60 sec.

 Balance delay (%) is the amount by which the

line falls short of 100%

Balance delay  100%  91.7%  8.3%

Facility Location
 Three most important factors in real
estate:
1. Location
2. Location
3. Location
 Facility location is the process of
identifying the best geographic location
for a service or production facility
Location Factors
 Proximity to suppliers:
 Reduce transportation costs of perishable or bulky
raw materials
 Proximity to customers:
 E.g.: high population areas and access to
customer
 Proximity to labor:
 Local wage rates, attitude toward unions,
availability of special skills
 More Location Factors
 Community considerations:
 Local community’s attitude toward the facility (e.g.:
utility plants, etc.)
 Site considerations:
 Local zoning & taxes, access to utilities, etc.
 Quality-of-life issues:
 Climate, cultural attractions, commuting time, etc.
 Other considerations:
 Options for future expansion, local competition, etc.
 Location Analysis Methods
 Analysis should follow 3 step process:
 Step 1: Identify dominant location factors
 Step 2: Develop location alternatives
 Step 3: Evaluate locations alternatives
 Factor rating method
 Load-distance model
 Center of gravity approach
 Break-even analysis
 Transportation method
Factor Rating Example
 A Load-Distance Model Example: Matrix Manufacturing is
considering where to locate its warehouse in order to service its four
Ohio stores located in Cleveland, Cincinnati, Columbus, Dayton. Two
sites are being considered; Mansfield and Springfield, Ohio. Use the
load-distance model to make the decision.

 Calculate the rectilinear distance: dAB  30  10  40  15  45 miles

 A load may be number of shipments moving toward warehouses

 Multiply by the number of loads between each warehouse site and the four cities
i.e. Cleveland, Cincinnati, Columbus, Dayton
 Calculating the Load-Distance Score
for Springfield vs.
Mansfield
Computing the Load-Distance Score for Springfield

City Load Distance ld
Cleveland 15 20.5 307.5
Columbus 10 4.5 45
Cincinnati 12 7.5 90
Dayton 4 3.5 14
Total Load-Distance Score(456.5)

Computing the Load-Distance Score for Mansfield

City Load Distance ld
Cleveland 15 8 120
Columbus 10 8 80
Cincinnati 12 20 240
Dayton 4 16 64
Total Load-Distance Score(504)

 The load-distance (ld) score for Mansfield is higher than for

Springfield. The warehouse should be located in Springfield.
The Center of Gravity Approach
 This approach requires that the analyst find the center
of gravity of the geographic area being considered
Computing the Center of Gravity for Matrix Manufacturing
Coordinates Load
Location (X,Y) (li) lixi liyi
Cleveland (11,22) 15 165 330
Columbus (10,7) 10 165 70
Cincinnati (4,1) 12 165 12
Dayton (3,6) 4 165 24
Total 41 325 436

 Computing the Center of Gravity for Matrix

Manufacturing
Xc.g. 
 liXi 325
  7.9 ; Yc.g. 
 liYi 436
  10.6
 li 41  li 41
 Is there another possible warehouse location closer to the
C.G. that should be considered?? Why?