CHAPTER FIVE

PROCESS SELECTION AND CAPACITY PLANNING

Chapter 5
Process Selection
and Capacity
Planning
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Process Selection and Capacity Planning

• Make or Buy?

– Available capacity

– Quality Consideration

– The nature of demand

– Cost
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Process Selection and System Design
Figure 5-1 Capacity
planning
Forecasting

Facilities and
Product and Process Equipment
service design selection
Layout
Technological
change Work
design
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Types of Processes
• Continuous Processing
• Repetitive/Assembly
– Semicontinuous
• Intermittent/Batch Processing
• Job Shops
– Small runs
• Projects
– Nonroutine jobs

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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Table 5-16 Variety, Flexibility, & Volume
Product High Moderate Low Very Low
Variety
Equipment High Moderate Low Very Low
flexibility
Low Job
Volume Shop
Moderate Batch
Volume
High Repetitive
Volume assembly
Very high Continuous
Volume Flow
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Product-Process Lifecycle Matrix
Few High
Low Multiple Major Volume,
Volume Products, Products, High
One of a Low Higher Standard-
Kind Volume Volume ization
Flexibility-
Job Commercial
Quality
Shop Printer

Batch Heavy
Equipment

Assembly Automobile
Line Assembly

Continuous Sugar
Flow Refinery Dependability
Cost
Flexibility-Quality Dependability-Cost
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Automation

• Computer-aided design and

manufacturing systems (CAD/CAM)
• Numerically controlled (NC)
machines
• Flexible manufacturing systems
• Computer-integrated
manufacturing (CIM)

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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Capacity Planning
• Capacity is the upper limit or
ceiling on the load that an
operating unit can handle.
• The basic questions in capacity
handling are:
– What kind of capacity is needed?
– How much is needed?
– When is it needed?
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Capacity
• Design capacity
– maximum obtainable output
• Effective capacity
– Maximum capacity given product mix,
scheduling difficulties, and other doses of
reality.
• Actual output
– rate of output actually achieved--cannot
exceed effective capacity.

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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Efficiency and Utilization

Actual output
Efficiency =
Effective capacity

Actual output
Utilization =
Design capacity

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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Efficiency/Utilization Example
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day

Actual output = 36 units/day

Efficiency = =
90%
Effective capacity 40 units/ day

Utilization = Actual output = 36 units/day =

72%
Design capacity 50 units/day

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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Determinants of Effective Capacity
• Facilities
• Products or services
• Processes
• Human considerations
• Operations
• External forces

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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Some Possible Growth Patterns
Figure 5-4
Volume

Volume
Growth Decline

0 Time 0 Time

Cyclical Stable
Volume
Volume

0 0
Time Time
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Developing Capacity Alternatives

• Design flexibility into systems

• Take a “big picture” approach to
capacity changes
• Prepare to deal with capacity “chunks”
• Attempt to smooth out capacity
requirements
• Identify the optimal operating level
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Figure 5-6 Evaluating Alternatives
Production units have an optimal rate of output for minimal cost.
Average cost per unit

Minimum
cost

0 Rate of output
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Figure 5-7 Evaluating Alternatives
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
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Calculating Processing Requirements
S ta n d a rd
Annual p r o c e s s in g tim e P r o c e s s in g t im e
P ro d u c t Dem and p e r u n it ( h r . ) n e e d e d (h r.)

#1 400 5 .0 2 ,0 0 0

#2 300 8 .0 2 ,4 0 0

#3 700 2 .0 1 ,4 0 0
5 ,8 0 0
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Figure 5-8a
Cost-Volume Relationships

F C
+
Amount ($)

VC C)
=
st t (V
s
co co
t al l e
o i a b
T ar
l v
t a
To
Fixed cost (FC)

0
Q (volume in units)
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Figure 5-8b Cost-Volume Relationships

ue
en
ev
Amount ($)

r
tal
To

0
Q (volume in units)
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Figure 5-8c Cost-Volume Relationships

u e
e n fi t
Amount ($)

ev ro
r P
al t
t o s
To t a l c
To

0 BEP units
Q (volume in units)©The McGraw-Hill Companies, Inc., 1999
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Break-Even Problem with Step Fixed Costs
Figure 5-9a
C =
+V
FC
TC
= TC
V C
+
FC 3 machines
T C
C =
V
C + 2 machines
F

1 machine
Quantity
Step fixed costs and variable costs.
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Break-Even Problem with Step Fixed Costs
Figure 5-9b
$
BE
P 3
TC
BEP2
TC
3
TC
2
TR 1
Quantity
Multiple break-even points
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 CHAPTER FIVE
PROCESS SELECTION AND CAPACITY PLANNING
Financial Analysis
• Cash Flow - the difference between
cash received from sales and other
sources, and cash outflow for
labor, material, overhead, and
taxes.
• Present Value - the sum, in current
value, of all future cash flows of an
investment proposal.
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