Chapter Four: Capacity

Planning and Facility

Location:
Chapter Four: Capacity Planning and Facility Location:
4.1 Capacity planning
4.2 Making capacity planning decision
4.3 Location Analysis
4.4 making location decisions
4.5 Facility layout Analysis
4.6 Types of facility layout
 
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?
Importance of Capacity Planning
Impacts ability to meet future demands
Affects operating costs
Major determinant of initial costs
Involves long-term commitment
Affects competitiveness
Affects ease of management
 Capacity
Design capacity
◦ maximum obtainable output;
◦ the maximum output rate or service capacity an operation
process or facility is designed for under ideal condition
Effective capacity
◦ Maximum capacity given product mix, scheduling
difficulties, maintenance time, personal time and other
doses of reality.
◦ Less than design capacity
Actual output
◦ rate of output actually achieved -- cannot exceed effective
capacity b/z of machine breakdowns, Absenteeism,
Shortage of materials ….
Measures of system effectiveness:
Efficiency and Utilization
Actual output
Efficiency =
Effective capacity
Actual output
Utilization =
Design capacity

The real key to improving capacity utilization is :-

To increase effective capacity by correcting quality
problems, maintaining equipment, fully training
employees, fully utilizing bottleneck equipment
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
Determinants of Effective Capacity

Facilities:
size, provision for expansion
Products or services
Processes: preference of quality or quantity
Human considerations
Operations: Scheduling
External forces
Some Possible Growth Patterns
Volume

Volume
Growth Decline

0 Time 0 Time

Cyclical Stable

Volume
Volume

0 0
Time Time
 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
Evaluating Alternatives

Production units have an optimal rate of output for minimal cost.

Average cost per unit

Minimum
cost

0
Rate of output
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
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
Calculating Processing Requirements
Standard
Annual processingtim e Processingtime
Product Demand perunit (hr.) needed(hr.)

#1 400 5.0 2,000

#2 300 8.0 2,400

#3 700 2.0 1,400

5,800
Cost-Volume Relationships

C
+F
C
t =V V C)
os t(
c os
tal le
c
Amount ($)

To b
aria
t alv
To

Fixed cost (FC)

0
Q (volume in units)
Cost-Volume Relationships

u e
v en
e
lr
o ta
T
Amount ($)

0
Q (volume in units)
Cost-Volume Relationships

ue
ven ro fi t
re P
l
o ta
T o st
lc
Amount ($)

t a
To

0 BEP units
Q (volume in units)
Break-Even Problem with Step Fixed Costs

C
C =T
+V
FC
T C
C =
+ V
FC 3 machines

T C
C =
+ V 2 machines
F C

1 machine

Quantity

Step fixed costs and variable costs.

Break-Even Problem with Step Fixed Costs

$
BEP
3
TC
BEP 2
TC
3
TC
2
TR 1
Quantity
Multiple break-even points
 4.3 Location Analysis

Location analysis: Techniques for determining

location decisions.

is determining the best geographic location for a

company’s facility/Plant/.
Facility location decisions are particularly important
for two reasons.
• First, they require long-term commitments in
buildings and facilities.
• Second, Poor location can result in high
transportation costs, inadequate supplies of
raw materials and labor, loss of competitive
advantage, and financial loss.
Cont’d
Factors in the location decision for plants include:
 Construction costs
 Land costs
 Modes of transportation for shipping heavy
manufactured items and receiving bulk shipments of
raw materials
 Proximity to raw materials
 Utilities(electricity, water)
 Means of waste disposal
 Labor availability
 Environmental issues
Cont’d
 Decisions regarding where to locate a business facility or plant
are not made frequently. It is a decision for a long term
survival.

 For a service operation such as a restaurant, hotel, or retail

store, being in the right place usually means in a location that
is convenient and easily accessible to customers.

 Location decisions are usually made more frequently for

service operations than manufacturing facilities.
 Facilities for service-related businesses tend to be smaller and
less costly.
Some of the factors that multinational firms must
consider when locating in a foreign country include the
following:

◦ Government stability
◦ Raw material availability
◦ Government regulations
◦ Number and proximity of suppliers
◦ Political and economic systems
◦ Transportation and distribution systems
◦ Economic stability and growth
◦ Labor force cost and education
Cont’d
◦ Exchange rates
◦ Available technology
◦ Culture
◦ Commercial travel
◦ Climate
◦ Technical expertise
◦ Export and import regulations, duties,
◦ Cross-border trade regulations and tariffs
◦ Group trade agreements
Plant Layout
 Plant layout- refers to the physical arrangement of
production facilities.
 It is the configuration of departments, work centers
and equipment in the conversion process.
According to Moore
“Plant layout is a plan of an optimum arrangement of
facilities including፡ personnel, operating equipment,
storage space, material handling equipment and all
other supporting services along with the design of
best structure to contain all these facilities”.
The Need for Layout Decisions
Inefficient operations
For Example: Changes in the design
High Cost of products or services
Bottlenecks

Accidents
The introduction of new
products or services

Safety hazards
The Need for Layout Design (Cont’d)
Changes in
environmental Changes in volume of
or other legal output or mix of
requirements products

Morale problems
Changes in methods
and equipment
Cont’d
The objectives of plant layout are: 7. Flexibility of manufacturing
1. Streamline the flow of operations and arrangements.
materials through the plant. 8. Provide for employee
2. Facilitate the manufacturing convenience, safety and
process. comfort.
3. Maintain high turnover of in- 9. Minimize investment in
process inventory. equipment.
4. Minimize materials handling 10. Minimize overall production
and cost time.
5. Effective utilization of men, 11. Maintain flexibility of
equipment and space. arrangement and operation.
6. Make effective utilization of 12. Facilitate the organizational
cubic space. structure
Principles of Plant Layout
1. Principle of integration: A good layout is one that integrates
men, materials, machines and supporting services
2. Principle of minimum distance: This principle is concerned
with the minimum travel/ movement of persons and materials.
As far as possible straight line movement should be preferred.

3. Principle of cubic space utilization: The good layout is one

that utilize both horizontal and vertical space. The third
dimension, i.e., the height is also to be utilized effectively

4. Principle of flow: A good layout is one that makes the

materials to move in forward direction towards the completion
stage, i.e., there should not be any backtracking/backpedaling
Cont’d
5. Principle of maximum flexibility: The good layout is one
that can be altered without much cost and time, i.e., future
requirements should be taken into account while designing
the present layout.

6. Principle of safety, security and satisfaction: A good layout

is one that gives due consideration to workers safety and
satisfaction and safeguards the plant and machinery against
fire, theft, etc.

7. Principle of minimum handling: A good layout is one that

reduces the material handling to the minimum.
Classification Of Layout

 Layouts can be classified into the following five categories:

1. Process layout
2. Product layout
3. Combination layout
4. Fixed position layout
1. Product/Line Layout
 In this type of layout, machines and auxiliary services are
located according to the processing sequence of the product.
 If the volume of production of one or more products is large,
the facilities can be arranged to achieve efficient flow of
materials and lower cost per unit.
 Special purpose machines are used which perform the required
function quickly and reliably.
 In a strict product layout, machines are not shared by different
products.
2. Process/Functional Layout
 Process layouts, also known as functional layouts, group similar
activities together in departments or work centers according to
the process or function they perform.
 The flow paths of material through the facilities from one
functional area to another vary from product to product.
 Usually the paths are long and there will be possibility of
backtracking.

 Storage space in a process layout is large to accommodate the

large amount of in-process inventory.

 Process layouts in manufacturing firms require flexible material

handling equipment (such as forklifts, carts) that carry large
loads of in-process goods.
Process layout
 Disadvantage
Advantage
 In-process inventory costs
 Can handle a variety of can be high
processing requirements  Material handling slow and
 Not particularly inefficient
vulnerable to equipment  More skilled labor is
failures required
 Equipment used is less
 Special attention for each
costly product or customer
 Possible to use individual
 Accounting and purchasing
incentive plans are more involved
 High degree of machine
utilization

35
3. Combination layout
 A combination of process and product layouts combines the
advantages of both types of layouts.

 A combination layout is possible where an item is being made

in different types and sizes.
4. Fixed Position layout

 This is also called the project type of layout.

 Fixed-positionlayouts are typical of projects in which the

product produced is too fragile, bulky, or heavy to move.

 Inthis type of layout, the material, tools, major components

remain in a fixed location and machinery, men and other
materials are brought to this location.

 The cost of transportation of these parts is very high.

Cont’d
 Fixed position layout
Adv. Disadv.

◦ The investment on layout ◦ As the production period

is very small being very long so the capital
investment is very high
◦ The layout is flexible as ◦ Very large space is required
change in job design and for storage of material and
operation sequence can be equipment near the product
easily incorporated ◦ As several operations are
often carried out
◦ Adjustments can be made simultaneously so there is
to meet shortage of possibility of confusion and
conflicts among different
materials or absence of workgroups
workers by changing the
sequence of operations.

39
THANK
YOU