1. 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

2. 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:
Capacity is usually purchased in “chunks”
Strategic issues: how much and when to spend capital for additional facility & equipment
Tactical issues: workforce & inventory levels, & day-to-day use of equipment

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

4. 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

5. Calculating Capacity Utilization
Measures how much of the available capacity is actually being used:
Measures effectiveness
Use either effective or design capacity in denominator

6. 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. What is the bakery’s capacity utilization relative to both design and effective capacity?
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

7. 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 congestion (overwhelming the process with too much work-in-process) and scheduling complexity

8. Economies and Diseconomies of Scale

9. Adding Capacity in “Chunks”

10. Other Capacity Considerations
Focused factories:
Small, specialized facilities with limited objectives
Plant within a plant (PWP):
Segmenting larger operations into smaller operating units with focused objectives
Subcontractor networks:
Outsource non-core items to free up capacity for what you do well
Capacity cushions:
Plan to underutilize capacity to provide flexibility

11. 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

12. Example: Vicki’s Pizzeria Assembly Line

13. Step 1: Draw the Precedence Diagram

14. 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

15. The Maximum Output
The maximum output is limited by the bottleneck task (the longest task in a process):

16. 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)
Always round up (no partial workstations)
Serves as a lower bound for our analysis

17. 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

18. Calculate the Line’s Efficiency
Step 6: Compute efficiency and balance delay
Efficiency (%) is the ratio of total productive time divided by total time
Balance delay (%) is the amount by which the line falls short of 100%

19. Facility Location Three most important factors in real estate:
Facility location is the process of identifying the best geographic location for a service or production facility

20. Location Factors Proximity to suppliers: Proximity to customers:
Reduce transportation costs of perishable or bulky raw materials
Proximity to customers:
E.g.: high population areas, close to JIT partners
Proximity to labor:
Local wage rates, attitude toward unions, availability of special skills (e.g.: silicon valley)

21. More Location Factors Community considerations: Site considerations:
Local community’s attitude toward the facility (e.g.: prisons, 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.

22. Should Firm Go Global? Potential advantages: Potential disadvantages:
Inside track to foreign markets, avoid trade barriers, gain access to cheaper labor
Potential disadvantages:
Political risks may increase, loss of control of proprietary technology, local infrastructure (roads & utilities) may be inadequate, high inflation
Other issues:
Language barriers, different laws & regulations, different business cultures

23. 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

24. Factor Rating Example

25. 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:
Multiply by the number of loads between each site and the four cities

26. Calculating the Load-Distance Score for Springfield vs. Mansfield
The load-distance score for Mansfield is higher than for Springfield. The warehouse should be located in Springfield.

27. 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
Is there another possible warehouse location closer to the C.G. that should be considered?? Why?

28. Homework
Ch. 10 Problems: 13, 15.