1. Chapter 5 – Capacity Planning and Control
Definitions, capacity measurement, MRP II and capacity, utilization, efficiency, breakeven
Rev. 11/30/03
SJSU Bus David Bentley

2. Definition of Capacity
Upper limit on the work load that an operating unit can handle during a given period of time
Plant, production line, work center, work station, employee
Also defined as “Rate of output”
Contrast to common definition of capacity
11/30/03
SJSU Bus David Bentley

3. Capacity Decisions Affect…
Ability to meet customer demand
Possible long term commitments
Competitive capability
Capital investment and operating costs
11/30/03
SJSU Bus David Bentley

4. Capacity and Production Environments
Operation Types
Project >
Job >
Batch >
Repetitive >
Continuous flow>
See Tables 5-1a and 5-1b
Time to Forecast
Capacity
Capacity & raw materials
Capacity, RM & assemblies
Capacity, RM & products
Rev. 11/30/03
SJSU Bus David Bentley

5. Capacity Considerations - 1
Definition: “Rate of output”
Utilization (uses design capacity)
Relates actual output to theoretical output
Paid for 8 hours, producing parts 6.4 hours; utilization = 6.4 / 8 = 80%
Efficiency (uses effective capacity)
Relates actual output to expected output
Expect production of 100 parts, actual = 90; efficiency = 90%
Rev. 11/30/03
SJSU Bus David Bentley

6. Capacity Considerations - 2
Productivity
Product of (utilization X efficiency)
(.80)(.90) = 0.72 or 72%
Rev. 11/30/03
SJSU Bus David Bentley

7. SJSU Bus. 140 - David Bentley
Theory of Constraints
Developed by Eliyahu Goldratt – “The Goal”
Management of bottlenecks
Attempts to schedule and feed work to maximize the rate of work flow
Utilizes “transfer batches” = operation overlapping
Optimized Production Technology (OPT) software
Rev. 12/04/01
SJSU Bus David Bentley

8. “The Goal” – Excellence in Manufacturing
“ ‘The Goal’ is about the OPT principles of manufacturing. It’s about trying to understand what makes our world tick so that we can make it better. When we think logically and consistently about our problems we can determine the ‘cause and effect’ relationships between actions and results.”
- from “The Goal” 1984
by Eliyahu M. Goldratt and Jeff Cox
12/04/01
SJSU Bus David Bentley

9. Cost-Volume Relationships
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved
Cost-Volume Relationships
Amount ($)
Q (volume in units)
Total cost = VC + FC
Total variable cost (VC)
Fixed cost (FC)
11/30/03
SJSU Bus David Bentley

10. Cost-Volume Relationships
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved
Cost-Volume Relationships
Amount ($)
Q (volume in units)
Total revenue
11/30/03
SJSU Bus David Bentley

11. Cost-Volume Relationships
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved
Cost-Volume Relationships
Amount ($)
Q (volume in units)
BEP units
Profit
Total revenue
Total cost
11/30/03
SJSU Bus David Bentley

12. SJSU Bus. 140 - David Bentley
Make or Buy
Cost-volume or breakeven analysis
QBEP = FC / (p – v)
Where FC = fixed cost, p = unit price (or revenue), v = unit variable cost
Example: candle manufacture
FC = $50, p = $1, v = $.75
Solution: QBEP = 50 / ( ) = 200
Rev. 11/30/03
SJSU Bus David Bentley

13. Break-even and Step Fixed Costs
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved
Break-even and Step Fixed Costs
Quantity
FC + VC = TC
Step fixed costs and variable costs.
1 machine
2 machines
3 machines
11/30/03
SJSU Bus David Bentley

14. MRP II Capacity Planning Levels
Long Range
Long Range Resource Planning (LRRP)
Intermediate Range
Rough Cut Capacity Planning (RCCP)
Short Range
Capacity Requirements Planning (CRP)
Rev. 11/30/03
SJSU Bus David Bentley

15. Long Range Resource Planning (LRRP)
Planning up to 5 years out
Time intervals in quarters and years
Broad categories of capacity
Land
Buildings (square feet)
Equipment (by type)
Labor (by broad skill set)
Money, etc.
Rev. 11/20/01
SJSU Bus David Bentley

16. Rough Cut Capacity Planning (RCCP)
18 – 24 months
Time intervals in weeks and months
Critical resources needed to meet MPS
Allows time to:
Hire / layoff
Develop subcontractors
Negotiate supply contracts
Buy and install equipment
Rev. 11/20/01
SJSU Bus David Bentley

17. Capacity Requirements Planning (CRP)
Probably about 12 month horizon
Time intervals in days and weeks
Considers all internal resources needed to satisfy MRP
May include vendor capacity
Allows time to:
Buy parts
Exercise or call in subcontracting
Hire or lay off temps
Schedule overtime
Rev. 11/20/01
SJSU Bus David Bentley

18. Input-Output (I/O) Analysis
Measures at a work center not only
Output, but also
Input
Also looks at changes in backlog
Used to trace upstream and identify problems in feeder work centers
New 11/20/01
SJSU Bus David Bentley