1. Capacity Planning Pertemuan 04
Mata kuliah : J Manajemen Operasional
Tahun : 2010
Capacity Planning Pertemuan 04

2. Learning Objectives Explain the importance of capacity planning.
Discuss ways of defining and measuring capacity.
Describe the determinants of effective capacity.
Discuss the major considerations related to developing capacity alternatives.
Briefly describe approaches that are useful for evaluating capacity alternatives

3. Capacity Planning
Capacity is the upper limit or ceiling on the load that an operating unit can handle.
Capacity also includes
Equipment
Space
Employee skills
The basic questions in capacity handling are:
What kind of capacity is needed?
How much is needed?
When is it needed?

4. Capacity Planning Process
Forecast
Demand
Develop
Alternative
Plans
Quantitative
Factors
(e.g., Cost)
Compute
Rated
Capacity
Evaluate
Capacity
Plans
Qualitative
Factors
(e.g., Skills)
Compute
Needed
Capacity
Select Best
Capacity
Plan
Implement
Best Plan

5. Types of Planning Over a Time Horizon
Add Facilities
Add long lead time equipment
Schedule Jobs
Schedule Personnel
Allocate Machinery
Sub-Contract
Add Equipment
Add Shifts
Add Personnel
Build or Use Inventory
Long Range Planning
Intermediate Range Planning
Short Range Planning
Modify Capacity
Use Capacity *
*Limited options exist

6. Importance of Capacity Decisions
Impacts ability to meet future demands
Affects operating costs
Major determinant of initial costs
Involves long-term commitment
Affects competitiveness
Affects ease of management
Globalization adds complexity
Impacts long range planning

7. Definition and Measures of Capacity
The “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time.
Utilization:
Actual output as a percent of design capacity.
Effective capacity:
Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality.
Efficiency:
Actual output as a percent of effective capacity.

8. Utilization
Measure of planned or actual capacity usage of a facility, work center, or machine
Actual Output
Utilization =
Design Capacity
Planned hours to be used =
Total hours available

9. Efficiency
Measure of how well a facility or machine is performing when used
Actual output
Efficiency =
Effective Capacity
Actual output in units =
Standard output in units
Average actual time =
Standard time

10. Example Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Actual output = units/day
Efficiency = = 90%
Effective capacity units/ day
Utilization = Actual output = units/day
= 72% Design capacity units/day

11. Determinants of Effective Capacity
Facilities
Product and service factors
Process factors
Human factors
Policy factors
Operational factors
Supply chain factors
External factors

12. Strategy Formulation Capacity strategy for long-term demand
Demand patterns
Growth rate and variability
Facilities
Cost of building and operating
Technological changes
Rate and direction of technology changes
Behavior of competitors
Availability of capital and other inputs

13. Key Decisions of Capacity Planning
Amount of capacity needed
Capacity cushion (100% - Utilization)
Timing of changes
Need to maintain balance
Extent of flexibility of facilities
Capacity cushion – extra demand intended to offset uncertainty

14. Steps for Capacity Planning
Estimate future capacity requirements
Evaluate existing capacity
Identify alternatives
Conduct financial analysis
Assess key qualitative issues
Select one alternative
Implement alternative chosen
Monitor results

15. Forecasting Capacity Requirements
Long-term vs. short-term capacity needs
Long-term relates to overall level of capacity such as facility size, trends, and cycles
Short-term relates to variations from seasonal, random, and irregular fluctuations in demand

16. Calculating Processing Requirements
If annual capacity is 2000 hours, then we need three machines to handle the required volume: 5,800 hours/2,000 hours = 2.90 machines

17. 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

18. In-House or Outsourcing
Outsource: obtain a good or service from an external provider
Available capacity
Expertise
Quality considerations
Nature of demand
Cost
Risk

19. Implications of Capacity Changes
Changes in:
Sales
Cash flow
Quality
Supply chain
Human resources
Maintenance

20. Special Requirements for Making Good Capacity Decisions
Forecast demand accurately
Understanding the technology and capacity increments
Finding the optimal operating level (volume)
Build for change

21. Attempts to have an average capacity, with an incremental expansion
Approaches to Capacity Expansion
Expected Demand
Time in Years
Demand
New Capacity
Capacity leads demand with an incremental expansion
Capacity leads demand with a one-step expansion
Capacity lags demand with an incremental expansion
Attempts to have an average capacity, with an incremental expansion

22. Approaches to Capacity Expansion
Expected Demand
Time in Years
Demand
New Capacity
Capacity leads demand with an incremental expansion

23. Approaches to Capacity Expansion
Expected Demand
Time in Years
Demand
New Capacity
Capacity leads demand with a one-step expansion

24. Approaches to Capacity Expansion
Expected Demand
Time in Years
Demand
New Capacity
Capacity lags demand with an incremental expansion

25. Attempts to have an average capacity, with an incremental expansion
Approaches to Capacity Expansion
Expected Demand
Time in Years
Demand
New Capacity
Attempts to have an average capacity, with an incremental expansion

26. Evaluating Alternatives
Cost-volume analysis
Break-even point
Financial analysis
Cash flow
Present value
Decision theory
Waiting-line analysis

27. Break-Even Analysis
Fixed costs: costs that continue even if no units are produced: depreciation, taxes, debt, mortgage payments
Variable costs: costs that vary with the volume of units produced: labor, materials, portion of utilities

28. Breakeven Chart Volume (units/period) Total revenue line Profit
Breakeven point
Total cost = Total revenue
Profit
Total cost line
Cost in Dollars
Variable cost
Loss
Fixed cost
Volume (units/period)

29. Crossover Chart Process A: low volume, high variety
Fixed cost - Process A
Fixed cost - Process B
Fixed cost - Process C
Total cost - Process C
Total cost - Process B
Total cost - Process A
Process A: low volume, high variety
Process B: Repetitive
Process C: High volume, low variety
Process C
Process B
Process A
Lowest cost process

30. Assumptions of Cost-Volume Analysis
One product is involved
Everything produced can be sold
Variable cost per unit is the same regardless of volume
Fixed costs do not change with volume
Revenue per unit constant with volume
Revenue per unit exceeds variable cost per unit

31. 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.

32. Net Present Value F = future value P = present value I = interest rate
N = number of years

33. NPV in a More Convenient Form
Present value of $1.00
Year 5% 6% 7% 8% 1
0.952
0.943
0.935
0.857 2
0.907
0.890
0.873 3
0.864
0.840
0.816
0.794 4
0.823
0.792
0.763
0.735 5
0.784
0.747
0.713
0.681 6
0.746
0.705
0.666
0.630 7
0.711
0.665
0.623
0.583 8
0.677
0.627
0.582
0.540 9
0.645
0.592
0.544
0.500

34. Present Value of an Annuity (S)
Year 5% 6% 7% 8% 1
0.952
0.943
0.935
0.926 2
1.859
1.833
1.808
1.783 3
2.723
2.673
2.624
2.577 4
3.546
3.465
3.387
3.312 5
4.329
4.212
4.100
3.993 6
5.076
4.917
4.766
4.623 7
5.786
5.582
5.389
5.206 8
6.843
6.210
5.971
5.747 9
7.108
6.802
7.024
6.247
X = Factor from Table
S = present value of a series of uniform annual receipts
R = receipts that are received every year for the life of the investment

35. Decision Theory
Helpful tool for financial comparison of alternatives under conditions of risk or uncertainty
Suited to capacity decisions
See Chapter 5 Supplement

36. Decision Tree and Capacity Decision
-$90,000
$60,000
-10,000
$40,000
Market favorable (0.4)
Market unfavorable (0.6)
$100,000
-5,000 $0
-$14,000
$18,000
$13,000
Large Plant
Medium Plant
Small Plant
Do nothing

37. Waiting-Line Analysis
Useful for designing or modifying service systems
Waiting-lines occur across a wide variety of service systems
Waiting-lines are caused by bottlenecks in the process
Helps managers plan capacity level that will be cost-effective by balancing the cost of having customers wait in line with the cost of additional capacity

38. The End