1. FORECASTING, CAPACITY PLANNING AND FACILITY DESIGN

2. What is Forecasting?
Process of predicting a future event based on historical data
Underlying basis of all business decisions
Production
Inventory
Personnel
Facilities

3. DEFINITION
Forecasting is the use of historic data to determine the direction of future trends by companies to allocate resources and budgets for an upcoming period of time. This is typically based on demand for the goods and services it offers, compared to the cost of producing them.

4. Focus
Technological
Economical
Demand

5. SIGNIFICANCES Formulate Strategies
Project cash flows and capital requirements.
Allocate budgets
Anticipate hiring needs.
Plan Operation System Design
Process design
Product design
Quality design
Operation support system design

6. Good Forecast Cost effective Data Availability Accuracy Simple
Flexible
Right Assumptions
Consistent
Quality

7. Factors Affecting Demand determinants Product Data
Product Life Cycle (PLC)
Customer
Government
SCM
Competition
Substitutes

8. Objectives of Forecasting
Production and Operations – Plant capacity, Production quantity, Materials Requirement, Support services, etc.,
Marketing – Demand, Sales plan, promotional activities, supply chain, etc.,
Finance – Budgets, capital requirements, return on investments, etc.,
Research – Expansion, differenciation, etc.,

9. Selecting the method Availability of data Purpose of forecasting
Demand
Time
Purpose of forecasting
Validity of past data
Cost involved
Technology trends
Flexibility

10. Demand Patterns Historical – No change in demand over period of time
Seasonal – Based on seasonal variables
Cyclical – Based on the length of single cycle
Trend – Trend of demand in the past

11. Types of Forecasts by Time Horizon
Short-range forecast
Usually < 3 months
Medium-range forecast
3 months to 2 years
Long-range forecast
> 2 years
Quantitative
methods
Detailed
use of
system
Design
of system
At this point, it may be useful to point out the “time horizons” considered by different industries. For example, some colleges and universities look 30 to fifty years ahead, industries engaged in long distance transportation (steam ship, railroad) or provision of basic power (electrical and gas utilities, etc.) also look far ahead (20 to 100 years). Ask them to give examples of industries having much shorter long-range horizons.
Qualitative
Methods

12. Methods of Forecasting
Qualitative
Expert Judgement
Delphi Method
Test Marketing
Simulation
Survey
Quantitative
Exponential smoothing
Linear Regression
Time series

13. Delphi Method - Executives answer the basic question in several rounds.
Expert Judgment – Expert in the field decide upon the demand based on certain analysis
Test Marketing – A product is released tom a smaller market and based on the response in that market, forecast is done
Simulation – Virtual
Survey – A survey is conducted to understand the customer requirement

14. Simple Moving Average
Assumes an average is a good estimator of future behavior
Used if little or no trend
Used for smoothing
Ft+1 = Forecast for the upcoming period, t+1
n = Number of periods to be averaged
A t = Actual occurrence in period t 15

15. Weighted Moving Average
Gives more emphasis to recent data
Weights
decrease for older data
sum to 1.0
Simple moving
average models
weight all previous
periods equally
This slide introduces the “weighted moving average” method. It is probably most important to discuss choice of the weights.

16. Exponential Smoothing
Assumes the most recent observations have the highest predictive value
gives more weight to recent time periods
Ft+1 = Ft + a(At - Ft) et
Need initial
forecast Ft
to start.
Ft+1 = Forecast value for time t+1
At = Actual value at time t
 = Smoothing constant 24

17. Linear Regression Y = Dependent Variable X = Independent Variable
a = Intercept
b = Slope of the independent variable X

18. General Guiding Principles for Forecasting
1. Forecasts are more accurate for larger groups of items.
2. Forecasts are more accurate for shorter periods of time.
3. Every forecast should include an estimate of error.
Before applying any forecasting method, the total system should be understood.
Before applying any forecasting method, the method should be tested and evaluated.
6. Be aware of people; they can prove you wrong very easily in forecasting

19. Capacity is the maximum output rate of a facility
Amount of output a system is capable of delivering over a specific period of time

20. Capacity is usually purchased in “chunks” and it involves
Capacity Planning
Capacity planning is the process of establishing the output rate that can be achieved at a facility:
Capacity is usually purchased in “chunks” and it involves
Allocation of capital for additional facility & equipment
Planning workforce & inventory levels, & day- to-day use of equipment

21. How to measure Capacity
There is no one best way to measure capacity
Output measures & Inputs measures

22. Factors that affect Capacity Plan
Demand forecast
Availability of resource – HR, material, technology, etc.,
Nature of the product
Maintenance

23. Types Design capacity: Maximum output that can be possibly attained
Effective capacity: Maximum output considering all factors
Production capacity: Maximum rate of Production
Maximum capacity: Maximum output that a facility can achieve under ideal conditions

24. Calculating Equipment Effectiveness
Measures how much of the available capacity is actually being used:
Measures effectiveness
Use either effective or design capacity in denominator
Actual Output
Effectiveness = (100%)
Capacity

25. Example :
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?
Utilization = (28/30) * 100% =93%

26. Example :
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?
Utilization = (28/30) * 100% =93%

27. Types of Capacity Plans
Long Range Capacity Planning
Location Decisions
Technology decisions
Developing new production line / product
Investment Decisions
Short Range Capacity Planning
Inventory planning and fluctuations
Scheduled maintenance
Hiring HR
Working capital requirement

28. Capacity Planning Process
Step 1: Identify Capacity Requirements
Step 2: Develop Capacity Alternatives
Step 3: Evaluate Capacity Alternatives
Step 4 : Select the appropriate Capacity Alternate

29. Evaluate Capacity Alternatives
The methods available to evaluate the worthiness of the projects are
Present Worth
Annual Equivalent
PW= Capital Investment + (Annual Revenue * PV of A)
AE = (Capital * PVA)+(Salvage*PVA)+ Return

30. Future Worth FW = (Initial amount * PVA) + (Cost * PVA) Rate of Return

31. Facility Location
Facility location is the process of identifying the best geographic location for a service or production facility
When do we need to locate a facility
New Business
Expansion of existing business
Raw Material Cost
Nature of the Raw material or product
Change in technology
Government policy
Society

32. Factors Affecting Materials Nature Product Nature Market access
Proximity to source of supply:
Proximity to customers:
Proximity to Labour
Community considerations:
Site considerations:

33. Quality-:
Other considerations:
Religious Factors
Historical factors
Natural factors
Safety
Personal factors

34. Factory Construction /Installation
As per factory construction the following aspects should be considered
Office space
Work area
Amenities
Haelth facilities
Safety facilities

35. Tool to select the best location
Break Even Analysis
Cost Analysis
Factor Rating
Center Of Gravity
Transportation Method

36. An Example: Break Even Analysis
Potential locations A, B and C have the following cost structures.. The product manufactured is expected to sell for Rs per unit. Find the most economical location for an expected volume of 2000 units per year.
Site Fixed Cost Variable cost / Unit
A 6,000,
B 7,000,
C 5,000,

37. TC = FC + (VC/ Unit) (Sales)
Solution
TC = FC + (VC/ Unit) (Sales)
Site Total Cost
A *2000 =
B * =
C *2000 =
Location B is economical

38. A “center” can be anything that consumes space.
LAYOUT
Layout refers to the physical arrangement of economic activity centers for processes within a facility.
A “center” can be anything that consumes space.
The Layout decisions are:
What centers are needed?
How much space and capacity are needed?
Layout Configuration?
Where to locate them?

39. PLANT LAYOUT
PLANT LAYOUT is a the floor plan of the physical facilities which are used in production
Layout Planning refers to the generation of several possible plans for the management of physical facilities and select the one which minimizes the distance between the departments

40. TYPES Process - Similar materials and services are located together
Product – Materials and ancillary services are located according to the processing sequence
Group - Combination of product and process
Fixed Position – Static layout

41. Restaurant as an Example
Process –Cutting vegetable, frying, cooking, Common for all dishes , each process is done separately
Product – All the three process set together for every dish
Group – Grinding for different dishes at one place that is Idly flour
Fixed Position

42. FIXED POSITION LAYOUT
In a fixed position layout, the transformed resource does not move between its transforming resources.
Equipment, machinery, plant and people who do the processing move as necessary because the product or customer is either:
Too large
Too delicate or
Objects being moved

43. PROCESS LAYOUT
In a process layout, similar processes or processes with similar needs are located together because:
It is convenient to group them together or
The utilization of the transforming resource is improved
Different products of customer have different requirements therefore they may take different routes within the process.
The flow in a process layout can be very complex.

44. PRODUCT LAYOUT
In a product layout, the transformed resource flow a long a line of processes that has been prearranged.
Flow is clear, predictable and easy to control.

45. QUALITIES OF A GOOD LAYOUT
Effective & efficient use of space
Facilitates good communication
Minimizes costs
Meets quality of work life needs
noise
safety
lighting
temperature
social
aesthetics

46. LAYOUT DESIGN PROCEDURE
Start
Data Collection
Flow Analysis
Space requirement
Space Availability
Solution
End

47. STRATEGIC ISSUES Good layouts improve productivity and efficiency.
Altering a layout can affect an organization and how well it meets its competitive priorities in the following ways:
Increasing customer satisfaction and sales at a retail store.
Facilitating the flow of materials and information
Increasing the efficient utilization of labor and equipment.
Reducing hazards to workers
Improving employee working conditions and morale
Improving communication and interactions

48. MATERIALS HANDLING
Refers to activities, equipments and procedures related to the moving, storing, protecting and controlling of materials in a system

49. OBJECTIVES Reduce Cost Reduce Cycle Time Improve Productivity
Optimum Utilization
Better Working Conditions

50. ELEMENTS
Quality
Motion
Space

51. PRINCIPLES
PLANNING
OPERATING
EQUIPMENT
COSTING
OTHERS

52. MATERIALS REQUIREMENT PLANNING (MRP)
Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. 

53. MRP BENEFITS Low levels of in process inventories
The Ability to keep track of material requirements The ability to evaluate capacity requirements generated by a given master schedule
A means of allocating production time
The ability to easily determine inventory usage by back flushing.

54. ENTERPRISE RESOURCE PLANNING
ERP' A process by which a company (often a manufacturer) manages and integrates the important parts of its business.
An ERP management information system integrates areas such as planning, purchasing, inventory, sales, marketing, finance, human resources, etc.

55. OBJECTIVES Improve Service Experience Enhance Competitiveness
Modernize Business Processes and Systems
Automate Business Solutions
Increase Operating Efficiency
Provide Access to Standardized College Data

56. BENEFITS