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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Capacity Planning

(Long-Term Capacity Planning)
6
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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Planning Management
Chapter 6
Capacity planning
(long-term capacity planning)
1. Economies and
diseconomies of scale
2. Capacity timing and
sizing strategies
3. Systematic approach to
capacity decisions
Chapter 7
Constraint management
(short-term capacity planning)
Theory of constraints
Identification and
management of
bottlenecks
Product mix decisions
using bottlenecks
Managing constraints in a
line process
Capacity management
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Capacity and Scale

best operating level = 500 beds (blue dot in the diagram)
Figure 6.1 Economies and Diseconomies of Scale
250-bed
hospital
500-bed
hospital
750-bed
hospital
Output rate (patients per week)
A
v
e
r
a
g
e

u
n
i
t

c
o
s
t

(
d
o
l
l
a
r
s

p
e
r

p
a
t
i
e
n
t
)

Economies
of scale
Diseconomies
of scale
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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
A. Expansionist strategy
Planned unused
capacity
Time
C
a
p
a
c
i
t
y

Forecast of capacity
required
Time between
increments
Capacity
increment
Figure 6.2 Two Capacity Strategies
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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Time
C
a
p
a
c
i
t
y

Planned use of
short-term options
Time between
increments
Capacity
increment
B. Wait-and-see strategy
Forecast of capacity
required
Figure 6.2 Two Capacity Strategies
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Output Measures
for Estimating Capacity Requirements
Output Measures are the simplest way to express
capacity.
Products produced or customers served per unit of
time

Example: Current capacity is 50 per day and demand is
expected to double in five years. Management uses a
capacity cushion of 20%.

Capacity (M) in 5 years should be:

M = 100/(1 - 0.2) = 125 customers
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Input Measures
for Estimating Capacity Requirements
Input Measures are typically based on resource availability: e.g.
Availability of workers, machines, workstations, seats, etc.
For one service or product processed at one operation with a
one year time period, the capacity requirement, M, is
Capacity
requirement
=
Processing hours required for years demand
Hours available from a single capacity unit
(such as an employee or machine) per year,
after deducting desired cushion
M =
Dp
N[1 (C/100)]
where
D = demand forecast for the year (number of customers serviced or
units of product)
p = processing time (in hours per customer served or unit produced)
N = total number of hours per year during which the process operates
C = desired capacity cushion (expressed as a percent)
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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Input Measures
for Estimating Capacity Requirements
if multiple products are produced, setup
times may be required
Capacity
requirement
=
Processing and setup hours required for
years demand, summed over all services
or products
Hours available from a single capacity unit
per year, after deducting desired cushion
M =
[Dp + (D/Q)s]
product 1
+ [Dp + (D/Q)s]
product 1
+
+ [Dp + (D/Q)s]
product n
N[1 (C/100)]
where
Q = number of units in each lot
s = setup time (in hours) per lot
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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Decision Trees
1
Low demand [0.40]
High demand [0.60]
Low demand [0.40]
High demand [0.60]
$70,000
$220,000
$40,000
$135,000
$90,000
Dont expand
Expand
2
Figure 6.4 A Decision Tree for Capacity Expansion
$135,000
$109,000
$148,000
$148,000