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Capacity Planning
Homework 5, 6,14,
Sup1, Sup2
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
61
Sup Homework #1
The following diagram shows a 4-step process that begins with Operation 1 and ends
with Operation 4. The rates shown in each box represent the effective capacity of that
operation.
a.Determine the capacity of this process.
b.Which action would yield the greatest increase in process capacity?
1.
increase the capacity of operation 1 by 15%
2. increase the capacity of operation 2 by 10%
3. increase the capacity of operation 3 by 10%
c.
What is the new capacity of the process for each scenario?
12/hr.
15/hr.
11/hr.
14/hr.
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Sup Homework #2
A producer of pottery is considering the addition of a new plant to absorb the backlog of
demand that now exists. The primary location being considered will have fixed costs of
$9,200 per month and variable costs of 70 cents per unit produced. Each item is sold to
retailers at a price that averages 90 cents.
a.What volume per month is required in order to break even?
b.What profit would be realized on a monthly volume of 61,000 units, 87,000 units?
c.What volume is needed to obtain a profit of $16,000 per month?
d.What volume is needed to provide a revenue of $23,000 per month?
e.Plot the total cost and total revenue lines.
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Planning Capacity
Capacity
Utilization
Learning Objectives
Utilization
Cushion
Capacity Bottlenecks
Decision Trees
Cost-Volume Analysis
o
Break Even Point
64
Planning Capacity
Average output rate
Utilization = Maximum capacity
100%
65
Cushion
High Cushion
Low Cushion
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Bottleneck Operation
Bottleneck
Operation 1
20/hr.
Operation 2
10/hr.
Operation 3
15/hr.
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The following diagram describes a process that consists of eight separate operations, with
sequential relationships and capacities (units per hour) as shown.
15/hr.
10/hr.
20/hr.
5/hr.
8/hr.
12/hr.
34/hr.
30/hr.
68
Supplement
Simulation
Can
Decision trees
Useful
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Decision Theory
Helpful tool for financial comparison of alternatives
under conditions of risk or uncertainty
Suited to capacity decisions
See Supplement Decision Making
6 10
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
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6 11
6 12
In-House or Outsourcing
Outsource: obtain a good or service
from an external provider
1.
2.
3.
4.
5.
6.
Available capacity
Expertise
Quality considerations
Nature of demand
Cost
Risk
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Number of
Machines
Total Annual
Fixed Costs
Corresponding
Range of Output
$ 9,600
0 to 300
15,000
301 to 600
20,000
601 to 900
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fixed costs
construction costs
Cutting
Finding
process advantages
Diseconomies of scale
Complexity
Loss
of focus
Inefficiencies
6 16
250-bed
hospital
500-bed
hospital
Economies
of scale
750-bed
hospital
Diseconomies
of scale
6 17
Expansionist strategies
Wait-and-see strategies
Combination of strategies
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Forecast of capacity
required
Capacity
Planned unused
capacity
Capacity
increment
Time between
increments
Time
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Capacity
Planned use of
short-term options
Forecast of capacity
required
Capacity
increment
Time between
increments
Time
(b) Wait-and-see strategy
Figure 6.2 Two Capacity Strategies
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6 20
Systematic Approach
For one service or product processed at
one operation with a one year time period,
the capacity requirement, M, is
Processing hours required for years demand
Capacity
=
requirement
Hours available from a single capacity unit
(such as an employee or machine) per year,
after deducting desired cushion
Dp
M = 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
Copyright 2010 Pearson C
Education,
as Prentice
Hall.
= Inc. Publishing
desired
capacity
cushion (expressed as a percent)
6 21
Systematic Approach
Setup times may be required if multiple
products are produced
Capacity
=
requirement
M=
where
Q=
s=
6 22
Client X
Client Y
2,000
6,000
0.5
0.7
20
30
0.25
0.40
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M=
6 24
Solved Problem 1
You have been asked to put together a capacity plan for a critical
operation at the Surefoot Sandal Company. Your capacity
measure is number of machines. Three products (mens,
womens, and childrens sandals) are manufactured. The time
standards (processing and setup), lot sizes, and demand
forecasts are given in the following table. The firm operates two
8-hour shifts, 5 days per week, 50 weeks per year. Experience
shows that a capacity cushion of 5 percent is sufficient.
Time Standards
Processing
(hr/pair)
Setup
(hr/pair)
Lot size
(pairs/lot)
Mens sandals
0.05
0.5
240
80,000
Womens sandals
0.10
2.2
180
60,000
Childrens sandals
0.02
3.8
360
120,000
Product
Demand Forecast
(pairs/yr)
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Solved Problem 1
SOLUTION
a. The number of hours of operation per year, N, is N = (2
shifts/day)(8 hours/shifts) (250 days/machine-year) = 4,000
hours/machine-year
The number of machines required, M, is the sum of machinehour requirements for all three products divided by the
number of productive hours available for one machine:
M=
N[1 - (C/100)]
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