Capacity Planning And Decisions

susceptibility prep And Decisions efficiency designning is whizz of the notice aspects of operations management as it de bourneines the amount of goods or play which preempt be produced within a given age duration. Too little qualification indicates that customers wont be satisfied and too much electrical condenser would result in the operation being under-utilized with resultant high unconquerable cost and alike affecting break even so and profitability. A comp each, when it has to addition its mental object it has assorted excerpts to consider, from createing overtime to building a new instalment or a designt. anticipate consider is critical to capability prep atomic number 18dness and companies substructure adopt different strategies of content formulation, to get a post customer satisfaction and agree the operations well within their budget and other constraints. Short depot energy intend is real important for any company be it a turn uppu t ground or a assistant based company especially when there ar seasonal worker take ins, as those strikes are totally unpredictable and there enduret a permanent plan in place for sententious confines aptitude cookery for seasonal conveys. Momentary plans like employee overtime, sub catching have to be considered and the best among them and that incur least(prenominal) cost have to be selected and implemented and this has been discussed in detail in this project.Chapter-1 energy Planning Decisions1.1 depicted object Planningfor the first time, mental ability of any expertness is said to be the rate of productive capability of it. Capacity differently tooshie be assumed as the rate at which a facility produces or in simple words, it is the ability of a facility to produce a certain level of payoff within a specific time period.When a sign decides to produce much than of a product or plans to produce altogether a new product, it of all time starts with deciding how much aptitude is needed considering the factors that affect potentiality such(prenominal) as number of workers and molds, skill set of workers, defects, suppliers, government regulationsetc. This is termed as Capacity Planning.1.2 Need for Capacity PlanningA firm can determine its facility localisation and choose the fulfill technologies only subsequently it has found out a need for new or spread out facilities by evaluating the cogency or capacity preparation.Lack of capacity planning can result in under or over capacity and would incur unnecessary be in exploring elans to reduce or increase capacity.Lack of capacity planning can also set out a series of undesirable events such as poor li very services, an increase in work-in- bring and bring round(predicate) dissatisfaction in the minds of the sales personnel office and the team pick upd in manufacturing.Decision devising such as producing new products, augmenting outturnetc can be difficult without proper capacity planning.1.3 Determinants of CapacityThe determinants of capacity areFacilitiesProduct and Service FactorsProcess Factorswork force FactorsOperational FactorsSupply Chain FactorsExternal Factors1.4 How important are capacity decisions?Capacity decisions have its impacts on many different verticals of a firm. Firstly it affects the ability to check off future postulates, as without capacity planning if not d ane accommodateing in mind the future demands lures to a dearth of products. If capacity is underestimated or overestimated it directly affects the operating costs as if capacity is overestimated the operating costs involved would get wasted and if underestimated the measures taken to mold it whitethorn cost a quite a little and so is the way it affects the initial costs too. And all these factors affect many other factors such as the engagement, managementetc.1.5 How are Capacity Decisions made?Assessment of animate CapacityForecasting Future Capacity NeedsId entification of shipway to Modify CapacityEvaluation of Financial, Economical, and Technological Capacity AlternativesSelection of a Capacity Alternative nearly suited to achieving strategical mission1.6 measuring rod CapacityMeasuring capacity is simple for certain organizations. Reynolds, can riding habit number of ballpoint pens produced per year, Hyundai Motors can rehearse number of automobiles per year. But for organizations whose product lines are more diverse it is difficult to find out a unwashed building block of production.As an alternative, capacity can be channeled in terms of input. A consultancy can express its capacity in terms of the number of consultants employed per year. A lathe shop whitethorn express capacity in terms of in stock(predicate) labor hours or machine hours per workweek, month, or year. Following table shows some examples of capacity measures.Measures of Operating CapacityOutputOrganizationMeasureAutomobile Manufacturer get of AutosBrew ery pose of BeerCanneryTons of FoodSteel ProducerTons of Steel actor CompanyMegawatts of electricityInputOrganizationMeasureAirlineNumber of SeatsHospitalNumber of BedsJob ShopLabor and/or machine hoursMerchandisingSquare Feet of Display or Sales surface areaMovie TheatreNumber of SeatsRestaurantNumber of seating or tableTax OfficeNumber of AccountantsUniversityNumber of Students and/or facultyWarehouseSquare or cubic feet of storage distanceSource Productions and Operations Management, Text BookDay to day variations such as employees being absent or late, break good deals of machines, downtime postulate for facility alimentation and repair make it a good deal difficult to measure capacity realistically. A facility can in some cases operate at more than 100% capacity.Chapter-2 Estimating Future Capacity Needs2.1 Capacity requirements can be evaluated from two different perspectives viz. gyp term and coherent term.2.1.1 brusk RequirementsManagers practically use calculate ing of product demand for estimating the short term work freight rate the facility should be discussion. By looking transport up to 12 months, managers expect output requirements for different products or services following which they compare requirements with presently existing capacity and find out when capacity adjustments are to be made.2.1.2 Long- bourne RequirementsLong term capacity requirements are tougher to determine as future demand and technologies are uncertain. Forecasting five or ten years into the future is a unfit and a tough job. A product existing today whitethorn not even exist in the future. It is easily visible that long range capacity requirements depend on grocery storeing plans, product development, and the manner cycles of the products.Changes in process applied science should also be expected. all the same if products bear unchanged, the methods for generating them may change drastically. Capacity planning should be involving forecasting of techn ology as well as product demand.2.2 Strategies for Modifying CapacityAfter currently existing and the future capacity requirements are determined, alternatives ways of modifying capacity moldiness be found out.2.2.1 Short status ResponsesFor short-term periods of up to one year, basic capacity is fixed. Majority of the facilities are rarely opened or closed on a regular monthly or each year basis. Many short-term adjustments for increasing or decreasing capacity are possible anyway. The adjustments to be made depend on if the conversion process is mostly labor or metropolis intensive and if the product is one that can be stored in the scrutinize.Capital-intensive processes depend a lot on physical facilities, plant, and equipment. Short term capacity can be special by operating these facilities more or less intensively than normal. The costs of setting up, changing over, and maintaining facilities, procuring raw clobbers and manpower, managing inventory, and plan can all be limited by making such capacity changes.2.2.2 Long Term ResponsesFrom World War 2 through the 1960s, the US economy was lucky and scaling great heights. Since the 1970s, the United States has faced problems of scarcity of re roots and a more competitive economy. Organizations today cannot be constrained into thinking only about expanding the resource base they must also consider appropriate approaches to contracting it.ExampleA warehousing operation foresees the need for an excess 100,000 unbent feet of space by the end of the next five years. One option is to add an additional 50,000 self-colored off feet now and another 50,000 square feet after two years. another(prenominal) option is to add the entire 100,000 square feet now.Estimating costs for building the entire addition now are $50/square foot. If expanded incrementally, the initial 50,000 square feet will cost $60/square foot. The 50,000 square feet will cost $60/square foot. The 50,000 square feet to be added later are estimated at $80/square foot. Which alternative is give? At a minimum, the refuse construction costs plus spare capacity costs of total construction now must be compared with higher costs of deferred construction. The operations manager must consider the costs, benefits, and risks of severally option.Source Productions and Operations Management by Everett E. Adam, Jr. Ronald J. Ebert2.3 Classification of Capacity Planning based on TimeLong Term Capacity PlanningShort Term Capacity Planning2.3.1 Long Term Capacity PlanningLong Term capacity planning solves strategic issues involving the firms major production facilities. Also, long-term capacity issues are relate to location planning. Technology and the ability to transfer the processes to other products are also interrelated to long-term capacity planning. Long-term capacity planning may have a go at it in to the picture when short-term amendments in capacity are scarce. For instance, if a firm adds a third miscue to its pres ent two-shift plan and if the output is still insufficient, and also if subcontracting options are unavailable, one practical alternative is adding capital equipment and modifying the layout of the plant. An additional space or constructing an additional facility can also be alternatives.2.3.2 Short Term Capacity PlanningIn the short term, capacity planning concerns issues related to programming, labor shifts, and balancing resource capacities. The aspiration of short-term capacity planning is to manage unexpected shifts in demand in an efficiently economic way. The time frame for short-term planning is often only a few days just now may go on as long as six months. Alternatives for making short-term changes in capacity are numerous and can even take decisions to not carry out demand at all. A very easy and most commonly- utilise method to increase capacity in the short term is working overtime. This is a very flexible and least high-ticket(prenominal) alternative. While the fi rm has to pay one and one half propagation the normal labor rate, it is saved from the expenses of hiring, homework, and paying additional benefits. When not used abusively, most workers welcome the opportunity to earn extra wages. If overtime does not provide enough short-term capacity, other alternatives are also available. These intromit adding shifts, employing casual or part time workers, the use of floating workers, leasing workers, and facilities subcontracting.Firms may also increase the capacity by improving the use of their resources. The most common alternatives in this category are employee/labor cross training and overlapping or staggering shifts. Most manufacturing firms inventory some output ahead of demand so that any need for a capacity change in future is absorbed by the inventory buffer. From a technical angle, firms may initiate a process design aimed at increasing productivity at work stations. Manufacturers can also shift demand to exclude fluctuations in ca pacity requirement by backlogging, queuing demand, or lengthening the firms lead times. Service firms achieve the same results through computer programming appointments and reservations. A more creative approach is to modify the output. Standardizing the output or offering complimentary services are examples of the same. In services, customers might be allowed to do some of the process work themselves (e.g., self-service fuel pumps and fast-food restaurants). Another alternative reducing quality is an undesirable yet possible trick. Finally, the firm may take steps to modify demand. Changing the price and promoting the product are common. Another alternative is to split demand by initiating a yield or revenue management system. Utilities also news report victor in shifting demand by the use of off- power point pricing.2.4 When capacity doesnt satiate demand?When capacity doesnt equal demand, then in short term capacity planning, it can be managed by temporary measures such as in creasing or decreasing the labor force or creating and carrying inventory in the lean period to be used in the peak demand period.If there happens to be a mismatch between demand and capacity in long term capacity planning, it can be handled by changing or modifying the capacity. If the capacity is short then a new facility can be built or expand the existing facility. In case of an unnecessary capacity then a temporary shutdown/sale/consolidation of facilities would help.2.5 Best Operating trainSource Operations Management by William J StevensonThe term capacity means an attainable rate of output but mentions nothing about till what point of time that rate can be reserveed. Thus, if we range that a given plant has a capacity of x units, we do not know if it is a one-day peak or a six-month average out. To avoid this issue, the concept of best operating level is brought into being. This is the level of capacity for which the process was designed and thus is the volume of output at which average unit cost is at a minimum. When the output of the facility falls at a lower place this level (underutilization), average unit cost will increase as overhead must be allocated to fewer units. Above this level (overutilization), average unit cost also increases-here due to overtime, increase equipment wear, and heightened defect rates.2.6 Capacity Planning ModelsPresent Value AnalysisIt is used to evaluate the time of capital investment and fund flows.Aggregate Planning ModelsIt helps in examining the way of using the existing capacity for short term planning.Break Even AnalysisIt determines the minimum break down volumes of production.Linear ProgrammingIt helps in determining the optimum product mix for maximizing contribution, considering the constraints imposed by capacity.Computer SimulationIt is helpful in determining the effects of sundry(a) scheduling policies.2.7 Economies of ScaleThis well known principle of Economics illustrates the kind between cost and capacity in an operating system. When output increases in an operating system, the system is likely to experience cost benefits on miscellaneous factors. Due to the following reasons the average unit cost begins to fall with the arise in output levelSpreading the fixed costs of capacity over a larger output.Improved utilization of several resources in the system.Cost benefit in procurement on account of increased volume.Efficient use of supervisory and management staff.The economies of scale cease to eliminate beyond a level of production or output. This is called Diseconomies of Scale. thither can be several reasons for thisInefficient management due to large size of operation and the resulting escape of coordination.Overuse of machines and break down of material handling equipments.Over hiring of employees, or overtime exceeding justifiable limits.Service slows down due to increasing complexities.Increase in quality degradations because of mismanagement and lack of focus.An Example for Economies of ScaleEconomies/Diseconomies of ScaleSource Microeconomics by Robert S. Pindyck, Daniel L. Rubinfeld, Prem L. MehtaChapter-3 Capacity Planning Techniques3.1 Capacity Planning TechniquesThere are four procedures for capacity planning capacity planning using overall factors (CPOF), capacity bills, resource profiles, and capacity requirements planning (CRP). The first three are roughly cut approaches that involve analysis to identify potential bottlenecks that can be used with or without manufacturing resource planning (MRP) systems. CRP is used along with MRP systems. Capacity using overall factors is a simple and a manual approach to capacity planning that is based on the master production schedule (MPS) and production standards that change required units of finished goods into historical loads on distributively work station. Bills of capacity are a procedure based on the MPS. kind of of using historical ratios, it uses the bills of material and routing sh eet that shows the sequence or work stations required to produce the part, as well as the apparatus and run time. Capacity requirements can then be determined by multiplying the number of units required by the MPS by the time required to manufacture each. Resource profiles are the same as bills of capacity, except lead times being included so that workloads fall into the correct periods. Capacity requirements planning (CRP) is applicable only in companies using MRP or MRP II. CRP uses the education from one of the previous rough-cut methods, plus MRP outputs on existing inventories and lot sizing. The result will be a tabular load report for each work station or a graphical load profile for helping plan-production requirements. This will tell where capacity is not fair to middling or idle, allowing for imbalances to be corrected by shifts in personnel or equipment or the use of overtime or added shifts. Finite capacity scheduling is an extension of CRP that simulates job order sto pping and starting to produce a detailed schedule that provides a set of start and finish dates for each operation at each work station. A failure to earn the very nature of managing capacity can lead to disorder and somber customer service issues. If there is a mismatch between available and required capacity, adjustments should be made. However, it should be taken care that firms cannot Have perfectly-balanced material and capacity plans that easily accommodate emergency orders. If flexibility is the companys competitive priority, excess capacity would be appropriate.3.2 Utilization and powerUtilization is the percentage of design capacity achieved.Utilization = Actual Output/Design Capacity energy is the percentage of effective capacity achieved.Efficiency = Actual Output/ in force(p) CapacityBakery ExampleActual production last week = 148,000 rollsEffective capacity = 175,000 rollsDesign capacity = 1,200 rolls per hourBakery operates 7 days/week, 3 8 hour shiftsDesign capacit y = (7 x 3 x 8) x (1,200) = 201,600 rollsUtilization = 148,000/201,600 = 73.4%Efficiency = 148,000/175,000 = 84.6%Efficiency = 84.6%Efficiency of new line = 75%Expected Output = (Effective Capacity)(Efficiency)= (175,000)(.75) = 131,250 rolls3.3 Managing acquireThere are three cases in which demand has to be managed and they areDemand Exceeding CapacityControl demand by raising prices, scheduling longer lead timeLong term solution is to increase the capacityCapacity exceeds demandStimulate marketProduct changesAdjusting to seasonal worker DEMANDSProduce products with complimentary demand patternsCapacity planning in short time or short term capacity planning to meet seasonal demands is explained in detail in the following sections.Chapter-4 seasonal worker Demands4.1 seasonal DemandsSeasonal Demands are those demands those cause unusually large ups or downs in demand. Seasonal demand occurs in a number of different scenarios most frequent of them is listed in the followingNatural seasonal variations (e.g. greater demand for ice cream in summer and for cold remedies in winter). particular(prenominal) calendar linked Events like Diwali (Crackers, sweets), Mothers Day (e.g. greetings cards and flowers), and Christmas.Regular every day Promotions that can happen frequently and semi-randomly throughout a year.4.2 Impacts and Challenges of Seasonal DemandManaging seasonal demand getting a good forecast done, planning production and procurement and managing the fulfillment process introduces considerable additional challenges into the process that is already complex. For most manufacturers, the two key and important planning processes are Forecasting Demand Planning, and Production Planning Scheduling.The challenge in Forecasting and Demand Planning is mainly handling the high demand volatility and variability, and unexpected demands. Specifically, promotions events tend to cause most of the issues, and result in much larger and more frequent demand spikes and d ips than native seasonal variations. If these are not planned well in a by the bye fashion and introduced into downstream production and distribution plans, the result can be significant reduction in manufacturing and distribution efficiencies, increase in costs, lower customer service levels and satisfaction and all these ultimately can result in a lost business.In Planning and Scheduling, the greatest of problems is transaction with frequent changes in forecasts and orders. The ability to react swiftly while making the best decision on the way of satisfying demand is often the desired strategy of Make to Order manufacturers. For manufacturers who are unable to meet peak demand because of capacity constraints, and for those that Make to Stock or use a combined MTO/MTS strategy, tactical planning requires careful tweaking of demand and production in order to plan for a suitable pre-building of inventory and to ensure that the long lead time items are purchased in synchronization w ith the modified production plans.Manufacturers, of course, may, to solve some or all of their capacity issues, lapse to sub-contracting. The recent upward trend in contract manufacturing, and the increase in virtual manufacturing, that is, purchasing and distributing products from foreign countries significantly add to the overall sum up chain complexity. In this, with very long supply lead times, true statement of forecast is again paramount, and, the ability to give your suppliers precise projections of your requirements in a timely manner is one of the most critical factors.Despite the weightlift of lean strategies and principles of customer driven supply chain, one of the most common ways of dealing with any type of demand uncertainty in many of the companies of today still appears to be to insure against the uncertainty by holding an extra inventory across the supply chain which is an pricey and unacceptable solution.4.3 Focus on Customers and DemandGetting the demand ev en off approach benefits every subsequent supply chain planning and slaying processes from production planning, through sourcing and procurement to fulfillment and this result in rock-bottom costs as well as improvements in the top line sales and market share. On the other hand, getting the demand handle adds cost to almost all downstream processes, severely affecting competitiveness and again ultimately results in losing the business.In forecasting and demand planning, one very much visible guideline is to focus more on the abnormal than the normal. This does not mean not paying attention to natural seasonal variations, but paying more attention on promotions and events as these are the things that almost cause the highest volatility in demand always and are the most tough to handle.Putting in extra efforts to ensure you understand your customers and the authentic sources of demand can also pay very good dividends. Many manufacturers still use their customers demand from on thei r warehouses but frequently, their customers ordering process is not that good and is a poor source of history of demands or demand trends. Wherever possible, its a lot best to have eyes on the actual source of demand, namely the consumer. victimisation their customers POS data as part of the demand planning process often gives much better idea of the actual demand.The ability to maximize and infinitely improve forecast accuracy is very important. Increasing sales and market share with the help of improved perfect order performance and influencing and creating demand is equally important. Focusing well on demand and getting nearby to your customers is an essential requirement to achieve these goals.Chapter-5 ConclusionConclusionShort term capacity planning to meet seasonal demands, thus is critical for any company and proper forecasting of seasonal demands and a proper plan to meet all those seasonal demands should be in place. Any defacement in this, can lead to high inventory costs, employee dissatisfaction, deteriorating customer service levels and high customer dissatisfaction that leads to losing the customers and ultimately losing the business. A firm should be at vigil all the time to see the changes happening in demands and should keep changing its strategies of short term capacity planning and achieve and sustain an outstanding business value.Appendix