Chapter 5 - Strategic Capacity
Planning
SUMMARY
– Design capacity is the theoretical maximum output
rate, but effective capacity is limited by work break
hours, maintenance, etc.
– Efficiency is the ratio of actual output rate to
effective capacity.
– Capacity utilization of a unit is the ratio of actual
output to design capacity.
– Overall equipment effectiveness provides a picture
of how well your manufacturing process is running,
and helps to track improvements over time.
– A variety of factors can influence effective capacity.
These include facility design and layout, human
factors, product factors, equipment maintenance,
scheduling problems, and quality considerations.
– Capacity planning is the process of determining
alternatives in order to meet longterm forecasted
demand.
– Development of capacity alternatives is enhanced
by considering the life cycle of the product,
designing systems with flexible capacity, timing the
capacity plan before demand occurs, taking a
systems approach to planning, recognizing that
capacity increments are often acquired in chunks,
practising demand management and utilizing
complementary products, using capacity cushion,
and choosing the right capacity and optimal
operating level.
– One or more constraints can adversely affect the
overall capacity of a system. Capacity increases can
only be achieved by loosening the bottleneck(s),
not by increasing other resources.
– In evaluating capacity alternatives, a manager must
consider both quantitative and qualitative aspects.
Quantitative analysis usually reflects economic
factors, and qualitative considerations include
intangibles such as operational fit and personal
preferences of managers.
– Break-even analysis determines the quantity
beyond which profit will be attained.
● bottleneck operation - An operation in a sequence
of operations whose capacity is lower than that of
the other operations.
● break-even point (BEP) - The quantity of output at
which total cost and total revenue are equal.
● capacity - The upper limit on the workload that an
operating unit can handle.
● capacity cushion - The excess of capacity over the
average demand.
● capacity utilization - The ratio of actual output to
design capacity.
● cash flow - The difference between the cash
received from sales (of goods or services) and
other sources (e.g., sale of old equipment) and the
cash outflow for labour, materials, overhead, and
taxes.
● design capacity - The maximum output rate or
service capacity an operation, process, or facility is
designed for. The maximum output rate under ideal
conditions.
● effective capacity / standard output rate - The
maximum output rate that can be sustained given
work breaks, product mix, scheduling difficulties
and expected delays, machine/equipment
maintenance, etc.
● efficiency - The ratio of actual output rate to
effective capacity.
● optimal operating level - The level of production
that has the lowest average unit cost.
● present value - The sum of all future cash flows of
an investment proposal, expressed in current value.
● strategic capacity planning - Systematic
determination of facility and major machine/
equipment requirements to meet long-term
demand for goods and services.
Solved Problems
pp. 459- 463