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Mata kuliah : J0444 - Manajemen Operasional Tahun : 2010 Capacity Planning Pertemuan 04 Learning Objectives • • • • • Explain the importance of capacity planning. Discuss ways of defining and measuring capacity. Describe the determinants of effective capacity. Discuss the major considerations related to developing capacity alternatives. Briefly describe approaches that are useful for evaluating capacity alternatives Capacity Planning • Capacity is the upper limit or ceiling on the load that an operating unit can handle. • Capacity also includes – – – Equipment Space Employee skills • The basic questions in capacity handling are: – – – What kind of capacity is needed? How much is needed? When is it needed? Capacity Planning Process Forecast Demand Develop Alternative Plans Quantitative Factors (e.g., Cost) Compute Rated Capacity Evaluate Capacity Plans Qualitative Factors (e.g., Skills) Compute Needed Capacity Select Best Capacity Plan Implement Best Plan Types of Planning Over a Time Horizon Long Range Planning Intermediate Range Planning Add Facilities * Add long lead time equipment Sub-Contract Add Equipment Add Shifts * Short Range Planning *Limited options exist Add Personnel Build or Use Inventory Modify Capacity Schedule Jobs Schedule Personnel Allocate Machinery Use Capacity Importance of Capacity Decisions 1. 2. 3. 4. 5. 6. 7. 8. Impacts ability to meet future demands Affects operating costs Major determinant of initial costs Involves long-term commitment Affects competitiveness Affects ease of management Globalization adds complexity Impacts long range planning Definition and Measures of Capacity Capacity: The “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time. Effective capacity: Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality. Utilization: Actual output as a percent of design capacity. Efficiency: Actual output as a percent of effective capacity. Utilization Measure of planned or actual capacity usage of a facility, work center, or machine Utilization = Actual Output Design Capacity = Planned hours to be used Total hours available Efficiency Measure of how well a facility or machine is performing when used Efficiency = = = Actual output Effective Capacity Actual output in units Standard output in units Average actual time Standard time Example Design capacity = 50 trucks/day Effective capacity = 40 trucks/day Actual output = 36 units/day Actual output = 36 units/day Efficiency = = 90% Effective capacity Utilization = Actual output Design capacity 40 units/ day = 36 units/day 50 units/day = 72% Determinants of Effective Capacity • • • • • • • • Facilities Product and service factors Process factors Human factors Policy factors Operational factors Supply chain factors External factors Strategy Formulation • • • • Capacity strategy for long-term demand Demand patterns Growth rate and variability Facilities – Cost of building and operating • Technological changes – Rate and direction of technology changes • Behavior of competitors • Availability of capital and other inputs Key Decisions of Capacity Planning 1. Amount of capacity needed • Capacity cushion (100% - Utilization) 2. Timing of changes 3. Need to maintain balance 4. Extent of flexibility of facilities Capacity cushion – extra demand intended to offset uncertainty Steps for Capacity Planning 1. 2. 3. 4. 5. 6. 7. 8. Estimate future capacity requirements Evaluate existing capacity Identify alternatives Conduct financial analysis Assess key qualitative issues Select one alternative Implement alternative chosen Monitor results Forecasting Capacity Requirements • Long-term vs. short-term capacity needs • Long-term relates to overall level of capacity such as facility size, trends, and cycles • Short-term relates to variations from seasonal, random, and irregular fluctuations in demand Calculating Processing Requirements Standard processing time per unit (hr.) Product Annual Demand #1 400 5.0 2,000 #2 300 8.0 2,400 #3 700 2.0 1,400 5,800 If annual capacity is 2000 hours, then we need three machines to handle the required volume: 5,800 hours/2,000 hours = 2.90 machines Processing time needed (hr.) Planning Service Capacity • Need to be near customers – Capacity and location are closely tied • Inability to store services – Capacity must be matched with timing of demand • Degree of volatility of demand – Peak demand periods 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 Implications of Capacity Changes Changes in: • Sales • Cash flow • Quality • Supply chain • Human resources • Maintenance Special Requirements for Making Good Capacity Decisions • • • • Forecast demand accurately Understanding the technology and capacity increments Finding the optimal operating level (volume) Build for change Approaches to Capacity Expansion Expected Demand New Capacity Time in Years Capacity leads demand with an incremental expansion Demand Demand Expected Demand Time in Years Capacity leads demand with a one-step expansion Expected Demand Time in Years Capacity lags demand with an incremental expansion Demand Demand Expected Demand New Capacity New Capacity New Capacity Time in Years Attempts to have an average capacity, with an incremental expansion Approaches to Capacity Expansion Expected Demand Demand New Capacity Time in Years Capacity leads demand with an incremental expansion Approaches to Capacity Expansion Expected Demand Demand New Capacity Time in Years Capacity leads demand with a one-step expansion Approaches to Capacity Expansion Expected Demand Demand New Capacity Time in Years Capacity lags demand with an incremental expansion Approaches to Capacity Expansion Expected Demand Demand New Capacity Time in Years Attempts to have an average capacity, with an incremental expansion Evaluating Alternatives • Cost-volume analysis – Break-even point • Financial analysis – Cash flow – Present value • Decision theory • Waiting-line analysis Break-Even Analysis • Fixed costs: costs that continue even if no units are produced: depreciation, taxes, debt, mortgage payments • Variable costs: costs that vary with the volume of units produced: labor, materials, portion of utilities Breakeven Chart Cost in Dollars Total revenue line Profit Breakeven point Total cost = Total revenue Total cost line Variable cost Loss Fixed cost Volume (units/period) Crossover Chart Process A: low volume, high variety Process B: Repetitive Process C: High volume, low variety Fixed cost - Process C Fixed cost - Process B Fixed cost - Process A Process A Process B Process C Lowest cost process Assumptions of Cost-Volume Analysis 1. One product is involved 2. Everything produced can be sold 3. Variable cost per unit is the same regardless of volume 4. Fixed costs do not change with volume 5. Revenue per unit constant with volume 6. Revenue per unit exceeds variable cost per unit Financial Analysis • Cash Flow - the difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes. • Present Value - the sum, in current value, of all future cash flows of an investment proposal. Net Present Value F = future value P = present value I = interest rate N = number of years P F (i 1) N NPV in a More Convenient Form Present value of $1.00 Year P F (i 1) N P FX 1 where X (i 1 ) N 5% 6% 7% 8% 1 0.952 0.943 0.935 0.857 2 0.907 0.890 0.873 0.857 3 0.864 0.840 0.816 0.794 4 0.823 0.792 0.763 0.735 5 0.784 0.747 0.713 0.681 6 0.746 0.705 0.666 0.630 7 0.711 0.665 0.623 0.583 8 0.677 0.627 0.582 0.540 9 0.645 0.592 0.544 0.500 Present Value of an Annuity (S) Year • X = Factor from Table • S = present value of a series of uniform annual receipts • R = receipts that are received every year for the life of the investment S RX 5% 6% 7% 8% 1 0.952 0.943 0.935 0.926 2 1.859 1.833 1.808 1.783 3 2.723 2.673 2.624 2.577 4 3.546 3.465 3.387 3.312 5 4.329 4.212 4.100 3.993 6 5.076 4.917 4.766 4.623 7 5.786 5.582 5.389 5.206 8 6.843 6.210 5.971 5.747 9 7.108 6.802 7.024 6.247 Decision Theory • Helpful tool for financial comparison of alternatives under conditions of risk or uncertainty • Suited to capacity decisions • See Chapter 5 Supplement Decision Tree and Capacity Decision -$14,000 Market favorable (0.4) $100,000 Market unfavorable (0.6) -$90,000 $18,000 Market favorable (0.4) $60,000 Market unfavorable (0.6) -10,000 $13,000 Market favorable (0.4) -5,000 Market unfavorable (0.6) $40,000 $0 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 costeffective by balancing the cost of having customers wait in line with the cost of additional capacity The End