MBA 570
Summer 2011
Facility planning answers:
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How much long-range capacity is needed
When more capacity is needed
Where facilities should be located
(location)
How facilities should be arranged (layout)

Maximum output of a system in a given
period (general definition)
◦ May be units, hours, dollars, sq. ft. etc.
◦ Example: Tons of steel per month


Effective capacity: Maximum output given
standards, product mix, etc.
Rated capacity: Maximum usable output
given utilization & efficiency
◦ RC = (Capacity)(Utilization)(Efficiency)

How would you define capacity for the
following firms (e.g., steel mill, tons of steel
per day):
◦
◦
◦
◦
◦
Beer brewery
Auto plant
Restaurant
Warehouse
Grocery store
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Beer brewery: Barrels of beer per year (output)
Auto plant: Cars per week (output)
Restaurant: Customers per hour (output) or
number of seats (input)
Warehouse: Square feet of space (input)
Grocery store: Square inches of shelf space
(input)
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
Long Range
Planning
Intermediate
Range Planning
Add Facilities
Add long lead time equipment
Sub-Contract
Add Equipment
Add Shifts
*Limited options exist
Add Personnel
Build or Use Inventory
*
Short Range
Planning
Modify Capacity
*
Schedule Jobs
Schedule Personnel
Allocate Machinery
Use 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.
Actual (or Expected) Output =
(Effective Capacity)(Efficiency)

Measure of planned or actual capacity usage
of a facility, work center, or machine

Measure of planned or actual capacity usage
of a facility, work center, or machine
Expected capacity
Utilization 
Capacity
Planned hours to be used

Total hours available

Measure of how well a facility or machine is
performing when used

Measure of how well a facility or machine is
performing when used
Actual output
Efficiency 
Effective capacity
Actual output in units

Standard output in units
Average actual time

Standard time

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
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Forecast demand accurately
Understanding the technology and capacity
increments
Finding the optimal operating level (volume)
Build for change
1.
2.
3.
4.
Making staffing changes (increasing or
decreasing the number of employees)
Adjusting equipment and processes –
which might include purchasing
additional machinery or selling or leasing
out existing equipment
Improving methods to increase
throughput; and/or
Redesigning the product to facilitate more
throughput
Expected Demand
Expected Demand
New Capacity
Demand
Demand
New Capacity
Time in Years
Capacity leads demand with an incremental expansion
Time in Years
Capacity leads demand with a one-step expansion
Expected Demand
New Capacity
New Capacity
Time in Years
Capacity lags demand with an incremental expansion
Demand
Demand
Expected Demand
Time in Years
Attempts to have an average capacity, with an
incremental expansion
Expected Demand
Demand
New Capacity
Time in Years
Capacity leads demand with an incremental expansion
Expected Demand
Demand
New Capacity
Time in Years
Capacity leads demand with a one-step expansion
Expected Demand
Demand
New Capacity
Time in Years
Capacity lags demand with an incremental expansion
Demand
New Capacity
Expected Demand
Time in Years
Attempts to have an average capacity, with an incremental
expansion
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
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Demand Management
Vary prices
Vary promotion
Change lead times
(e.g., backorders)
Offer complementary
products
Sales (Units)
5,000
4,000
3,000
Snowmobiles
2,000
1,000
0
J M M J S N J M M J S N J
Time (Months)
Sales (Units)
5,000
4,000
3,000
Snowmobiles
2,000
1,000
Jet Skis
0
J M M J S N J M M J S N J
Time (Months)
Sales (Units)
5,000
4,000
3,000
Total
Snowmobiles
2,000
1,000
Jet Skis
0
J M M J S N J M M J S N J
Time (Months)
Sales (Units) Variation is reduced by
Total
Snowmobiles
Time (Months)
J
O
J
A
J
O
J
Jet Skis
A
J
5,000
4,000
3,000
2,000
1,000
0
combining demands
Demand Management

Vary prices

Vary promotion

Change lead times
(e.g., backorders)

Offer complementary
products
Capacity Management
 Vary staffing
 Change equipment
& processes
 Change methods
 Redesign the product
for faster processing