Operations
Management
Supplement 7 –
Capacity Planning
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e
© 2008 Prentice Hall, Inc.
S7 – 1
Capacity
 The throughput, or the number of
units a facility can hold, receive,
store, or produce in a period of time
 Determines
fixed costs
 Determines if
demand will
be satisfied
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S7 – 2
Planning Over a Time
Horizon
Long-range
planning
Add facilities
Add long lead time equipment
Intermediaterange
planning
Subcontract
Add equipment
Add shifts
Short-range
planning
Add personnel
Build or use inventory
*
Modify capacity
*
Schedule jobs
Schedule personnel
Allocate machinery
Use capacity
* Limited options exist
Figure S7.1
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S7 – 3
Design and Effective
Capacity
 Design capacity is the maximum
theoretical output of a system
 Normally expressed as a rate
 Effective capacity is the capacity a
firm expects to achieve given current
operating constraints
 Often lower than design capacity
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S7 – 4
Capacity and Strategy
 Capacity decisions impact all 10
decisions of operations
management as well as other
functional areas of the organization
 Capacity decisions must be
integrated into the organization’s
mission and strategy
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S7 – 5
Capacity Considerations
 Forecast demand accurately
 Understand the technology and
capacity increments
 Find the optimum
operating level
(volume)
 Build for change
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S7 – 6
Managing Demand
 Demand exceeds capacity
 Curtail demand by raising prices,
scheduling longer lead time
 Long term solution is to increase capacity
 Capacity exceeds demand
 Stimulate market
 Product changes
 Adjusting to seasonal demands
 Produce products with complementary
demand patterns
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S7 – 7
Tactics for Matching
Capacity to Demand
1. Making staffing changes
2. Adjusting equipment
 Purchasing additional machinery
 Selling or leasing out existing equipment
3. Improving processes to increase throughput
4. Redesigning products to facilitate more
throughput
5. Adding process flexibility to meet changing
product preferences
6. Closing facilities
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S7 – 8
Demand and Capacity
Management in the Service Sector
 Demand management
 Appointment, reservations
 Capacity
management
 Full time,
temporary,
part-time
staff
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S7 – 9
Break-Even Analysis
–
Total revenue line
900 –
800 –
Cost in dollars
700 –
Break-even point
Total cost = Total revenue
Total cost line
600 –
500 –
Variable cost
400 –
300 –
200 –
100 –
Fixed cost
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0 100 200 300 400 500 600 700 800 900 1000 1100
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Figure S7.6
© 2008 Prentice Hall, Inc.
Volume (units per period)
S7 – 10
Decision Trees and
Capacity Decision
Market favorable
Market unfavorable
Market favorable
Medium plant
Market unfavorable
Market favorable
Market unfavorable
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S7 – 11