# Chapter 1

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Capacity Planning
(Long-Term Capacity Planning)
Copyright &copy; 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6–1
Planning Management
Capacity management
Chapter 6 –
Chapter 7 –
Capacity planning
Constraint management
(long-term capacity planning)
(short-term capacity planning)
 1. Economies and
diseconomies of scale
 2. Capacity timing and
sizing strategies
 3. Systematic approach to
capacity decisions
Copyright &copy; 2010 Pearson Education, Inc. Publishing as Prentice Hall.
 Theory of constraints
 Identification and
management of
bottlenecks
 Product mix decisions
using bottlenecks
 Managing constraints in a
line process
6–2
Capacity and Scale
Average unit cost
(dollars per patient)
best operating level = 500 beds (blue dot in the diagram)
250-bed
hospital
500-bed
hospital
Economies
of scale
750-bed
hospital
Diseconomies
of scale
Output rate (patients per week)
Figure 6.1 – Economies and Diseconomies of Scale
Copyright &copy; 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6–3
A. Expansionist strategy
Forecast of capacity
required
Capacity
Planned unused
capacity
Capacity
increment
Time between
increments
Time
Figure 6.2 – Two Capacity Strategies
Copyright &copy; 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6–4
B. Wait-and-see strategy
Capacity
Planned use of
short-term options
Forecast of capacity
required
Capacity
increment
Time between
increments
Time
Figure 6.2 – Two Capacity Strategies
Copyright &copy; 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6–5
Output Measures
for Estimating Capacity Requirements
 Output Measures are the simplest way to express
capacity.
 Products produced or customers served per unit of
time
Example: Current capacity is 50 per day and demand is
expected to double in five years. Management uses a
capacity cushion of 20%.
Capacity (M) in 5 years should be:
M = 100/(1 - 0.2) = 125 customers
6–6
Input Measures
for Estimating Capacity Requirements
Input Measures are typically based on resource availability: e.g.
Availability of workers, machines, workstations, seats, etc.
 For one service or product processed at one operation with a
one year time period, the capacity requirement, M, is
Processing hours required for year’s demand
Capacity
requirement = Hours available from a single capacity unit
(such as an employee or machine) per year,
after deducting desired cushion
Dp
M=
N[1 – (C/100)]
where
D = demand forecast for the year (number of customers serviced or
units of product)
p = processing time (in hours per customer served or unit produced)
N = total number of hours per year during which the process operates
C = desired capacity cushion (expressed as a percent)
Copyright &copy; 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6–7
Input Measures
for Estimating Capacity Requirements
 if multiple products are produced, setup
times may be required
Capacity
requirement =
M=
Processing and setup hours required for
year’s demand, summed over all services
or products
Hours available from a single capacity unit
per year, after deducting desired cushion
[Dp + (D/Q)s]product 1 + [Dp + (D/Q)s]product 1 + …
+ [Dp + (D/Q)s]product n
N[1 – (C/100)]
where
Q = number of units in each lot
s = setup time (in hours) per lot
Copyright &copy; 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6–8
Decision Trees
Low demand [0.40]
\$70,000
Don’t expand
\$109,000
High demand [0.60]
2
\$135,000
1
Low demand [0.40]
\$148,000
\$148,000
High demand [0.60]
\$90,000
Expand
\$135,000
\$40,000
\$220,000
Figure 6.4 – A Decision Tree for Capacity Expansion
Copyright &copy; 2010 Pearson Education, Inc. Publishing as Prentice Hall.
6–9
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