Rev. 11/30/03SJSU Bus. 140 - David Bentley1 Chapter 5 – Capacity Planning and Control Definitions, capacity measurement, MRP II and capacity, utilization,

Rev. 11/30/03 SJSU Bus. 140 - David Bentley 1

Chapter 5 – Capacity Planning and Control

Definitions, capacity measurement, MRP II and

capacity, utilization, efficiency, breakeven

11/30/03 SJSU Bus. 140 - David Bentley 2

Definition of Capacity Upper limit on the work load that an

operating unit can handle during a given period of time Plant, production line, work center, work

station, employee Also defined as “Rate of output” Contrast to common definition of

capacity

11/30/03 SJSU Bus. 140 - David Bentley 3

Capacity Decisions Affect…

Ability to meet customer demand Possible long term commitments Competitive capability Capital investment and operating

costs

Rev. 11/30/03 SJSU Bus. 140 - David Bentley 4

Capacity and Production Environments

Operation Types Project > Job > Batch > Repetitive > Continuous flow>

See Tables 5-1a and 5-1b

Time to Forecast Capacity Capacity & raw

materials Capacity & raw

materials Capacity, RM &

assemblies Capacity, RM &

products

Rev. 11/30/03 SJSU Bus. 140 - David Bentley 5

Capacity Considerations - 1

Definition: “Rate of output” Utilization (uses design capacity)

Relates actual output to theoretical output Paid for 8 hours, producing parts 6.4 hours;

utilization = 6.4 / 8 = 80% Efficiency (uses effective capacity)

Relates actual output to expected output Expect production of 100 parts, actual =

90; efficiency = 90%

02/20/06 SJSU Bus. 140 - David Bentley 6

Capacity Considerations - 2

Design capacity Maximum output under normal conditions

Effective capacity Design capacity minus allowances for

certain efficiency losses Actual output

Recorded output for a given time period

02/20/06 SJSU Bus. 140 - David Bentley 7

Utilization & Efficiency Utilization

Actual output_ Design capacity

Efficiency Actual output_ Effective capacity

Rev. 02/20/06 SJSU Bus. 140 - David Bentley 8

Productivity

Productivity Product of (utilization X efficiency) (.80)(.90) = 0.72 or 72%

Rev. 12/04/01 SJSU Bus. 140 - David Bentley 9

Theory of Constraints Developed by Eliyahu Goldratt – “The

Goal” Management of bottlenecks Attempts to schedule and feed work to

maximize the rate of work flow Utilizes “transfer batches” = operation

overlapping Optimized Production Technology (OPT)

software

12/04/01 SJSU Bus. 140 - David Bentley 10

“The Goal” – Excellence in Manufacturing

“ ‘The Goal’ is about the OPT principles of manufacturing. It’s about trying to understand what makes our world tick so that we can make it better. When we think logically and consistently about our problems we can determine the ‘cause and effect’ relationships between actions and results.”

- from “The Goal” 1984 by Eliyahu M. Goldratt and Jeff Cox

11/30/03 SJSU Bus. 140 - David Bentley 11

Cost-Volume RelationshipsA

mo

un

t ($

)

0Q (volume in units)

Total cost = VC + FC

Total variable cost (V

C)

Fixed cost (FC)

Operations Management, Seventh Edition, by William J. Stevenson

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

11/30/03 SJSU Bus. 140 - David Bentley 12

Cost-Volume RelationshipsA

mo

un

t ($

)

Q (volume in units)0

Total r

evenue

Operations Management, Seventh Edition, by William J. Stevenson

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

11/30/03 SJSU Bus. 140 - David Bentley 13

Cost-Volume RelationshipsA

mo

un

t ($

)

Q (volume in units)0 BEP units

Profit

Total r

even

ue

Total cost

Operations Management, Seventh Edition, by William J. Stevenson

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

Rev. 02/20/06 SJSU Bus. 140 - David Bentley 14

Make or Buy Cost-volume or breakeven analysis QBEP = FC / (Rev – v)

Where FC = fixed cost, Rev = unit price (or revenue), v = unit variable cost

Example: candle manufacture FC = $50, Rev = $1, v = $.75 Solution: QBEP = 50 / (1 - .75)

= 200

02/20/06 SJSU Bus. 140 - David Bentley 15

Breakeven related problems

QBEP = FC / (Rev – v) QX = (Profit + FC) / (Rev –v) Profit = Q (Rev – v) – FC Rev = [(Profit + FC) / Q] +v TR = Q × Rev

11/30/03 SJSU Bus. 140 - David Bentley 16

Break-even and Step Fixed Costs

Quantity

FC + VC = TC

FC + VC = TC

FC + VC =

TC

Step fixed costs and variable costs.

1 machine

2 machines

3 machines

Operations Management, Seventh Edition, by William J. Stevenson

Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved

Rev. 11/30/03 SJSU Bus. 140 - David Bentley 17

MRP IICapacity Planning

Levels Long Range

Long Range Resource Planning (LRRP) Intermediate Range

Rough Cut Capacity Planning (RCCP) Short Range

Capacity Requirements Planning (CRP)

Rev. 11/20/01 SJSU Bus. 140 - David Bentley 18

Long Range Resource Planning (LRRP)

Planning up to 5 years out Time intervals in quarters and years Broad categories of capacity

Land Buildings (square feet) Equipment (by type) Labor (by broad skill set) Money, etc.

Rev. 11/20/01 SJSU Bus. 140 - David Bentley 19

Rough Cut Capacity Planning (RCCP)

18 – 24 months Time intervals in weeks and months Critical resources needed to meet MPS Allows time to:

Hire / layoff Develop subcontractors Negotiate supply contracts Buy and install equipment

Rev. 11/20/01 SJSU Bus. 140 - David Bentley 20

Capacity Requirements Planning (CRP)

Probably about 12 month horizon Time intervals in days and weeks Considers all internal resources needed to

satisfy MRP May include vendor capacity Allows time to:

Buy parts Exercise or call in subcontracting Hire or lay off temps Schedule overtime

New 11/20/01 SJSU Bus. 140 - David Bentley 21

Input-Output (I/O)Analysis

Measures at a work center not only Output, but also Input Also looks at changes in backlog Used to trace upstream and identify

problems in feeder work centers