The importance of capacity planning
      -Too much capacity can cause the inventory level to rise, or it may under us the company's work     force and equipment
         - Too little capacity cause loss of customers to competitors

    Capacity Decisions are also very important
     - Building capacity usually requires significant capital
          - The company can incur significant losses if its capacity needs are reduced
    Defining and measuring capacity
   - Definition of capacity
                It is the productive capability of a facility
          -There are several measures & definitions of capacity, however.
                Most common, capacity refers to the maximum productive capability of a facility or the maximum rate of output from a process
            -It is measured as a quantity of output per unit of time
            -Measuring capacity could be difficult for companies with divers product lines
    What are the ways for viewing maximum capacity?
          -Design capacity: It is the target output rate, or maximum capacity, for which the production facility was designed
            -Effective capacity: Refers to the maximum rate of output achievable, given the quality standards, scheduling constraints and so forth
            -Actual capacity: Reflects the rate of output that the plant actually achieves
            - Bottleneck: Refers to any operation that limits output in the production or service sequence
 

    Measures of production system effectiveness:
     *Capacity Utilization=Actual Capacity/Design Capacity
             *Capacity Effienciency=Actual Capacity/Effective Capacity
              Effiency is a short- and medium- range measure of how well the company is using its production system
    A firm's capacity strategy is based on:

    There are three aspects of capacity:
              1.Capacity cushion
           *Capacity cushion=100- Capacity Utilization
              2.Strategic timing of capacity change
                            *Strategy 1:Anticipate and Lead Demand
                            *Strategy 2:Closely follow Demand
                            *Strategy 3:Lag Demand
              3.Sizing capacity changes
               The level of capacity at which the average unit costs is at a minimum is called the Best operating level: at low levels of output a few units must absorb the fixed costs of the facilities, which produce a high average unit costs of output. As the out increase, average costs of costs decrease, until the company achieves some minimum average unit costs.
    Making capacity planning decisions
        There are five major reasons that companies initiate Capacity Planning projects
               *Increasing Demand
                            *Dropping Demand
                            *Changing Technology
                            *Changing Environment
                            *Spotting Opportunities
    Steps in capacity planning process
        There are 8 steps in a Capacity Planning process
                  1. Audit and Evaluate Existing Capacity and Facilities
                            2. Forecast Capacity or Facilities Requirements
                            3. Define Alternatives for Meeting Requirements
                            4. Perform Financial Analyses of Each Alternative
                            5. Asses Key Qualitative Issues for Each Alternative
                            6. Select One Alternative to Pursue
                            7. Implement Alternative Chosen
                            8. Audit and Review Actual Needs

    Decision tree analysis
                A decision tree is a graphic model of a set of alternatives and their consequences.  It provides a clear picture of capacity decisions and their outcomes overtime.
  Break-Even Analysis
                            A break-even analysis is commonly used choose between processing alternative.  These alternative can either be shown graphically or algebraically

     The Concept of Aggregation
      Aggregate Planning is  a medium- term capacity planning that typically encompasses a time period of two to eighteen months. It involves determining the best quantity to produce and selecting the lowest-cots  method that will provide flexibility in capacity while meeting production requirements.
 Aggregation is done according to :

Products:  a product family is a group of products that are manufactured similar and have common labor and materials requirements.

Labor:  a company can aggregate work force  by product family

Time:  the time period is usually about 1 year.

Work Force levels-- is the number of workers required for production.
Production Rate-- is the number of units produced per time period.
Inventory levels-- is the balance of unused units carried forward from the previous period.

        Aggregate Product Planning takes place in a complex environment that has a number of external and internal factors.
       Among the common objectives of Production planning are to:
            1. Minimize costs
            2. Maximize profits
            3. Minimize inventory levels
            4. Minimize changes in work force levels.
            5. Minimize use of overtime
            6. Minimize use of subcontracting
            7. Minimize changes in production rates
            8. Minimize number of machine setups
            9. Minimize idle time for plant and personnel
           10. Maximize customer service

    Ways to modify the demand

• Price incentives: are useful for reducing peak demand and stimulating off-peak demand.
• Reservations: requiring customers to reserve capacity in advance can influence demand
• Backlogs: companies can modify demand asking customers to wait for orders.
• Complementary products or services: companies that have highly seasonal demand use complementary products and services to smooth out their demand.
• Advertising/ promotion: can stimulate demand from peak periods to slack periods.

• Hiring/ firing workers: entails certain costs, both tangible and intangible.
• Overtime/Slack time: It is much less severe than hiring/ firing and is quicker and easier to implement.
• Part-time/Temporary labor: Is attractive because of flexibility it affords, and because companies can pay part-time or temporary workers less and not provide them with fringe benefits.
• Subcontracting: can have disadvantages, including higher costs and lack of control of product quality.
• Cooperative arrangements: many companies have arrangements to share facilities.
• Inventories: companies can use inventories as a buffer between supply and demand during the time period.Inventories are more useful in manufacturing than in service organizations.

• Hiring/ firing costs: hiring costs include the recruitment, screening and training that enable the employee to became fully productive.Firing costs include severance, certain employee benefits, the costs of realigning the reaming work force, and certain intangibles.
• Overtime/slack time costs: Overtime costs usually consist of regular wages plus a premium of 50 of 100%.Employers incur slack time costs when they use workers at less than the capacity.
• Part-time/Temporary labor costs: part-time or temporary labor costs usually are less than those associated with full time employees because of the difference in benefits and because part-time or temporary workers are simply pay less.
• Subcontracting costs: it is simply the subcontractor's fee to provide the needed production.Subcontracting can be more or less costly than taking the units at the company's own facilities.
• Cooperative arrangements costs: it is analogous to  a subcontracting cost  and again can be more or less than the cost of making the units at the company's own facilities.
• Inventory carrying costs: They include not only storage and the costs of tying up money that could be invested elsewhere but also the costs of insurance, obsolescence, breakage, spoilage,..
• Back order or stock out costs: these costs arise when a company make an order from existing inventories.

    Aggregate planning in service companies
                            Service companies do not produce inventories, they typically make to order rather than make to stock.
    Implementing aggregate production plans
                             When an aggregate production plan goes into effect, the company has to state its production schedule in terms of units of specific products or services.
    Hierarchical production planning(HPP)
                            An approach to analyze aggregate capacity incorporates a philosophy of matching product aggregations to decision-making levels in the organization.
                            Hierarchical production planning is the term used to describe the process of tailoring the planning structure to the organization.

    Capacity planning & the production planning & scheduling framework
    Rough-Cut capacity planning methods
        Capacity planning using overall factors
                            *Simplest rough cut capacity planning technique
                            *Uses the Master Production Schedule to:
                                        1. find standard time
                                        2. find historical work center usage percentage
                Capacity planning using capacity bills
                            *Requires more information than Capacity Planning Using Overall Resources.
                            *Capacity Bills uses Bills of Materials information, routing, and standard time data.
                            *Generally generates more precise capacity estimates
                            *This method approximates the capacity required for setups.
                            *The Capacity Bill calculates a standard setup time per unit by dividing the standard setup time by actual lot size (if it is available) or can estimate lot size (average lot size).
                Capacity planning using resource profiles
                            *The Resourec Profiles method extends Capacity Bills approach by considering lead time information.
                            *Resource Profiles Capacity Planning requires lead time for each component operation to estimate work center loads
                                    -lead time for a component in a given work center is the sum of the setup, processing and queue (waiting time that the component order experiences).
    Rough-Cut capacity planning comparison
                            *The total facility workload for CPOF and CB methods are identical, but RP method shows a substantial difference because of the time phasing of capacity requirements and the associated loss of visibility.
                            *Although RP is the most accurate rough cut planning technique it does not consider the current status of finished goods and WIP inventories and lot sizing.
                            *In contrast, CRP a detailed capacity planning method considers the current status of all finished and WIP inventories in calculating capacity requirement estimates.

    Here are some links that also deal with Capacity Planning

          *Capactiy Planning    capacity planning ,
                                                                     capacity planning concord ,
                                                                    http://www.astes.com/Default.htm
                                                                    http://www.summitonline.com/netmanage/papers/caci1.html
                                                                    http://www.combination.com/prodnsrv/prodnsrv.html
                                                                    http://www.cybor.co.nz/news/capplan.html
 
 
 
 

                                 Operations/Production Management
                                       BA333

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