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N Siva Prasad
Capacity
The ability to hold, receive, store or accommodate
In business terms it is the amount of output that a system is
capable of achieving over a period of time.( Plant capacity,
service capacity etc.)
Capacity planning is generally viewed in three time durations
Long Range
Intermediate Range
Short range
Strategic Capacity Planning
Finding the overall capacity level of capital intensive resources
to best support the firm’s long-term strategy.
Capacity Utilisation
It is attainable rate of output
Normally compared with best operating level
Capacity utilisation = Capacity used/Design capacity X100
Efficiency= capacity used/effective capacity or best
operating level X 100
How to define and arrive at “Best Operating Level or
effective capacity”?
Internal decision
Benchmarking
Compare similar type of industries
Determinants of effective capacity
Facilities
Product and service factors
Process factors
Human factors
Policy factors
Operational factors
Supply chain factors
External factors
Steps in Capacity Planning Process
Estimate future capacity requirements
Evaluating existing capacity and identify gaps
Identify alternatives to meet requirement
Conduct financial analyses of each alternative
Assess key qualitative issues with each alternative
Select the best alternative
Implement and
Monitor for effectiveness
Developing Capacity Strategies
Design flexibility into systems
Take stage of life cycle into consideration
Take a system approach to capacity changes
Prepare to deal with capacity chunks
Attempt to smooth out capacity requirements
Identify the optimal operating level.
Choose a strategy if expansion is involved
Capacity Analysis
Considerations in Changing Capacity
Maintaining System Balance
Frequency of Capacity Additions
External Sources of Operations and Supply Capacity
Decreasing Capacity
Determining Capacity Requirements
Use forecasting techniques
Calculate resource requirements
Availability of resources to be analysed
Decision Tree Analysis
Evaluating capacity alternatives using decision tree
Consider alternatives and list them
Associated probabilities for alternatives are mapped
Construct a decision tree with all possibilities ( with
associated cost)
Cost analysis is done ( different pay offs are calculated)
Compare all decision points wrt cost ( final value)
Choose the best alternative
NPV should be considered for long durations
Constraint management (TOC)
Categories
Market: insufficient demand
Resource: shortage of manpower etc.
Material: Shortage of some material
Financial : Insufficient funds
Supplier: unreliable
Knowledge: insufficient knowledge
Policy: Local laws or regulations
Service Capacity-Challenges
Need to be near customer
No inventory possible
Unpredictable variations in demand