Capacity

Planning Group members:::

Ankita Aggarwal(124
Naveen(135)
Nitesh(139)
Prabhat(140)
Vashika Rastogi(180
What is capacity planning?
Capacity planning is the process of
determining the production capacity
needed by an organization to meet
changing demands for its products. In
the context of capacity planning,
"capacity" is the maximum amount of
work that an organization is capable of
completing in a given period of time.
Example-

If a machine can run 200hrs in a month &

2000 washers per hour are made, then

the capacity of machine can be
expressed 4lakhs washers per month.

Classical formula

C=T*E*U
where,

C = actual measured capacity (in

standard hours)
T = real time available

E = efficiency

U = utilisation
Need of capacity planning

 To keep low production cost

 To minimize loadings
 To meet expected demand
 Optimum utilization of resources
 To manage change in production
 To avoid loss of productivity
Measurement of capacity

Capacity can be measured in terms of



output or input of the conversion

process.


Examples:-
 Organization Measures
of capacity
Automobile industry No. of
vehicle
Steel mill

Tonnes of steel
 Factors that Influence Effective Capacity
FACILITIES POLICY
Design
Location OPERATIONAL
Layout Scheduling
Environment Materials Management
Quality assurance
PRODUCT / SERVICES Maintenance policies
Design Equipment breakdowns
Product or service MIX
SUPPLY CHAINS
PROCESS
Quantity capabilities EXTERNAL FACTORS
Quality capabilities Product standards
Safety regulations
HUMAN FACTORS Unions
Job Content Pollution control standards
Job Design
Training and Experience
Motivation
Compensation
Learning Curve
Absenteeism & labor turnover
Capacity time horizon
 Long-range capacity planning- strategic
 Time horizon of 3 to 10 years
 Physical plant expansion
 Plant level
 Medium-range capacity planning- tactical
 Time horizon of 6 months to 3 years
 Aggregate production planning fits
here
 Only critical resources are considered
 Short-range capacity planning- operational
 Time horizon of 0 to 6 months/material
planning fits here
 Detailed, at the work center level

 Contd…..
In the long range, how much to


increase capacity depends on:



1) the volume and certainty of

anticipated demand,
2) the strategic objectives in terms
of growth, customer service, and
competition, and
3) the costs of expansion and
operation.
Capacity planning framework
Step 1
Estimating Total Requirement

 Two major sources

 Labour
 Machines


 Capacity calculations are done on the

basis of man hour & machine hour
requirements per unit of product
manufactured

Estimating Labour & machine
requirements

 Labour requirement depends on two

factors-
 Amount of standard labour hours
required per unit of the product
 Efficiency of Labour


 Capacity requirements ( labour) = D*SL



EL
Contd…..

 Here , Projected demand per unit time

during the planning horizon = D


 Standard labourhours required per

unit of the product = SL


 Efficiency of labour = EL



Computation of machine
requirement
 Capacity requirements ( Machine) =
D*SM


EM
 Here , Projected demand per unit time
during the planning horizon = D


 Standard machine hours required per

unit of the product = SM


 Efficiency of Machine = EM

Example

 New Microsoft Office Excel Worksheet.xls

Step 2
computing capacity availablity
 Function of two parameters:-
 System availability
 f( no.of working days & the no. of
hours per day)


 Resource availability
 F( maintenance schedules & break
down behaviour in case of machines
and Absenteeism in the case of labour)



Contd…..

 Capacity available in the system can

be computed by-

qSystem availability:-
 No. of working days in the planning
horizon: Nd
 No. of working hours per day: h
 System availability( hours) = Nd * h

Contd…..

 Resource availability:-
 No. of machines available : Nm
 Machine: Time lost in breakdown &
maintenance = b%
 Labour: Absenteeism of the workers = a
%
 No. of workers available: NL


 Capacity available in the system

( Hours):-
 Machine: Nd * h * NM * (1-b/100)

EXAMPLE:-

 New Microsoft Office Excel Worksheet.xls

Types of Capacity Planning

1. Fixed capacity

2. Adjustable capacity
3. Immediate capacity
4. Potential capacity
5. Design capacity
6. Operating capacity
7. System capacity
8. Rated capacity
9. Utilised capacity
1.FIXED CAPACITY- The capital
assets the company will have at
a particular time .
 For e.g..- building, equipments
etc.
et

2.ADJUSTABLE CAPACITY-The size
of the workforce, the number of
hours per week they work, the
number of shifts & extent of sub-
3)DESIGN CAPACITY - The


planned rate of output of goods or

services under normal or full scale
operating conditions.

4)SYSTEM CAPACITY-The maximum
output of a specific product or
product- mix that the system of
workers & machines is capable of
producing .


5. POTENTIAL CAPACITY
 The capacity that can be made
available to influence the planning of
senior management
 e.g. in helping them to make decisions
about overall business growth,
investment etc.
 This is essentially a long-term decision
that does not influence day-to-day
production management.
6. IMMEDIATE CAPACITY
 The amount of production capacity
that can be made available in the
short-term. This is the maximum
potential capacity - assuming that it is
7) EFFECTIVE or PRACTICAL or


OPERATING CAPACITY
 Not all productive capacity is
actually used or usable. It is
important for production managers
to understand what capacity is
actually achievable. Effective
capacity is the capacity which is
used with the current budgeted
period.
. NORMAL or RATED CAPACITY


 This is the estimated quantity of

output or production that should be
usually achieved as per estimation
done by industrial engineering
department.
9. ACTUAL or UTILIZED CAPACITY


 This is the actual output achieved

during a particular time period.
 The actual output may be less than
the rated output because of short
range factors.
Definition of decision tree:

 A decision tree is a schematic

model in which different
sequences and steps involved
in a problem and the
consequences of the decisions
are systematically portrayed.
 or

 Decision trees are tools for
helping you to choose between
several courses of action. They
provide a highly effective
structure within which you can
lay out options and investigate
the possible outcomes of
Drawing a decision tree:

1.Draw a small square to

represent decision point.
2.Write the solutions along
the line/branches.
3.Draw a small circle to
represent the outcome.
4.Draw another square if the
outcome is another
decision.

Decision Trees and
Capacity Decision
Moderate revenue
RS 4,00,000/year
A
High revenue
a cit y RS 8,50,000/year
c ap
n ew
Add Moderate revenue
RS 2,00,000/year
expand
Go
1 f or B
High revenue
sub RS 4,50,000/year
c on
tra
cti
ng Moderate revenue
RS 1,80,000/year
C Add new RS 8,50,000/yr
capacity
2 (revenue)
Rs 3,50,000/yr
Continue with sub
contracting (revenue)
Queuing Formulas
Single Server Model with Poisson Arrival and Service Rates: M/M/1

1. Mean arrival rateλ:

2. Mean service rateµ:
3. Mean number in service: λ
ρ=
4. Probability of exactly “nµ” customers in the system :
5. = ρ (1: − ρ )
n
Probability of “k” or more customers in thePnsystem
6. Mean number of customers in the system: P(n ≥ k ) = ρ k
λ
7. Mean number of customers in queue: Ls =
µ−λ
ρλ
8. Mean time in system: Lq =
1 µ−λ
9. Mean time in queue: Ws = µ − λ

ρ
Wq =
µ−λ
WAITING LINE MODELS

 This models make use of queueing

theory fundamentals to analyse the
impact of alternative capacity
choices of important operational
measures in operating systems
such as queue length , waiting time
and utilisation of resources.
Conclusion
ü Planning should take into account
not only facility production and
distribution costs, but also lost
sales.
ü Capacity should be effectively
planned by devising various
methods of augmenting it.
ü The optimal capacity of the facility is
that at which sum of costs of under
capacity and over capacity is
minimum.
ü The primary purpose of capacity
planning is to match the company
‘s production capability with