Operations
Management
Supplement 7 –
Capacity Planning
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e
© 2008 Prentice Hall, Inc.
S7 – 1
Capacity
The throughput, or the number of
units a facility can hold, receive,
store, or produce in a period of time
Determines
fixed costs
Determines if
demand will
be satisfied
© 2008 Prentice Hall, Inc.
S7 – 2
Planning Over a Time
Horizon
Long-range
planning
Add facilities
Add long lead time equipment
Intermediaterange
planning
Subcontract
Add equipment
Add shifts
Short-range
planning
Add personnel
Build or use inventory
*
Modify capacity
*
Schedule jobs
Schedule personnel
Allocate machinery
Use capacity
* Limited options exist
Figure S7.1
© 2008 Prentice Hall, Inc.
S7 – 3
Design and Effective
Capacity
Design capacity is the maximum
theoretical output of a system
Normally expressed as a rate
Effective capacity is the capacity a
firm expects to achieve given current
operating constraints
Often lower than design capacity
© 2008 Prentice Hall, Inc.
S7 – 4
Capacity and Strategy
Capacity decisions impact all 10
decisions of operations
management as well as other
functional areas of the organization
Capacity decisions must be
integrated into the organization’s
mission and strategy
© 2008 Prentice Hall, Inc.
S7 – 5
Capacity Considerations
Forecast demand accurately
Understand the technology and
capacity increments
Find the optimum
operating level
(volume)
Build for change
© 2008 Prentice Hall, Inc.
S7 – 6
Managing Demand
Demand exceeds capacity
Curtail demand by raising prices,
scheduling longer lead time
Long term solution is to increase capacity
Capacity exceeds demand
Stimulate market
Product changes
Adjusting to seasonal demands
Produce products with complementary
demand patterns
© 2008 Prentice Hall, Inc.
S7 – 7
Tactics for Matching
Capacity to Demand
1. Making staffing changes
2. Adjusting equipment
Purchasing additional machinery
Selling or leasing out existing equipment
3. Improving processes to increase throughput
4. Redesigning products to facilitate more
throughput
5. Adding process flexibility to meet changing
product preferences
6. Closing facilities
© 2008 Prentice Hall, Inc.
S7 – 8
Demand and Capacity
Management in the Service Sector
Demand management
Appointment, reservations
Capacity
management
Full time,
temporary,
part-time
staff
© 2008 Prentice Hall, Inc.
S7 – 9
Break-Even Analysis
–
Total revenue line
900 –
800 –
Cost in dollars
700 –
Break-even point
Total cost = Total revenue
Total cost line
600 –
500 –
Variable cost
400 –
300 –
200 –
100 –
Fixed cost
|
|
|
|
|
|
|
|
|
|
|
–
0 100 200 300 400 500 600 700 800 900 1000 1100
|
Figure S7.6
© 2008 Prentice Hall, Inc.
Volume (units per period)
S7 – 10
Decision Trees and
Capacity Decision
Market favorable
Market unfavorable
Market favorable
Medium plant
Market unfavorable
Market favorable
Market unfavorable
© 2008 Prentice Hall, Inc.
S7 – 11
0
