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Lesson 07
Process Selection & Capacity Planning
07 - 1
Process
a series of actions or operations that transforms inputs into outputs
Feedback
07 - 2
Capacity Planning
Forecast
Technology
Work Design
07 - 3
07 - 4
Types of Processes
Continuous - a system that produces highly uniform products (e.g.
chemicals, paper, photographic film, steel)
Repetitive - a semi-continuous system which produces output that may
be similar but not identical (e.g. electronics, automobiles, computers)
Intermittent - usually lower volume output with greater variety in both
product and processing
.. batch processing - produces moderate volumes of
similar items (e.g. ice cream manufacturing - strawberry then
vanilla)
.. job shop - produces a unit or small volumes of units to
meet customer specifications (e.g. machine shop)
Projects - non-routine jobs
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Automation
Automation refers to machinery that has the ability to sense and control
devices that enable it to operate automatically (e.g. CAM, numerically
controlled (N/C) machines , robots, Computer Integrated Manufacturing
(CIM))
07 - 7
Capacity Planning
Capacity is the upper limit or ceiling on the load that an operating unit
can handle. There are many questions that must be answered and the
the detail required to answer each will depend on whether the demand
is short, intermediate or long range.
. What kind of capacity is needed? - depends on the
products/services that management intends to produce or
provide
. How much is needed?
. When is it needed? depends on the stage of completion of
a product/service 6 Month Forecast
1 2 3 4 5 6
Forecast Demand 10 8 12 14 10 8
Production Plan 10 10 10 12 12 10
Inventory 10 12 10 8 10 12
07 - 8
Capacity Decisions
Capacity decisions
. have a real impact on the ability of an organization to meet
future demands for products/services
. affect operating costs - too much can sometimes be as bad
as too little
. are usually a major determinant of initial cost
. involve long tem commitment of both financial and human
resources - once implemented, it may be very costly to modify
capacity decisions without major costs
. can affect competitiveness - the ability to quickly add or
utilize unproductive capacity may serve as a competitive
advantage
07 - 9
Capacity Concepts
07 - 10
Actual Output
Utilization =
Design Capacity
Actual Output
Efficiency =
Effective Capacity
07 - 11
Improving Utilization
Utilization can be improved by improving effective capacity. Some of the
factors which influence effective capacity are:
. facilities - design, location, layout, environment
. products/services - design, product/service mix
. processes - quantity and quality capabilities
. human considerations - job content, job design, training and
experience, motivation, learning rates, absenteeism, turnover
. operations - scheduling, materials management, quality
assurance, maintenance policies, equipment breakdowns
. external forces - product standards, safety regulations,
unions, pollution control standards
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07 - 14
10
8
6
4
2
0
Rate of Output
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07 - 16
07 - 18
15000
10000
5000
-5000
-10000
0 1000 2000 3000 4000 5000
FC
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15000
10000
5000
-5000
-10000
0 1000 2000 3000 4000 5000
FC TVC
07 - 20
15000
10000
5000
-5000
-10000
0 1000 2000 3000 4000 5000
FC TVC TC
07 - 21
15000
TR = TC
10000
5000
0
P=0
-5000
-10000
0 1000 2000 3000 4000 5000
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20000
Profit Amount
15000
10000
5000
Loss Amount
0
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07 - 24
20000
15000
10000
5000
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P = Q*(R-VC)-FC =
10000=Q*(7-2)-6,000
Q = 3,200 pies
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07 - 30
Step
Fixed
Costs
Costs
Quantity
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Total
Costs
Costs
Quantity
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07 - 33
40,000
You should verify that you understand
35,000 this concept by manually graphing the
example on a piece of graph paper.
30,000
25,000
20,000
15,000
10,000
5,000
0
0 100 200 300 400 500 600 700 800 900
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07 - 36
40,000
35,000
BEP 3 machines = 667
30,000
Does it appear the
25,000 manager will make a
BEP 2 machines = 500
20,000
profit when demand is
Does it appear the 660 units?
15,000 manager will make a
10,000
profit when demand is
580 units?
5,000
580 660
Conclusion:0 Since annual demand is between 580
0
and 660 the manager 100
should200 300
purchase 400
2 machines. 500 600 700 800 900
If 3 machines are purchased all demand will be met;
TC 0 to 300
but the company will lose money. TC 301 to 600 TC 601 to 900 TR
07 - 37
40,000
You should verify that you understand
35,000 this concept by manually calculating the
revenue, total cost, and profit at each
30,000
volume level to verify your visual results.
25,000
20,000
15,000
10,000
5,000
580 660
0
0 100 200 300 400 500 600 700 800 900
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Loss of $200
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Buy: $960,000
Make: $870,000
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7,500 units
$600,000
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07 - 48
$150,000
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07 - 50
Homework
Read and understand all material in the chapter.
07 - 51