Presentation on theme: "Operations Management Capacity Design"— Presentation transcript: 1 Operations Management Capacity Design Show 2 Types of Planning Over a Time Horizon 3 Definition and Measures of Capacity
4 Utilization Measure of planned or actual capacity usage of a facility, work center, or machine Actual Output
Utilization = Design Capacity It might be useful at this point to discuss typical equipment utilization rates for different process strategies if you have not done so before.
5 Efficiency Measure of how well a facility or machine is performing when used Actual output Efficiency = Effective
Capacity You might point out to students that this slide links capacity to work measurement (standard times). 6 Example Facility produces breakfast rolls
7 Calculating actual output 8 Managing Demand Demand exceeds capacity – curtail demand by
raising prices, scheduling long lead times, etc Capacity exceeds demand – stimulate demand through price reductions, aggressive marketing, etc Adjusting to seasonal demands – offer products with complementary demand patterns – pdts for which demand is high for one when low for the other
9 Managing Capacity Making staffing changes (increasing or decreasing the number of employees) Adjusting equipment and processes – which might include purchasing additional
machinery or selling or leasing out existing equipment Improving methods to increase throughput; and/or Redesigning the product to facilitate more throughput 10 Breakeven
Analysis Technique for evaluating process & equipment alternatives Objective: Find the point ($ or units) at which total cost equals total revenue Assumptions Revenue & costs are related linearly to volume All information is known with certainty
11 Break-Even Analysis Fixed costs: costs that continue even if no units
are produced: depreciation, taxes, debt, mortgage payments, salaries, etc Variable costs: costs that vary with the volume of units produced: labor wages, materials, portion of utilities 12 Breakeven Chart Volume
(units/period) Total revenue line Profit
13 Crossover Chart Process A: low volume, high variety
14 Break Even Contd.. BEPx= FC (units) P-V BEPrs.= FC (amount) 1-(V/P) 15 BEP Calc. A company has fixed costs of 10000/- this period. Direct costs are 1.5/- per unit and material cost is 0.75/- per unit. The selling price is 4/- per unit. Calculate the BEPs. 16 BEP Calc. in multi product case 17 Item P V V/P 1-(V/P) Forecasted sales % of sales wghtd.contribution
sandwich 2.95 1.25 .42 .58 20650 .446 .259 Cola 0.80 .30 .38 .62 5600 .121 .075 Burger 1.55 .47 .70 7750 .167 .117 Tea 0.75 .25 .33 .67
3750 .081 .054 Salad 2.85 1.0 .35 .65 8550 .185 .120 46300 1.00 .625 18 BEPrs.= FC
∑[(1-Vi/Pi)*(Wi)] 19 Decision trees application
20 EMV (large plant)=0.4(100k)+(.6)(-90k)=-14k
21 Net Present value A co. having two capacity expansion alternatives A and B have useful lives of 4 years. Initial outlay for A is 25k and that for B is 26k. The cost of capital is 8%.the cash flow pattern is as follows. year A B 1 10k 9k 2 9k 9k 3 8k 9k 4 7k 9k What is an example of design capacity?Design Capacity means the amount of petroleum that a tank is designed to hold. If a certain portion of a tank is unable to store petroleum because of its integral design (for example, electrical equipment or other interior components take up space), the design capacity of the tank is thereby reduced.
What is the importance of design capacity?Developing the design capacity enable an organisation to absorb faster technological knowledge and innovations. The most important aspect is a network knowledge: connections between companies, suppliers with their specialisations and related industries.
How do you calculate design capacity?Design capacity = (7 x 3 x 8) x (230) = 38,640 units per week.. Utilization = 25,000 / 38,640 = 64.7% Efficiency = 25,000 / 28,000 = 89.3%. What is capacity in operation management?What Is Capacity? Capacity is the maximum level of output that a company can sustain to make a product or provide a service. Planning for capacity requires management to accept limitations on the production process.
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