CHAPTER 3 System and design Capacity.pptx

Operations Management Chapter 3

1. CHAPTER 3: SYSTEM DESIGN AND CAPACITY Operation Management

2. 1st Manufacturing and Service System Manufacturing and service system are arrangement of facilities, equipment, and people to provide goods and services under controlled condition, both must be design with capacity limitation.

3. - reduce standardized product in large volumes . this plant and machinery have a finit e capacity and contri but e fixed costs that must be borne by the product produced ( finite capacity or limited capacity) The cost of output relative to the cost of input can be measured. Manufacturing System 01 02

4. Service System - present more uncertainty with respect to both capacity and cost. - service are produced and consumed in the presence of the customer and there is a little or no opportunity to store value, as in a finished goods inventory

5. Design and Systems Capacity Production system design involves planning for the inputs, transformation activities, and outputs of production operation. Design plays a major role because they entail significant investment of funds and stablish cost and productivity pattern that continue in future. capacity can be expressed in number of units of output per period.

6. 02 - reduced by long-range effect product mix long-range market conditions, tight quality specification, imbalance in equipment or labor. -design process primarily depends on marketing design and operation function. 01 - is the plan or engineered rate of output of goods or services under normal or full-scale operating condition. • The best approach is to plan for some in-between level of capacity 03 DESIGN CAPACITY

7. Examples of Design Capacity Design capacity for facilities -restaurant design for 120 seats - Design capacity of sugar factory is 150 tons of sugarcane crash per day.

8. - Reduce by short-range affects, actual demand, inefficiency of workers, machine inefficiencies, scheduling planning and control. is less than capacity or at the most equal because of the limitations of product mix, quality specification, and break down. *System efficiency is expressed as ratio of actual measured output to the system capacity. - the maximum output of the specific product or product makes the system of workers and machines is capable of producing as an integrated whole. System/ Effective Capacity

9. Efficiency Utilization efficiency is the ratio of actual output to the effective capacity. Utilization is the ratio of actual output to design capacity. Two measures of System effective

10. FORMULA: Efficiency= Actual output. × 100% Effective Capacity Utilization = Actual output x 100% Design capacity For system Capacity Human Capacity = (Actual working hour) (attendance rate)(direct labor rate)(equivalent man power) Machine Capacity = (Operating hours)(operating rate)(number of machines)

11. capacity decisions are strategic in nature. capacities will express as a volume of output per period of time. the objective of capacity management is too much the level of operations to the level of demand . Capacity planning is to be carried out keeping in mind future growth and expansion plans, market trends, sales forecasting. - design of the production system involves planning for the inputs conversion process and outputs of production operation. Capacity planning is to be carried out keeping in mind future growth and expansion plans, market trends, sales forecasting. the effective management of capacity is the most important responsibility of production management Capacity Planning

12. CAPACITY PLANNING 3 Key Consideration -level of demand - Constant production -Availability of funds 3 Steps of Capacity Planning -determining the capacity requirement -Analyze the current capacity -Planning for the future

13. Production managers are more concerned about the capacity for the following reasons Capacity affects the scheduling system Sufficient capacity is required to meet the customers demand in time Capacity creation requires an investment Capacity affects the cost efficiency of operations

14. PROCESS OF CAPACITY PLANNING

15. Capacity requirements can be evaluated from two perspectives Long-term capacity strategies Because future demand and technology are uncertain, determining long-term capacity requirements is more difficult. Long-term capacity requirements are determined by marketing plans, product development, and product life-cycle. Long-term capacity planning is concerned with accommodating major changes that have a long-term impact on output levels. Short-term capacity strategies Fundamental capacity is fixed for short-term periods of up to one year. The major facilities will not be altered. There are numerous short-term adjustments that can be made to increase or decrease capacity. The adjustments required are determined by the conversion process, such as whether it is capital or labor intensive, or whether the product can be stored as inventory.

16. Long-term capacity strategies Parameters that will affect long-range capacity decisions : Multiple products . Companies produce multiple products using the same facilities in order to maximize profits. The production of multiple products reduces the risk of failure. Having more than one product allows capacity planners to perform better. Because products are at various stages of their life cycles, scheduling them to maximize capacity utilization is simple. Phasing in capacity . The rate of obsolescence is high in high-tech industries and in industries where technology advances at a rapid pace. The products should be available on the market as soon as possible. The construction of the facilities will take a long time, and there isn't much time because the products must be introduced to the market as soon as possible. The solution in this case is to phase in capacity on a modular basis. A commitment is made for building funds and men to facilities over a 3-5-year period. This is an efficient method of capitalizing on technological advances. Phasing out capacity. Excessive plant closures and downtime are caused by outdated manufacturing facilities. Closures have an impact that extends beyond the fixed costs of plant and machinery. As a result, the phase-out here is done in a humane manner that has no negative impact on the community. The phasing out options provide alternative arrangements for men, such as shifting them to other jobs or locations, compensating employees, and etc . 01

17. Short-term capacity strategies The short-term capacity strategies are: Inventories : Stock finished goods during slack periods to meet the demand during peak period. Backlog : During peak periods, the willing customers are requested to wait and their orders are fulfilled after a peak demand period. Employment level (hiring or firing): Hire additional employees during peak demand period and lay off employees as demand decreases. Employee training : Develop multi-skilled employees through training so that they can be rotated among different jobs. The multi skilling helps as an alternative to hiring employees. Subcontracting: During peak periods, hire the capacity of other firms temporarily to make the component parts or products. Process design: Change job contents by redesigning the job. 02

18. Importance of Capacity Decisions . Capacity decisions have a real impact on the organization's ability to meet future product and service demand; capacity essentially limits the rate of output possible. Having the capacity to meet demand allows a company to capitalize on tremendous opportunities . Capacity decisions have an impact on operating costs. Capacity and demand requirements should ideally be matched, which will reduce operating costs. In practice, this is not always possible because actual demand differs from expected demand or varies (e.g., cyclically). In such cases, a decision may be made to try to balance the costs of excess and under capacity. Capacity is typically a significant determinant of initial cost. The higher the capacity of a productive unit, the higher its cost. This does not necessarily imply a one-to-one relationship; larger units tend to be less expensive than smaller units

19. Importance of Capacity Decisions . Capacity decisions frequently involve long-term resource commitments and the fact that, once implemented, it may be difficult or impossible to change those decisions without incurring significant costs. Capacity decisions can have an impact on competitiveness. If a firm has excess capacity or the ability to quickly add capacity, this may act as a barrier to entry for other firms. Capacity can also influence delivery speed, which can be a competitive advantage . Capacity influences management ease; having adequate capacity makes management easier than having insufficient capacity.

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