Page 77 - DMGT501_OPERATIONS_MANAGEMENT

Unit 3: Capacity Planning

What technological alternatives exist? What kind of technological changes do you anticipate? Notes
Can you increase your capacity by introducing new technology as opposed to increasing labour?
Technology has become a very important factor in business today.
Qualitative assessment of alternative sources of capacity can be very rewarding; very often,
more labour and/or more technology are not the only answers. New options are becoming
increasingly available whereby the productivity of existing labour and/or technology can be
improved.

How Much

Once the decision to add assets has been taken, the question then arises is, 'How much capacity
is needed'? The answer will depend upon what triggered the capacity addition decision. It ties
back to the forecast that drove the capacity decision.

Example: The illustration on capacity planning highlights the various factors involved
in determining 'how much'. Let us assume that a firm is making a single product. The company's
production schedule calls for manufacturing roughly 750 units per week of the product. While
there is some fluctuation in this requirement, the fluctuation is small. Production of the product
calls for 5 operations performed on 5 different machines. The time requirements for each of
these operations are as follows:
The plant is scheduled to work 40 hours a week. The question, is how many machines of each
type should we be providing for? Let us consider the case of machine 1.

Actual time used on this machine per week = 40 × 0.82 = 32.8 hours.
The normal time required to perform the operation on this machine
= 0.05 × 110/100 = 0.055 hours.
Therefore, total time required for processing 750 units = 0.055 × 750 = 41.25 hours.
And, number of machines required = 41.25/33.6 = 1.227 machines.

Table 3.2: Illustration on Capacity Planning

Machine Time per unit (hours) Machine use ratio Operator efficiency
1 0.050 0.82 110
2 0.098 0.75 130
3 0.090 0.90 90
4 0.050 0.70 105
5 0.050 0.60 120

This means, we shall either have to provide for 2 machines and thereby create excess capacity, or
provide for 1 machine and work on overtime for roughly 9 hours a week. An investment
decision can be facilitated with accurate information on the volume of sales for this product. If,
for instance, the sales are expected to go up, provision of excess capacity will be justified. If the
volume of sales is expected to remain at the present level, it will be worthwhile to examine the
economics of using overtime versus adding extra machines.
Similar calculations can be carried out for each of the machines. Based on these calculations,
Table 3.3 gives the number of machines required for various operations, without the use of
overtime.

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