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1、Long-Range Capacity Planning,The Hierarchy of Production Decisions,The logical sequence of operations in factory planning corresponds to the sequence of chapters in a text-book with title Production and Operations Management. All planning starts with the demand forecast. Demand forecasts are the bas
2、is for the top level long_range capacity, and medium term aggregate planning. The Master Production Schedule (MPS) is the result of disaggregating aggregate plans down to the individual item level. Based on the MPS, MRP is used to determine the size and timing of component and subassembly production
3、. Detailed shop floor schedules are required to meet production plans resulting from the MRP.,Hierarchy of Production Decisions,Long-range Capacity Planning,Capacity Definitions,Capacity is a statement of the rate of producing output and is generally measured as the output of the process per unit pe
4、riod of time. Capacity essentially limits the rate of output possible. The Load represents the work released and planned for the process for a given period of time. Think the load being the amount of water in a tank and the capacity being the rate at which the water can be drained from the tank.,Cap
5、acity Planning,Capacity planning is the process of reconciling the difference between the capacity available for the process and the capacity required to satisfy the customer order which represents the load. In capacity planning, it is important to adjust the capacity to meet the load in order to ma
6、intain a high level of customer service. Critical elements of capacity to be planned include labor, machine hours, facilities and warehouse space.,Capacity Planning,A major function of capacity planning is to match the capacity of the machine or facility with the demand for the products of the firm.
7、 Capacity planning can be classified into three planning horizons: Long range Medium range Short range,Long-Term Capacity Planning,The long range planning generally considers planning horizons of one year or longer. A time period of one year or longer is needed to provide sufficient time to build a
8、new facility, to expand the existing facility or to move to a new facility due to forecasted changes in demand. We determine long-term capacity needs by forecasting demand over a time horizon and then converting those forecasts into capacity requirements Long-term considerations relate to overall le
9、vel of capacity, such as facility size (affected by trends and cycles),Medium-term capacity Planning,Medium range capacity planning horizon ranges approximately from one month to six months. At this level of planning, decisions or activities include acquisition of a major piece of machinery and subc
10、ontracting.,Short-term Capacity Planning,Short range planning horizon covers capacity planning activities on a daily or a weekly basis and are generated as a result of disaggregation of the long or medium range capacity plans. These activities include machine loading and detailed production scheduli
11、ng.,Short-term Capacity Planning,Short-term considerations relate to probable variations in capacity requirements created by such things as seasonal, random, and irregular fluctuations in demand When time intervals are too short to have a seasonal variations in demand, a probability distribution suc
12、h as Normal, Uniform, Poisson can be used to forecast the demand.,Questions to be answered in Long-Range Capacity Planning,How much long-range production capacity is needed? - adding too much capacity means the capacity will be underutilized. - adding too little capacity means that the comapany will
13、 soon be faced with the problem of increasing capacity again. When additional capacity is needed? - It is important to pay attention to changing patterns of demand.,Questions to be answered in Long-Range Capacity Planning,Where the production facilities should be located? - Consideration of the logi
14、stics of material flows suggests that new facilities be located near suppliers of raw materials and market outlets. How the production facilities are arranged? Facility layout decisions affect the production rates.,Importance of Capacity Decisions,Capacity limits the rate of output possible. Poor ca
15、pacity decisions which result in over and under capacity increase the operating costs. Capacity decisons often require long-term commitment of resources so that once they are implemented, it may be difficult to modify those decisions without incurring major costs.,Capacity decisons are major determi
16、nant of initial costs. Capacity decisons affect competitiveness. Companies having appropriate capacity can deliver the products faster than competitors (delivery speed).,Importance of Capacity Decisions,Importance of Capacity Decisions,Capacity decisions are important to all departments of the organization; An accountant would be interested in collecting cost accounting information in order to ensure that correct capacity expansion decision is reached.,Importance of Capacity Decisions,Simil
