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power points - IM 546 Operations Management CAPACITY...

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Unformatted text preview: IM 546 Operations Management CAPACITY PLANNING Asst. Prof. Özgür Özlük, SFSU Capacity Decisions Are Strategic Limits the rate of output Affect operations costs Major determinant of initial cost Long term commitment Impact Competitiveness/Management Asst. Prof. Özgür Özlük, SFSU Capacity Planning Horizon Long-range Long-range planning planning Intermediaterange range planning planning Add facilities Add long lead time equipment * Subcontract Add equipment Add shifts Short-range Short-range planning planning * Modify capacity Modify * Limited options exist Add personnel Build or use inventory Schedule jobs Schedule personnel Allocate machinery Use capacity Capacity vs. Utilization Design capacity vs. Effective capacity Efficiency vs. Utilization Asst. Prof. Özgür Özlük, SFSU Capacity Determinants Facilities Product Process factors Human factors Asst. Prof. Özgür Özlük, SFSU Capacity Planning Process Estimate capacity needs Evaluate existing capacity Identify alternatives Compare alternatives quantitatively and qualitatively Choose and implement one alternative Monitor results Asst. Prof. Özgür Özlük, SFSU Capacity Planning: Make or Buy Available capacity Expertise Quality Nature of demand Cost Risk Asst. Prof. Özgür Özlük, SFSU Capacity: Developing Alternatives Design flexibility into system Consider stage of life-cycle Capacity comes in “chunks” Remember “big picture” Smooth out capacity requirements Identify optimal operating level Asst. Prof. Özgür Özlük, SFSU Approaches to Capacity Expansion (a) Leading demand with incremental (a) Leading expansion expansion Demand New New capacity capacity Expected Expected demand demand 1 2 3 Time (years) Figure S7.5 Approaches to Capacity Expansion (b) Leading demand with one-step (b) Leading expansion expansion New New capacity capacity Demand Expected Expected demand demand 1 2 3 Time (years) Figure S7.5 Approaches to Capacity Expansion (c) Capacity lags demand with incremental (c) Capacity expansion expansion New New capacity capacity Demand Expected Expected demand demand 1 2 3 Time (years) Figure S7.5 Approaches to Capacity Expansion (d) Attempts to have an average capacity with (d) Attempts incremental expansion incremental New New capacity capacity Demand Expected Expected demand demand 1 2 Time (years) 3 Figure S7.5 Capacity: Big Picture aka Bottlenecks Inputs 1 2 3 200/hr 50/hr 200/hr Asst. Prof. Özgür Özlük, SFSU To To customers customers Managing Demand Demand exceeds capacity Capacity exceeds demand Adjusting to seasonal demands Average Average unit cost (dollars (dollars per patient) Capacity: Size Matters… 250-bed 250-bed hospital 500-bed hospital Economies of scale 750-bed hospital Diseconomies of scale Output rate (patients per week) Output Asst. Prof. Özgür Özlük, SFSU Break­Even Analysis • Technique for evaluating process and Technique equipment alternatives equipment • Objective is to find the point in dollars Objective and units at which cost equals revenue revenue • Requires estimation of fixed costs, Requires variable costs, and revenue variable Break­Even Analysis • Fixed costs are costs that continue Fixed even if no units are produced even • Depreciation, taxes, debt, mortgage Depreciation, payments payments • Variable costs are costs that vary with Variable the volume of units produced the • Labor, materials, portion of utilities • Contribution is the difference between Contribution selling price and variable cost selling Break­Even Analysis Assumptions • Costs and revenue are linear functions • Generally not the case in the real world • We actually know these costs • Very difficult to accomplish • There is no time value of money Break­Even Analysis – Total revenue line 900 – 900 800 – 800 Cost in dollars 700 – 700 r Break-even point Total cost = Total revenue rof P it c o rrid o Total cost line 600 – 600 500 – 500 Variable cost 400 – 400 300 – 300 200 – 200 100 – 100 | ss r Lo rido r co Fixed cost | | | | | | | | | | | – 0 100 200 300 400 500 600 700 800 900 1000 1100 Volume (units per period) Break­Even Analysis BEPx = breakBEP even point in units BEP$ = breakeven point in dollars P = price per price unit (after all discounts) unit Break-even point occurs Break-even when when TR = TC or Px = F + Vx x= number of units number produced produced TR = total total revenue = Px revenue F= fixed costs V = variable variable cost per unit cost TC = total total costs = F + Vx costs F BEPx = P-V ...
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