Capacity Planning and Strategic Design.

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Capacity Planning * Is a key strategic component in designing the system. It encompasses many basic decisions with long-term consequences for the organization. * The upper limit or ceiling on the load that an operating unit can handle. * The ability to hold or contain people or things. Some basic questions in capacity planning are following: 1.) What kind of capacity? 2.) How much is needed? 3.) What is needed? Capacity Decisions are STRATEGIC For a number of reasons, capacity decisions are among the most fundamental of all design decisions that managers must make DESIGN CAPACITY- The maximum output rate or service capacity an operation, process, or facility is designed for. EFFECTIVE CAPACITY- Design capacity minus allowances such as personal time, maintenance, and scrap. Business | Inputs | Outputs | Restaurant | Number of tables, seating capacity | Number of meals served per day | Theater | Number of seats | Number of tickets sold per performance | Retail Sales | Square meters of floor space | Revenue generated per day | Measures of capacity Example: Efficiency- the ratio of actual output to effective capacity Capacity utilization- the ratio of actual output to design capacity Formula: Efficiency = Actual Output Effective capacity Utilization = Actual Output Design capacity Given the following information, compute the efficiency and the utilization of the vehicle repair department: Design capacity = 50 trucks per day Effective capacity = 40 trucks per day Actual output = 36 trucks per day Efficiency = 0 .9 x 100 = 90% Utilization = 0.72 x 100 = 72% Determinants of Effective Capacity A. Facilities – design, location, layout, environment B. Product/Service – design, product or service mix C. Process – quantity capabilities, quality capabilities D.

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