Scribd
Upload
82 views27 pages

Project Management: Peeyush Pandey Assistant Professor IIM Rohtak

The document discusses various aspects of facility planning and project management including determining long-range capacity needs, when and where to locate production facilities, developing a strategic facility plan, forecasting capacity demands, and analyzing decisions around capacity expansion and reduction. It provides definitions of production capacity, measurements of capacity, and steps in the capacity planning process. Examples are given to illustrate break-even analysis and decision tree analysis for evaluating capacity planning options.

Uploaded by

Sanyam Jain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
82 views27 pages

Project Management: Peeyush Pandey Assistant Professor IIM Rohtak

The document discusses various aspects of facility planning and project management including determining long-range capacity needs, when and where to locate production facilities, developing a strategic facility plan, forecasting capacity demands, and analyzing decisions around capacity expansion and reduction. It provides definitions of production capacity, measurements of capacity, and steps in the capacity planning process. Examples are given to illustrate break-even analysis and decision tree analysis for evaluating capacity planning options.

Uploaded by

Sanyam Jain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 27

Project Management

Peeyush Pandey
Assistant Professor
IIM Rohtak
Facility Planning

HOW MUCH long range capacity is needed


WHEN additional capacity is needed
WHERE the production facilities should be located
WHAT the layout and characteristics of the facilities should be
Why these decisions are crucial?

Huge investment:
Land, Building
Equipment
Technology
Services

Strategic plan
Product line
Market
Technology

Operational efficiency
Maintenance cost
Ease of scheduling
Economies of scale
Long-Range Capacity Planning
Steps in the Capacity Planning Process

Estimate the capacity of the present facilities.


Forecast the long-range future capacity needs.
Identify and analyze sources of capacity to meet these needs.
Select from among the alternative sources of capacity.
Definitions of Capacity

In general, production capacity is the maximum production


rate of an organization.

Capacity can be difficult to quantify due to


Day-to-day uncertainties such as employee absences, equipment
breakdowns, and material-delivery delays

Products and services differ in production rates (so product mix is a


factor)

Different interpretations of maximum capacity


Definitions of Capacity

Sustainable practical capacity is defined as the greatest level of


output that a plant can maintain
within the framework of a realistic work schedule

taking account of normal downtime

assuming sufficient availability of inputs to operate the machinery


and equipment in place
Measurements of Capacity

Output Rate Capacity


For a facility having a single product or a few homogeneous products,
the unit of measure is straight forward

For a facility having a diverse mix of products, an aggregate unit of


capacity must be established using a common unit of output
Measurements of Capacity

Input Rate Capacity


Commonly used for service operations where output measures are
particularly difficult

Hospitals use available beds per month

Airlines use available seat-miles per month

Movie theatres use available seats per month


Measurements of Capacity

Capacity Utilization Percentage


Relates actual output to output capacity

Example: Actual automobiles produced in a quarter divided by the


quarterly automobile production capacity

Relates actual input used to input capacity

Example: Actual accountant hours used in a month divided by the


monthly account-hours available
Forecasting Capacity Demand

Consider the life of the input (e.g. facility is 10-30 yr)

Understand product life cycle as it impacts capacity

Anticipate technological developments

Anticipate competitors actions

Forecast the firms demand


Expansion of Long-Term Capacity

Subcontract with other companies

Acquire other companies, facilities, or resources

Develop sites, construct buildings, buy equipment

Expand, update, or modify existing facilities

Reactivate standby facilities


Reduction of Long-Term Capacity

Sell off existing resources, lay off employees

Transfer employees

Develop and phase in new products/services


Economies of Scale

Best operating level - least average unit cost

Economies of scale - average cost per unit decreases as the


volume increases toward the best operating level

Diseconomies of scale - average cost per unit increases as the


volume increases beyond the best operating level
Economies and Diseconomies of Scale
Average Unit
Cost of Output ($)
Economies Diseconomies
of Scale of Scale

Best Operating Level

Annual Volume (units)


Analyzing Capacity-Planning Decisions

Break-Even Analysis

Present-Value Analysis

Computer Simulation

Linear Programming

Decision Tree Analysis


Example: King Publishing
Break-Even Analysis
\
King Publishing intends to publish a book in residential
landscaping. Fixed costs are $125,000 per year, variable costs
per unit are $32, and selling price per unit is $42.

A) How many units must be sold per year to break even?


B) How much annual revenue is required to break even?
C) If annual sales are 20,000 units, what are the annual profits?
D) What variable cost per unit would result in $100,000 annual
profits if annual sales are 20,000 units?
Example: King Publishing
A) How many units must be sold per year to break even?

Q = FC/(p-v) = $125,000/(42 32) = 12,500 books

B) How much annual revenue is required to break even?

TR = pQ = 42(12,500) = $525,000

C) If annual sales are 20,000 units, what are the annual profits?
P = pQ (FC + vQ)
= 42(20,000) [125,000 + 32(20,000)]
= 840,000 125,000 640,000
= $75,000
Example: King Publishing
D) What variable cost per unit would result in $100,000 annual
profits if annual sales are 20,000 units?
P = pQ (FC + vQ)
100,000 = 42(20,000) [125,000 + v(20,000)]
100,000 = 840,000 125,000 20,000v
20,000v = 615,000
v = $30.75
Example: Central Perk Caf

Decision Tree Analysis

Central Perk Caf is about to build a new restaurant. An


architect has developed three building designs, each with a
different seating capacity. Central Perk estimates that the
average number of customers per hour will be 80, 100, or 120
with respective probabilities of 0.4, 0.2, and 0.4.
Example: Central Perk Caf

Payoff Table

Average Number of Customers Per Hour


c1 = 80 c2 = 100 c3 = 120

Design A $10,000 $15,000 $14,000


Design B $ 8,000 $18,000 $12,000
Design C $ 6,000 $16,000 $21,000
Example: Central Perk Caf

Payoffs
c1 (.4) 10,000
c2 (.2)
2 15,000
c3 (.4)
d1 14,000
c1 (.4)
d2 8,000
1 c2 (.2)
3 18,000
d3 c3 (.4)
12,000
c1 (.4)
6,000
c2 (.2)
4
c3 16,000
(.4)
21,000
Example: Central Perk Caf

Expected Value For Each Decision


EV = .4(10,000) + .2(15,000) + .4(14,000)
d1 = $12,600
2
Design A
EV = .4(8,000) + .2(18,000) + .4(12,000)
Design B d2 = $11,600
1 3

d3
Design C
EV = .4(6,000) + .2(16,000) + .4(21,000)
= $14,000
4
Facility Location
Facility location Design Decisions
Framework for Network Design Decisions
Phase I: Define a Supply Chain Strategy/Design
Competitive Strategy
Supply Chain Strategy
Forecast the global/Local competition
Identify constraints on available capital
Determine how to compete
Acquiring
Partnering
Extending
Phase II: Define the Regional Facility Configuration
Forecast of the demand by country or region
Find homogeneity in product variety
Consider flexible or consolidated facility
Economies of scale or scope
Identify demand risk, exchange-rate risk, political risk, tariffs, requirements for
local production, tax incentives, and export or import restrictions
Identify competitors/Locate close or far to competitors
Framework for Network Design Decisions

Phase III: Select a Set of Desirable Potential Sites


Analyze the infrastructure
Hard infrastructure requirements
Soft infrastructure requirements
Phase IV: Location Choices
Select precise location
Capacity allocation

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy