Documente Academic
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Documente Cultură
Peter Ventura Monterey Avendano Rod Steven Vasquez Charina Rose Ventura
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Capacity Planning
Capacity
The upper limit or ceiling on the load that an operating unit can handle Goal
To achieve a match between the long-term supply capabilities of an organization and the predicted level of long-run demand.
Related Questions:
How much will it cost? What are the potential benefits and risks? Are there sustainability issues? Should capacity be changed all at once, or through several smaller changes Can the supply chain handle the necessary changes?
Efficiency Utilization
Example 1:
Given the following information, compute the efficiency and the utilization of the vehicle repair department: Design Capacity Effective Capacity Actual Output = 50 trucks per day = 40 trucks per day = 36 trucks per day
Solution:
actual output Efficiency effective capacity
Solution:
actual output Utilizatio n design capacity
PRODUCT/ SERVICE
PROCESS
Quantity capabilities Quality capabilities
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POLICY
OPERATIONAL
Scheduling
Materials management
Quality assurance
Motivation
Compensation Learning rates
Absenteeism & labor turnover
Maintenance policies
Equipment breakdowns
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Strategy Formulation
Capacity strategy for long-term demand Demand patterns Growth rate and variability Facilities
Cost of building and operating
Technological changes
Rate and direction of technology changes
Capacity Cushion
Extra capacity used to offset demand uncertainty Capacity cushion = 100% - Utilization Capacity cushion strategy
Organizations that have greater demand uncertainty typically have greater capacity cushion Organizations that have standard products and services generally have greater capacity cushion
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Product
#1 #2 #3
If annual capacity is 2000 hours, then we need three machines to handle the required volume: 5,800 hours/2,000 hours = 2.90 machines
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Evaluating Alternatives
Economic considerations: Will an alternative be economically feasible? How much will it cost? How soon can we have it? What will operating and maintenance cost be? What will its useful life be? Will it be compatible with present personnel and present operations?
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FINANCIAL ANALYSIS
Important terms:
Cash flow
- refers to the difference between the cash received from sales (of goods of services) and other sources and the cash outflow for labor, materials, overhead and taxes.
Present Value
- expresses in current value the sum of all future
cash flows of a investment proposal.
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WAITING-LINE ANALYSIS
Its goal is to minimize the sum of two costs: customer waiting cost and service capacity cost. Analysis of lines is often useful for designing for modifying service systems.
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DECISION THEORY
Is a helpful tool for financial comparison of alternatives under conditions of risk or uncertainty. It is suited to capacity decisions and to a wide range of other decisions managers must make.
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1) Decision Trees: - a schematic representation of the available alternatives and their possible consequences.
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DECISION THEORY
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2) Sensitivity Analysis:
Provides a range of probability over which the choice of alternatives would remain the same. Determining the range of probability for which an alternative has the best expected payoff. A graphical solution Makes use of Algebra
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TERMS
P = Profit TR = Total Revenue TC = Total Cost R = Revenue Q = Quantity or volume of output FC = Fixed Cost v = Variable cost /unit
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Amount i($)
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Amount i($)
TR = R X Q
Q (volume in units)
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Amount i($) 0
Profit = TR - TC
TOTAL PROFIT
P = TR TC P = R X Q (FC + v X Q) P= Q(R-v)-FC P+FC=Q (R-v) Q=(P+FC)/(R-v)
P = Profit TR = Total Revenue TC = Total Cost R = Revenue Q = Quantity or volume of output FC = Fixed Cost v = Variable cost /unit
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CONTRIBUTION MARGIN
The difference between revenue per unit and variable cost per unit, R v P + FC R-v
Q =
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BREAK-EVEN POINT
The volume of output at which total cost and total revenue are equal. QBEP = FC R-v FC (R v)/R
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QBES =
Amount i($)
Q (volume in units)
0
BEP units
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Amount i($) 0
EXAMPLE
The owner of Old-Fashioned Berry Pies, S. Simon, is contemplating adding a new line of pies, which will require leasing new equipment for a monthly payment of $6,000. Variable costs would be $2.00 per pie and pies would retail for $7.00 each.
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EXAMPLE
a. How many pies must be sold in order to break even in units & dollar? b. What would the profit (loss) be if 1,000 pies are made and sold in a month? c. How many pies must be sold to realize a profit of $4,000? d. If 2,000 can be sold and a profit target is $5,000, what price should be charged per pie?
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SOLUTION
a) How many pies must be sold in order to break even in units?
Given: FC: $6,000 VC:$2/pie Rev:$7/pie
QBEP =
FC R-v
SOLUTION
a) How many pies must be sold in order to break even in dollar?
Given: FC: $6,000 VC:$2/pie Rev:$7/pie
QBES =
=
FC (R v)/R
$6,000
($7 - $2)/$7
= $8,400 pies/month
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SOLUTION:
b. What would the profit (loss) be if 1,000 pies are made and sold in a month?
P= Q(R-v)-FC
= 1,000 ($7-$2)-$6,000
= -$1,000
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SOLUTION:
c. How many pies must be sold to realize a profit of $4,000? Q = P + FC R-v
SOLUTION:
d. If 2,000 can be sold and a profit target is $5,000, what price should be charged per pie?
P= Q(R-v)-FC
$5,000= 2,000 (R-$2)-$6,000
R = $7.50
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EXAMPLE
The Business Owner of a sports good factory in Sialkot is contemplating adding a new line of cricket bats, which will require leasing new equipment for a monthly payment or P60,000. Variable costs would be P200 per bat and bats would sold for P2,000 only.
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EXAMPLE
1. How many bats would be sold in order to break-even? 2. What would be the profit or loss if the 100 bats are made and sold in 1 month? 3. How many bats must be sold to realize a profit of P40,000?
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SOLUTION
1. How many bats would be sold in order to break-even?
Given: FC: P60,000 VC:P200/bat Rev:P2,000/bat
QBEP =
=
FC R-v
P60,000 P2,000 P200 = 33.33 bats
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SOLUTION:
2. What would be the profit or loss if the 100 bats are made and sold in 1 month?
P= Q(R-v)-FC
P= 100(P2,000 P200)-P60,000 P = P120,000
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SOLUTION:
3. How many bats must be sold to realize a profit of P40,000? Q = P + FC R-v
CAPACITY ALTERNATIVES:
Step Cost:
- which are costs that increase stepwise as potential volume increases.
FC
2 machines
FC
3 machines
FC
1 machine
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CAPACITY ALTERNATIVES:
Multiple Break-Even:
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EXAMPLE:
A manager has the option of purchasing one, two or three machines. Fixed costs and potential volumes are as follows:
Number of Machines Total Annual Fixed Costs Corresponding Range of Output
1 2
3
$9,600 15,000
20,000
VC = $10/unit
Rev = $40/unit
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Computation
Answer
666.67 units
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projected annual demand is between 580 and 660 units, how many machines should the manager purchase?
Number of Machines 3 Total Annual Fixed Costs 20,000 Corresponding Range of Output 601 to 900
Choose 2 Machines
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1. One product is involved. 2. Everything produced can be sold. 3. The variable cost per unit is the same regardless of the volume. 4. Fixed cost do not change with volume changes, or they are step changes. 5. The revenue per unit is the same regardless of volume. 6. Revenue per unit exceeds variable cost per unit.
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Operations Strategy
Capacity planning impacts all areas of the organization
It determines the conditions under which operations will have to function Flexibility allows an organization to be agile
It reduces the organizations dependence on forecast accuracy and reliability Many organizations utilize capacity cushions to achieve flexibility
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Operations Strategy
Bottleneck management is one way by which organizations can enhance their effective capacities. Capacity expansion strategies are important organizational considerations
Expand-early strategy Wait-and-see strategy
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Problem 1:
A firms manager must decide whether to make or buy a certain item used in the production of vending machines. Making the item would involve annual lease costs of $150,000. Cost and volume estimates are as follows: Make Buy Annual fixed cost $150,000 None Variable cost/unit $60 $80 Annual volume (units) 12,000 12,000 a. Given those numbers, should the firm buy or make this item? b. There is possibility that volume could change in the future. At what volume would the manager be indifferent between making and buying?
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Problem 2:
A small firm produces and sells automotive items in a five-state area. The firm expects to consolidate assembly of its battery charges line at a single location. Currently, operations are in three widely scattered locations. The leading candidate for location will have a monthly fixed cost of $42,000 and variable costs of $3 per charger. Charges sell for $7 each. Required: 1. Prepare a table that shows total profits, fixed costs, variable cost, and revenues for monthly volumes of 10,000; 12,000 and 15,000 units. 2. What is the break-even point?
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Problem 3:
A small firm produces and sells automotive items in a five-state area. The firm expects to consolidate assembly of its battery charges line at a single location. Currently, operations are in three widely scattered locations. The leading candidate for location will have a monthly fixed cost of $42,000 and variable costs of $3 per charger. Charges sell for $7 each. Required: Determine profit when volume equals 22,000 units.
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Problem 4:
A manager must decide which type of equipment to buy, Type A or Type B. Type A equipment cost $15,000 each and Type B cost $11,000 each. The equipment can be operated 8 hours a day, 250 days a year. Either a machine can be used to perform two types of chemical analysis, C1 & C2. Annual service requirements and processing times are shown in the following table.
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Problem 4:
Required: Which type of equipments should be purchased, and how many that type will be needed? The goal is to minimize total purchase cost.
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TCmake= TCbuy
$150,000 + Q($60) = 0 + Q($80) $80Q-$60Q=$150,000 $20Q=$150,000 Q=$7,500
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Total Total Cost Profit $72,000 $(2,000) 78,000 87,000 6,000 18,000
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Q =
P + FC R-v
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P= Q(R-v)-FC
P=Q($7-$3)-$42,000 $4(22,000)-$42,000 =$46,000
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