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Capacity Management

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Capacity is the maximum output or producing ability of a machine, person, factory, etc. ... Management can use the information from the CAM-I model to understand the ... – PowerPoint PPT presentation

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Title: Capacity Management


1
Capacity Management
  • Capacity has a cost, whether it is used or not

2
Capacity
  • Capacity is the maximum output or producing
    ability of a machine, person, factory, etc.
  • Capacity can be measured in physical terms
  • Measure of the amount of work done
  • Capacity is the measure of the maximum amount of
    work that can be done in a given time

3
Capacity
  • Capacity R T
  • R is the rate of output per unit of time
  • T is the maximum amount of time available
  • Capacity has a cost
  • Cost to acquire or rent the facility, machine,
    operating costs, wages, utilities, insurance,
    etc.
  • The cost is incurred even if capacity is underused

4
Measuring the Cost of Capacity
  • Traditional measures do not reflect the cost of
    capacity usage or over capacity
  • Costs are part of overhead and allocated to
    production
  • Focus is on inventory valuation, not managing
    capacity
  • Allocation base is chosen from five alternatives
  • Theoretical
  • Maximum output when operating continuously at
    maximum efficiency

5
Measuring the Cost of Capacity
  • Practical
  • Level of output under current conditions,
    allowing for normal downtime for setups,
    maintenance, vacations, etc.
  • Normal
  • Average level of output achieved or anticipated
    over several years
  • Budget
  • Level of output anticipated for the current year
  • Actual
  • Level of output actually achieved in the current
    year

6
Measuring the Cost of Capacity
  • Amount of capacity-related overhead charged to
    the output depends on the allocation base chosen

7
Measuring the Cost of Capacity
8
Measuring the Cost of Capacity
  • CAM-I capacity model focuses on the cost of used
    and unused capacity
  • Capacity is divided into four categories
  • Rated capacity
  • Same as theoretical capacity
  • Productive capacity
  • Capacity used to produce usable output

9
Measuring the Cost of Capacity
  • Nonproductive capacity
  • Capacity that does not result in usable output
  • Downtime for maintenance, setups, lack of
    materials, etc.
  • Productive time lost due to waste, scrap, rework,
    etc.
  • Idle capacity
  • Capacity that is not available due to policy
    decisions or market reasons such as holidays,
    lack of orders, etc.

10
Measuring the Cost of Capacity
  • Cost is attached to the capacity categories based
    on the theoretical cost per unit

11
Measuring the Cost of Capacity
  • Capacity utilization can be shown graphically

Nonproductive capacity
Idle capacity
12
Managing Capacity Costs
  • Management can use the information from the CAM-I
    model to understand the financial impact
    under-utilizing the available capacity
  • The cost impact of changes in the utilization
    rates can also be calculated

13
Managing Capacity Costs
14
Managing Capacity Costs
  • Capacity costs may be fixed, but can still be
    managed
  • Reduction of idle capacity
  • Increasing sales to use unused capacity
  • Renting unused capacity to others
  • Reduction in days off

15
Managing Capacity Costs
  • Reduction of nonproductive capacity
  • Reduction of setup time, defects, etc.
  • Reduction of rated capacity
  • Replace the asset with one having less capacity
  • Lower capacity asset can be more fully utilized

16
Implications of the CAM-I Model
  • Illustrates the reasons for idle and
    nonproductive capacity
  • Improves accountability
  • Illustrates the cost of idle and nonproductive
    capacity
  • Helps management prioritize capacity utilization
    efforts

17
Practical Considerations in Measuring Capacity
  • How is capacity defined?
  • Worker, machine, factory, etc.
  • Higher-level capacity (process, factory, etc.) is
    determined by the lowest capacity component
  • Capacity may change over time
  • Assets slowing with age
  • Technological improvements to assets

18
Practical Considerations in Measuring Capacity
  • Capacity may depend on the mix of work processed
    on the asset
  • The machine may take longer to stamp one type of
    product than it takes to stamp another type
  • What costs should be included?
  • Operating costs?
  • Sunk costs?
  • Financing costs?
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