MODULE 10: Capacity, Location Decisions, and Layout

• It is a maximum level of output that a company can sustain to meet demand within a given period, using its available resources, such as

  facilities, equipment, labor, and systems

  Capacity
• Types of Capacity

  • Design Capacity
  • Effective Capacity
  • Actual Capacity
• The theoretical maximum output achievable under ideal conditions.

  Design Capacity
• The practical output a system can achieve after accounting for downtime, maintenance, and operational inefficiencies.

  Effective Capacity
• The real output achieved during a specific period.

  Actual Capacity
• It involves determining the production capacity needed to meet changing demands for a business’s products or services.

  Capacity Planning
• What is the goal of capacity planning?

  To meet current and future demands efficiently
• Focuses on investments in facilities, equipment, and infrastructure

  Long Term Capacity Planning
• Involves adjustments such as scheduling or hiring temporary staff.

  Short Term Capacity Planning
• Making Capacity Planning Decisions

  • Demand Forecasting
  • Resource Availability
  • Cost Considerations
  • Technology
  • Scalability and Flexibility
  • Risk and Uncertainty
  • Environmental and Regulatory Compliance
• Capacity Planning Tools

  • Breakeven Analysis
  • Financial Analysis
  • Forecasting Models
• It refers to a capacity planning tool that determines the point at which total costs equal total revenues, helping decide whether increasing capacity is financially viable.

  Breakeven Analysis
• FORMULA of BREAKEVEN ANALYSIS

  $Breakeven\ Quantity\ =$$\ \frac{Fixed\ Costs}{Selling\ \Pr ice\ per\ Unit\ -Variable\ Costs\ per\ Unit}$
• It measures profitability of the investment

  Financial Analysis - ROI
• It is versatile and can be used for both large and small scale investments

  Financial Analysis - ROI
• A positive ROI indicates profitability, while a negative ROI signals a loss

  Financial Analysis - ROI
• FORMULA of ROI

  $ROI\ =$$\ \frac{Net\ \Pr ofit}{Investment\ Cost}\cdot100$
• These are the use of historical data and statistics to predict future

  outcomes or trends of demand for products or services.

  Forecasting Models
• Methods of Forecasting Models

  • Time Series Models
  • Causal Models
  • Qualitative Methods
• Suitable for forecasting based on historical patterns and trends

  Time Series Models
• Incorporate external factors and causal relationships.

  Causal Models
• e.g., Delphi technique, a method used to gather expert opinions to make decisions or predictions

  Qualitative Methods
• Location Analysis

  • Cost Factors
  • Proximity to Markets and Suppliers
  • Infrastructure
  • Regulations and Incentives
• Land, utilities, taxes

  Cost Factors
• Reducing transportation time and costs

  Proximity to Markets and Suppliers
• Availability of transportation, communication, and utilities

  Infrastructure
• Local government policies and tax breaks

  Regulations and Incentives
• Location Decision-Making Tools

  • Factor Rating Method
  • Center of Gravity Method
• Assigning weights to critical factors and scoring each location

  Factor Rating Method
• Minimizing transportation costs by considering the geographic center of demand points

  Center of Gravity Method
• Steps to Use Factor Rating

  1. Identify Factors
  2. Assign Weights
  3. Score Each Alternative
  4. Calculate Weighted Scores
  5. Total Scores
  6. Select the Best Option
• Determine the critical criteria for decision-making (e.g., costs, labor availability, proximity to customers).

  Identify Factors
• Give each factor a weight based on its relative importance (e.g., on a scale of 1 to 10).

  Assign Weights
• Assign a score for how well each location meets each factor (e.g., on a scale of 1 to 5).

  Score Each Alternative
• Multiply the score by the weight for each factor.

  Calculate Weighed Scores
• Add up the weighted scores for each location.

  Total Scores
• The location with the highest total score is the preferred choice.

  Select the Best Option
• It is used to find the optimal location for a facility by minimizing

  transportation costs based on geographic coordinates and the volume of goods moved.

  Center of Gravity Method
• FORMULA of Center of Gravity

  $X_c=$$\frac{\Sigma\left(X_i\cdot W_i\right)}{\Sigma W_i}$ and $Y_c=$$\frac{\Sigma\left(Y_i\cdot W_i\right)}{\Sigma W_i}$
• $X_i\ and\ Y_i$ in Center of Gravity means...


  Coordinates of location i