Capacity Planning

What is Capacity?

Capacity is the ability to deliver in a defined time

To have capacity a system must have some of each of the necessary transforming resources for the operation

Both input and output measures can be used:

Output measures are usual for high-volume, standardised processes, e.g.:

Automotive production line: number of cars per week Hotel room service: number of guests served per hour Call centre: customer calls per hour

Input measures are usual for low-volume, flexible processes and for many service operations , e.g.

Hospital: beds available Law firm: hours Utilisation is also a useful capacity measure, it is defined as: average output rate/maximum capacity x 100%

Capacity is the maximum output rate of a production or service facility and capacity planning is the process of establishing the output rate that may be needed at a facility

Capacity is the upper limit or ceiling on the load that an operating unit can handle. The basic questions in capacity handling are:

What kind of capacity is needed?

How much is needed?

When is it needed?

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

The Federal Reserve Board defines sustainable practical capacity 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

Factors Affecting Capacity Planning

Product & Services factors: Type of product/services to be provided Process: The manufacturing process Availability of Facilities: State of technology & communications Human factors: Skill & quality of workers Supply factor: Timely & assured supply of inputs External factors: Investors & government policies

Importance of Capacity Decisions

Impacts ability to meet future demands Affects operating costs Major determinant of initial costs Involves long-term commitment Affects competitiveness Affects ease of management Globalization adds complexity Impacts long range planning

Types of Capacity

Design capacity 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 Actual output rate of output actually achieved--cannot exceed effective capacity.

Efficiency and Utilization Efficiency/Utilization Example Actual output = 36 units/day Efficiency = = 90% Effective capacity 40 units/ day

Utilization = Actual output = 36 units/day = 72% Design capacity 50 units/day

Determinants of Effective Capacity

Facilities Product and service factors Process factors Human factors Operational factors Supply chain factors External factors

Measurements of Capacity

Output Rate Capacity

For a facility having a single product or a few homogeneous products, the unit of measure is straightforward (barrels of beer per month) For a facility having a diverse mix of products, an aggregate unit of capacity must be established using a common unit of output (sales dollars per week) 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

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

Capacity Cushion

an additional amount of capacity added onto the expected demand to allow for: greater than expected demand

demand during peak demand seasons lower production costs product and volume flexibility improved quality of products and services

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 Other Considerations Resource availability Accuracy of the long-range forecast Capacity cushion Changes in competitive environment

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 Mothball facilities, transfer employees

Develop and phase in new products/services

Key Decisions of Capacity Planning

Amount of capacity needed Timing of changes Need to maintain balance Extent of flexibility of facilities

Steps for Capacity Planning

Estimate future capacity requirements Evaluate existing capacity Identify alternatives Conduct financial analysis Assess key qualitative issues Select one alternative Implement alternative chosen Monitor results

Make or Buy

Available capacity Expertise Quality considerations Nature of demand Cost Risk

Developing Capacity Alternatives

Design flexibility into systems Take stage of life cycle into account

Take a big picture approach to capacity changes Prepare to deal with capacity chunks Attempt to smooth out capacity requirements Identify the optimal operating level

Economies of scale If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs

Diseconomies of scale If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs

Planning Service Capacity

Need to be near customers Capacity and location are closely tied Inability to store services Capacity must be matched with timing of demand Degree of volatility of demand Peak demand periods

Assumptions of Cost-Volume Analysis

One product is involved Everything produced can be sold Variable cost per unit is the same regardless of volume Fixed costs do not change with volume Revenue per unit constant with volume Revenue per unit exceeds variable cost per unit

Financial Analysis

Cash Flow - the difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes.

Present Value - the sum, in current value, of all future cash flows of an investment proposal.

Factors which favors over capacity

Where there is an economic capacity size below which process is uneconomic Building capacity is not so costly Buying outside is not feasible Lead time to add capacity is long Lost sales are viewed very negatively by trading cycles

Factors which favors addition of capacity on conservative basis

Alternative capacity planning are easily available Build up cost of capacity is low Lead time to build new capacity is short Lost of sales have no disastrous

Problems in capacity planning

There is no standard terminology Every vendor has a different definition of capacity management, capacity planning, sizing, tuning, and so on. Some vendors use the term capacity management to include both capacity planning and tuning. Others use it to denote tuning only.

There is no standard definition of capacity One definition is in terms of maximum throughput. Jobs per second, transactions per second (TPS), Instructions per second (MIPS) or bits per second. Another definition: Maximum number of users that the system can support while meeting a specified

performance objective. Capacity planning is expressed in workload units. Users, sessions, tasks, activities, programs, jobs, accounts, projects and so on.

There are number different capacities for the same system Nominal capacity, usable capacity, and knee capacity Other terms: practical capacity (usable capacity) and theoretical capacity (nominal capacity)

There is no standard workload unit. In case of users or sessions it is difficult to characterize the workload that varies from one environment to another environment. So workload independent measures such as MIPS are still popular for forecasting.

Forecasting future applications is difficult Most of the forecasting is based on the assumption that the future trend will be similar to the past. This assumption is violated if new technology suddenly emerges.

There is no uniformity among systems from different vendors. The same workload takes different amounts of resources on different systems. This requires developing a vendor independent benchmark and running it on different systems.

Model inputs cannot always be measured Simulation and analytical models are used to predict the performance under different alternatives. Sometimes the inputs required for the model are not accurately measurable. Think time is commonly used in analytical models, but it is impossible to measure think time.

Validating model projections is difficult. There are two types of model model validations: baseline validation and projection validation.

Baseline validation requires that using the current workload and configuration in the model and verifying that the model output matches the observed system performance.

Projection validation, requires changing the workload and configuration and verifying that the model

output matches the changed real system performance. are rarely performed so the model for capacity planning is suspect.

Distributed environments are too complex to model Initial computer systems consisted of only a few components. Justifying the cost of each component was simple. With distributed environments of today the system consists of a large number of semi autonomous clients, servers and network links, and I/O devices. Workstation usage is very different from others and interactions are rather complex. It is difficult to justify the cost of each component.

Performance is only a small part of the capacity planning problem. The key issue in capacity planning is cost Cost of the equipment, software, installation, maintenance, personnel, floor space, power, and climate control (cooling, humidity control). Performance modeling helps only in sizing the equipment. As the cost of computer hardware is declining, the other costs have become a major consideration in cap city planning