OPM UNIT 2

Capacity Planning – Long range, Types, Developing capacity alternatives,

tools for
capacity planning. Facility Location – Theories, Steps in Selection,
Location
Models. Sourcing and procurement - Strategic sourcing, make or buy
decision,
procurement process, managing vendors
UNIT 2
• CAPACITY PLANNING
Whenever we talk about facilities, we talk about production.
Whenever we talk about production , we talk about capacity
That is why we always say
Production capacity at the facility. We plan.
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• Capacity planning decision always involve the activities as below
1. Estimating the present capacity
2. Forecasting the long range future capacity needs
3. Identifying and analyzing sources of capacity to meet future
capacity
4. Selecting among alternate sources of capacity
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• Few capacity measures & Forecasting capacity demand

For firms produce a single product or multiple product , uses output rate
capacity as the measure .
In services output rate capacity is difficult , but still we use Input rate
capacity , like Hospitals use available beds per month , Airlines use s available
seat miles per month ,digital marketing services use- Number of hours of
creativity or strategy used .
Providing long range capacity means making production facilities available ,
land , building, tools , materials , personnel and others .
Planning , buying a building , starting up, training, required for a new
production facility could take 5 to 10 years , and such facility can remain
economically productive for 15 to 20 years after that it can be
technologically obsolete or product obsoleting can happen .
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• Economies of scale
• For a given production facility, there is an annual volume of outputs
that results in the least average unit cost . This level of output is called
the facility's Best operating level .
• Economies of scale exist when long run average total cost decreases
as output increases, diseconomies of scale occur when long run
average total cost increases as output increases, and constant returns
to scale occur when costs do not change as output increases.
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• Capacity Alternatives:
• 1. Do nothing
• 2. Expand large now
• 3. Expand small now, with option to add later

• Evaluate Capacity Alternatives

• There are a number of tools that we can use to evaluate our capacity
alternatives. Recall that these tools are only decision-support aids.
Ultimately, managers have to use many different inputs, as well as
their judgment, in making the final decision. One of the most popular
of these tools is the decision tree. In the next section we look more
closely at how decision trees can be helpful to managers at this stage.
UNIT 2
• Once a company has identified its capacity requirements for the future, the
next step is to develop alternative ways to modify its capacity.

• One alternative is to do nothing and reevaluate the situation in the future.

With this alternative, the company would not be able to meet any
demands that exceed current capacity levels. Choosing this alternative and
the time to reevaluate the company's needs is a strategic decision.

• The other alternatives require deciding whether to purchase one large

facility now or add capacity incrementally.
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• A facility should ideally be located at a place where raw materials are

available. This is necessary for maintaining continuity in the
production process. factor is provided a weight between '0' to '1'
according to the level of importance, where '0' denotes least
important and '1' denotes most important.
UNIT 2
• Facility location may be defined as a place where the facility will be
set up for producing goods or services.
• The need for location selection may arise under any of the following
conditions:
• a. When a business is newly started.
• b. When the existing business unit has outgrown its original facilities
and expansion is not possible; hence a new location has to be found.
• c. When the volume of business or the extent of market necessitates
the establishment of branches.
• d. When the lease expires and the landlord does not renew the lease.
• e. Other social or economic reasons
UNIT 2
• Need for Facility Location Planning
• Facility location planning is also required for providing a cost benefit
to the organization.
• The location planning should help in reducing the transportation cost
for the organization.
• This ultimately helps in decreasing the cost of production and
generating cost advantage for the organization.
• It is also needed to identify proximity to the sources of raw materials
and transportation facilities.
• A facility should ideally be located at a place where raw materials are
available.
• This is necessary for maintaining continuity in the production process
UNIT 2
• Factors Affecting Facility Location Decisions ,While selecting a facility
location, an organization should consider various factors that may
have significant impact on its performance.
• These factors are explained below:
• ➢ Availability of power ➢ Transportation ➢ Suitability of climate ➢
Government policy ➢ Competition between states ➢ Availability of
labour
UNIT 2
• Procedures and Techniques for Selecting Facility Location
• An organization follows certain steps to make a correct location
choice.
• These steps are: Decide on the criteria for evaluating location
alternatives
• Identify important factors
• Develop location alternatives
• Evaluate the alternatives
• Make a decision and select the location
UNIT 2
• Concept of Facility Location Procedures and Techniques for Selecting
Facility Location
• Following are some main techniques used in making location decisions:
• ➢ Location rating factor technique: In this technique, first of all an
organisation needs to identify the factors that influence its location
decision. Next, each factor is provided a weight between ‘0’ to ‘1’
according to the level of importance, where ‘0’ denotes least important
and ‘1’ denotes most important.
• ➢ Centre-of-gravity technique: This technique emphasizes on
transportation cost in the determination of facility location. Transportation
cost mainly depends on distance, weight of merchandise and the time
required for transportation. Centre-of-gravity maps various supplier
locations on a Cartesian plane and suggests a central facility location with
respect to the locations of suppliers.
UNIT 2
• Concept of Facility Layout
• Facility layout may be defined as the arrangement of machinery,
equipment, and other amenities in a facility, which should ensure a
smooth movement of materials.

• According to Moore, facility layout is the plan of or the act of planning

an optimum arrangement of facilities, including personnel, operating
equipment, storage space, material handling equipment, and all other
supporting services along with the design of the best structure to
contain these facilities.
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Objectives of an Effective Facility Layout
• Minimum Material Handling
• Elimination of Bottlenecks
• Shorter Production Cycles
• Reduction in Production Delays
• Improved Quality Control
• Efficient Utilization of Labour
• Improved Employee Morale
UNIT 2
Types of Facility Layouts
• Process Layout
• Product Layout
• Fixed Position Layout
• Cellular Manufacturing Layout
• Combination or Hybrid Layout
Unit 2 -Part 2
• Sourcing and procurement - Strategic sourcing, make or buy decision,
• procurement process, managing vendors
End of unit 2 part 1