NAVOTAS POLYTECHNIC COLLEGE

Bangus St., Corner Apahap St., NBBS, City of Navotas

Course Title: OPERATIONS MANAGEMENT

Section:
Schedule:
Name of Faculty: PROFESSOR MARICAR TELAN ARTUZ Lpt,MBA,CME,

Dr.Marjorie Angeles

Module Number: 7

Lesson Title/Topic:

• Aggregate Planning & Capacity Options

Week Number: 7

Intended Learning Outcomes: (specific and measurable, and learner-oriented)

Examples:

 To Develop and analyze the Market Sound and Competition.

 To develop a Winning plan while analyzing the right Break-even

 To apply the theory of Waiting line management.

Learning and Teaching Support Materials

 Case Study Materials

 Video LESSON

 Operations Management 
William Stevenson, 10th ed. Supplementary Readings
 
a.) Operations Management 
Jay Heizer and Barry Render, 2008, 9th Edition

b.) Operations Management 

Roberta Russell and Bernard Taylor, 2011, 7th Edition

c.) Operations Management 

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Lee Krajewski and Larry Ritzman, 7th ed. 
Motivation

Lesson Proper

CAPACITY PLANNING

• Design of the production system involves planning for the inputs, conversion process and
outputs of production operation.
• Capacity is the rate of productive capability of a facility.
• Capacity is usually expressed as volume of output per period of time.
• The effective management of capacity is the most important responsibility of production
management.
• The objective of capacity management (i.e., planning and control of capacity) is to match the
level of operations to the level of demand.
• Capacity planning is to be carried out keeping in mind future growth and expansion plans,
market trends, sales forecasting, etc.
• It is a simple task to plan the capacity in case of stable demand. But in practice the demand will
be seldom stable. The fluctuation of demand creates problems regarding the procurement of
resources to meet the customer demand.
• Capacity decisions are strategic in nature. ©

Production managers are more concerned about the capacity for the following reasons:

1. Sufficient capacity is required to meet the customers demand in time.

2. Capacity affects the cost efficiency of operations.
3. Capacity affects the scheduling system.
4. Capacity creation requires an investment. Capacity planning is the first step when an

organization decides to produce more or new products.

• The capacity of the manufacturing unit can be expressed in number of units of output per
period.
• In some situations measuring capacity is more complicated when they manufacture multiple
products. In such situations, the capacity is expressed as man-hours or machine hours

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 MEASUREMENT OF CAPACITY PLANNING

There are five types of measurement of Capacity:

1. Design Capacity
2. System Capacity
3. Licensed Capacity
4. Installed Capacity
5. Rated Capacity

1. Design capacity: Designed capacity of a facility is the planned or engineered rate of output
of goods or services under normal or full scale operating conditions. For example, the
designed capacity of the cement plant is 100 TPD (Tonnes per day). Capacity of the sugar
factory is 150 tonnes of sugarcane crushing per day

2. System capacity: System capacity is the maximum output of the specific product or
product mix the system of workers and machines is capable of producing as an integrated
whole. • System capacity is less than design capacity or at the most equal, because of the
limitation of product mix, quality specification, breakdowns. The actual is even less
because of many factors affecting the output such as actual demand, downtime due to
machine/equipment failure, unauthorised absenteeism.

3. Licensed capacity: Capacity licensed by the various regulatory agencies or government

authorities. This is the limitation on the output exercised by the government.

4. Installed capacity: The capacity provided at the time of installation of the plant is called
installed capacity.

5. Rated capacity: Capacity based on the highest production rate established by actual
trials is referred to as rated capacity.

PROCESS OF CAPACITY PLANNING

• Capacity Planning is concerned with defining the Long-Term and the ShortTerm Capacity
needs of an organization and determining how those needs will be satisfied.
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 • Capacity Planning decisions are taken based upon the consumer demand and this is
merged with the Human, Material and Financial Resources of the organization. Capacity

Requirements can be evaluated from two perspectives:

1. Long-term capacity strategies

2. Short-term capacity strategies

1. LONG-TERM CAPACITY STRATEGIES

• Long-term Capacity requirements are more difficult to determine because the future
demand and technology are uncertain.

• Forecasting for five or ten years into the future is more risky and difficult. Even
sometimes company’s today’s products may not be existing in the future.

• Long range capacity requirements are dependent on marketing plans, product

development and lifecycle of the product.

• Long-term capacity planning is concerned with accommodating major changes that

affect overall level of the output in long-term.

• Marketing environmental assessment and implementing the long-term capacity plans in

a systematic manner are the major responsibilities of management.

Following parameters will affect Long Range capacity decisions:

a) Multiple Products b) Phasing in Capacity c) Phasing out Capacity

a) Multiple Products:

• Company’s produce more than one product using the same facilities in order to increase the
profit.

• The manufacturing of multiple products will reduce the risk of failure.

• Having more than one product helps the capacity planners to do a better job.

• Because products are in different stages of their life-cycles, it is easy to schedule them to get
maximum capacity utilisation.

b) Phasing in capacity:

• In high technology industries, and in industries where technology developments are

very fast, the rate of obsolescence is high.

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 • The products should be brought into the market quickly.

• The time to construct the facilities will be long and there is no much time as the
products should be introduced into the market quickly.

• Here the solution is phase in capacity on modular basis.

• Some commitment is made for building funds and men towards facilities over a
period of 3–5 years.

• This is an effective way of capitalising on technological breakthrough.

c) Phasing out capacity:

• The outdated manufacturing facilities cause excessive plant closures and down time.

• The impact of closures is not limited to only fixed costs of plant and machinery.

• Thus, the phasing out here is done with humanistic way without affecting the community.

• The phasing out options makes alternative arrangements for men like shifting them to other
jobs or to other locations, compensating the employees, etc.

2. SHORT-TERM CAPACITY STRATEGIES

• Managers often use forecasts of product demand to estimate the short-term workload the
facility must handle.

• Managers looking ahead up to 12 months, anticipate output requirements for different

products, and services.

• Managers then compare requirements with existing capacity and then take decisions as to when
the capacity adjustments are needed.

• For short-term periods of up to one year, fundamental capacity is fixed. Major facilities will not
be changed.

• Many short-term adjustments for increasing or decreasing capacity are possible.

• The adjustments to be required depend upon the conversion process like whether it is capital
intensive or labour intensive or whether product can be stored as inventory.

• Capital intensive processes depend on physical facilities, plant and equipment. Short-term
capacity can be modified by operating these facilities more or less intensively than normal.

• In labour intensive processes short-term capacity can be changed by laying off or hiring people
or by giving overtime to workers. The strategies for changing capacity also depend upon how long

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the product can be stored as inventory

The short-term capacity strategies are:

1. Inventories: Stock of finished goods during slack periods to meet the demand during peak
period.

2. Backlog: During peak periods, the willing customers are requested to wait and their orders are
fulfilled after a peak demand period.

3. Employment level (hiring or firing): Hire additional employees during peak demand period and
layoff employees as demand decreases.

4. Employee training: Develop multi-skilled employees through training so that they can be
rotated among different jobs. The multi-skilling helps as an alternative to hiring employees.

5. Subcontracting: During peak periods, hire the capacity of other firms temporarily to make the
component parts or products.

6. Process design: Change job contents by redesigning the job.

EXAMPLE OF CAPACITY PLANNING

Q. The design capacity for engine repair in a company is 80 trucks/day. The effective capacity is
40 engines/day and the actual output is 36 engines/day. Calculate the utilization and efficiency of
the operation. If the efficiency for next month is expected to be 82%, what is the expected
output?

PART-II AGGREGATE PLANNING

AGGREGATE PLANNING

• It is the process of testing the feasibility of aggregate output plans and evaluating overall
capacity utilization.

• The role of Aggregate Capacity Planning is to: Keep capacity utilization at desired levels and to
test the feasibility of planned output against existing capacity.

• It is the process of planning the quantity and timing of output over the intermediate time
horizon (3 months to one year).
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• Within this range, the physical facilities are assumed to be fixed for the planning period.

• Therefore, fluctuations in demand must be met by varying labour and inventory schedule.

• Aggregate planning seeks the best combination to minimise costs.

Aggregate Planning Strategies

• The variables of the production system are labour, materials and capital.

• More labour effort is required to generate higher volume of output.

• Hence, the employment and use of overtime (OT) are the two relevant variables.

• Materials help to regulate output.

• The alternatives available to the company are inventories, back ordering or

subcontracting of items.

The mentioned controllable variables constitute pure strategies by which fluctuations in

demand and uncertainties in production activities can be accommodated by using the
following steps:

1. Vary the size or the workforce: Output is controlled by hiring or laying off workers in
proportion to changes in demand.

2. Vary the hours worked: Maintain the stable workforce, but permit idle time when there
is a slack and permit overtime (OT) when demand is peak.

3. Vary inventory levels: Demand fluctuations can be met by large amount of inventory.

4. Subcontract: Upward shift in demand from low level. Constant production rates can be

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met by using subcontractors to provide extra capacity.

AGGREGATE PLANNING GUIDELINES The following are the guidelines for aggregate
planning:

1. Determine corporate policy regarding controllable variables.

2. Use a good forecast as a basis for planning.

3. Plan in proper units of capacity.

4. Maintain the stable workforce.

5. Maintain needed control over inventories.

6. Maintain flexibility to change.

7. Respond to demand in a controlled manner.

8. Evaluate planning on a regular base.

Learning Outcome

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PartialPaper # 1

Product Design, Process Design, Demand Forecasting

Partial Paper # 2 

Capacity Planning, Location Planning, Facilities Layout, Human Resource Mgt.

Suggested Learning Activities

Suggested Teaching-Learning Activities

 Please consider here:

Virtual Assessment Quiz

 RH Ch1,2

 Online Discussion

 Podcasting through application of Line Balancing, Process Layouts

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See this link for the range of TLA you can apply:
https://youtu.be/leMOReAE2hk
You want to dive deep into the world of finance and management? Visit us:
http://www.frankfurt-school.de/en/hom...

Assessment Tasks/Outputs

 Operations Plan

Each group is required to submit partial project papers to serve as periodic updates of their
progress in completing the Operations Plan. These project papers will be graded.

POM Start-up Operations Management Paper Outline

• Very Brief Industry Background -- (Just a SUMMARY! Not included in the Opman Panel
grading.

No need to complete all the details.)

1. Industry Analysis – Major players and developmental trends.

2. Target Market - Can you describe the customer base in such terms as age, income, lifestyle,
or

similar dimensions? What is the projected growth in the primary customer base over the next

five years? What is the frequency of the purchase? Are brands important to the customers?

3. Competition Analysis - Who are the primary competitors, and what are their market
shares?

What are the operations and marketing strategies of the various competitors?

*** Submit hardcopy and softcopy ([email protected]) on or

before 4pm for all Partial Papers and Final Paper***

J. Internet Sources:

1.) Log in to either

www.groups.yahoo.com/group/mgt2014 or www.groups.yahoo.com/group/lm2014 and

join

the group. This will be our official yahoo group for the entire batch of Mgt Standard or

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Legal

Management students. This is where I will make all my announcements for your batch.

2.) Log in to http://tech.groups.yahoo.com/group/pom102-104 and join the group. Just

type in

your name and once verified, I will allow you to join the group.

3.) You can access and download the Power Point slides and other Opman stuffs from
Yahoo Mail.

Login name: POM102104 Password: ateneo

The teacher reserves the right to raise a student’s grade if in his judgment, a particular

student’s overall performance, behavior and character merits this recognition. The

teacher, of course, has no right to pull down any student’s grade point achievement.

Good Luck and Enjoy the Semester!!

Readings and Other References

1. Textbooks
2. Journal articles from open/paid sources
3. YouTube lectures such as TEDX
4. Free MOOCs

Examples:
https://teachingcommons.stanford.edu/resources/course-preparation-resources.
https://teachanywhere.stanford.edu/remote-exam-administration ETC.

Acknowledgements to Authors and Other Creators:

Write your complete names. Maricar Artuz
Dr.Marjorie Angeles

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Rebecca T. Anonuevo, PhD
NPC President

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