1. Definition
Capacity: amount of goods that a firm is capable of producing over a specified period of time
Capacity planning: to specify the level of capacity (output rate) that will meet market demands in a cost-efficient way
Factors affecting capacity
1. External factors: government regulations, union agreements
2. Internal factors: product design, plant layout, process flow
Process -- activities involved in making a product
Types of processes
Two types of nodes
Two types of branches
Example 1
| Alternatives | Revenue if market is weak | Revenue if market is strong | Cost |
| Large plant | 10,000 | 200,000 | 100,000 |
| Medium plant | 50,000 | 120,000 | 60,000 |
| Small plant | 35,000 | 80,000 | 40,000 |
| Event | Probability |
| Strong market | 40% |
| Weak market | 60% |
Example 2
C&A, a cellular phone manufacturer, is investigating the possibility of producing and marketing a new line of phone. Undertaking this project will require either purchasing a CAD/CAM system or hiring and training several additional engineers. The market for the product could be either favorable or unfavorable. C&A, of course, has the option of not developing the new product at all.
With favorable acceptance by the market, sales would be 25,000 phones selling for $100 each, and with unfavorable acceptance, sales would be only 8,000 phones selling for $100 each. The cost of the CAD/CAM equipment is $500,000, but that of hiring and training three new engineers is only $375,000. However, manufacturing cost should drop from $50 each when manufacturing without CAD/CAM to $40 each when manufacturing with CAD/CAM.
The probability of favorable acceptance of the new phone is 0.40; the probability of unfavorable acceptance is 0.60.
Exercise:
Pg. 370, problems 5, 6