Chapter
4 Capacity Planning
DISCUSSION QUESTIONS
1. The primary economies of scale concern spreading the instructor’s salary over a
larger class and filling classrooms to capacity (and then some). Diseconomies occur
when additional help is required to review homework, administer tests, and
coordinate schedules of students and assistants. Growth eventually requires larger
classrooms or lecture halls. If we view the product as learning, there is a possibility
that diminishing returns on the amount of learning occur as class size increases.
Symptoms of diseconomies of scale setting in are decreased job satisfaction for
instructors and unmotivated, dissatisfied students. If close customer contact is
needed for this kind of service process, diseconomies of scale tend to set in earlier.
2. When demand for the drink is large enough, there are several ways that economies
of scale would benefit the boy. First, he can save on raw material costs. For
example, one 32-ounce box of lemonade mix costs less than four 8-ounce boxes.
Also, he could get a price break by buying ice in bulk. Second, the cost of larger
iceboxes can be spread over more units (sales), keeping the cost per sale low.
Diseconomies of scale can set in if business expands to the point that the boy cannot
run the lemonade stand efficiently.
3. Answers will vary. By employing an expansionist strategy the firm attempts to stay
ahead of demand thus minimizing the chance of sales lost to insufficient capacity.
Students typically think of firms in high tech or premium service-related industries.
PROBLEMS
Planning Long-Term Capacity
1. Dahlia Medical Center
Labor room capacity = 30 rooms × 3 days × 24 hours/day = 2160 hours
Labor room utilization = (60 babies × 24 hours/baby)/(2160 hours) = 66.67%
Combination labor-delivery room capacity = 15 rooms × 3 days × 24 hours/day
= 1080 hours
Combination labor-delivery room utilization (45 babies × 24 hours/baby)/(1080
hours) = 100.00 %
Delivery room capacity = 3 rooms × 3 days × 24 hours/day = 216 hours
Delivery room utilization = (60 babies × 1 hour/baby)/(216 hours) = 27.78%
The combination labor-delivery rooms have the highest utilization.
6-1
Copyright © 2016 Pearson Education, Inc.
,6-2 l PART 1 l Managing Processes
2. Capacity requirements in five years
This year’s capacity requirement, allowing instead for just a 5-percent capacity cushion,
is 52.63 (or 50 / [1.0 – 0.05]) customers per day. Essentially you should divide by the
desired utilization rate. Five years from now, if demand is only 75 percent of the current
level, the customer requirement will be 39.47 (or 52.63 × 0.75) customers per day.
3. Airline company
This year's capacity requirement, allowing for a 25-percent capacity cushion, is 93.3 (or
70 / [1.0 − 0.25] ) customers per day. Three years from now, if demand increases by 20
percent, the customer requirement will be about 112 (or 93.3 × 1.2) customers per day
for this flight segment.
4. Food Goblin Supermarket
a. Cashier availability = 4 persons x 5 days/week x 6 hours/day = 120 hours per week
Cashier utilization = (20 customers x .0833 hour x 30 hours/week)/ 120 = 41.7%
Bagger availability = 2 persons x 5 days/week x 6 hours/day = 60 hours per week
Bagger utilization = (20 customers x .0833 hour x 30 hours/week)/ 60 = 83.3%
b. Employee availability = 6 persons x 5 days/week x 6 hours/day = 180 hours per
week
Employee utilization = (20 customers x .2 hour x 30 hours/week)/ 180 = 66.7%
5. Food Goblin Supermarket, part 2
a. In order to maintain a 10% capacity cushion for cashiers:
(20 customers x 0.0833 hour x 30 hours/week) / (cashiers x 5 days/week x 6
hours/day) = 0.90 cushion. Thus; 49.98 / (30 x cashiers) = 0.90; solving for
cashiers = 1.85 or 2 cashiers.
Cashier availability = 2 persons x 5 days/week x 6 hours/day = 60 hours per week
Cashier utilization = (20 customers x .0833 hour x 30 hours/week)/ 60 = 83.3%
Baggers provide the same calculation:
Bagger availability = 2 persons x 5 days/week x 6 hours/day = 60 hours per week
Bagger utilization = (20 customers x .0833 hour x 30 hours/week)/ 60 = 83.3%
b. In order to maintain a 10% capacity cushion for independent employees:
(20 customers x 0.2 hour x 30 hour/week) / (employees x 5 days/week x 6
hours/day) = 0.90 cushion, Thus; 120/ (30 x employees) = 0.90; solving for
employees = 4.44 or 5 cross-trained employees.
Employee availability = 5 persons x 5 days/week x 6 hours/day = 150 hours per
week
Employee utilization = (20 customers x .2 hour x 30 hours/week)/ 150 = 80.0%
Therefore, assuming a 10% capacity cushion, only 4 employees are required when
they work together and 5 employees are required when they work independently.
A Systematic Approach to Long-Term Capacity Decisions
Copyright © 2016 Pearson Education, Inc.
, Capacity Planning l CHAPTER 4 l 4-3
6. Purple Swift
The number of hours provided per machine is:
N = [8 hours/day x 220 days/year] = 1760 hours
Summing up the paint hour requirements we get:
M = [2,000(45/60) + 2,000/10(1)] = 1700 hours
The capacity cushion is:
(1-M/N)100 = (1-1700/1760)100 = 3.4%
7. Macon Controls
a. The total machine hour requirements for all three demand forecasts are
provided in the following Excel spreadsheet:
Capacity Information for
Macon Controls Capacity Calculations
Pessimistic Expected Optimistic
Control Unit Process Setup Process Setup Process Setup
Time Time Time Time Time Time
(Dp) (D/Q)s (Dp) (D/Q)s (Dp) (D/Q)s
A 750.0 250.0 900.0 300.0 1,250.0 416.7
B 2,000.0 562.5 2,600.0 731.3 3,400.0 956.3
C 850.0 1,161.7 1,250.0 1,708.3 2,000.0 2,733.3
Demand 5,574.2 Demand 7,489.6 Demand 10,756.3
The number of hours (N) provided per machine is:
N = (2 shifts/day × 8 hours/shift × 5 days/week × 52 weeks/year)(1.0 – 0.2)
= 3,328 hours/machine
The capacity requirements for three forecasts are:
Pessimistic: M = 5,574.2/3328 = 1.67 or 2 machines
Expected: M = 7,489.6/3328 = 2.25 or 3 machines
Optimistic: M = 10,756.3/3328 = 3.23 or 4 machines
b. The total machine hour requirements given that lot sizes are doubled are
provided in the following Excel spreadsheet:
Capacity Information for
Macon Controls Capacity Calculations
Pessimistic Expected Optimistic
Control Unit Process Setup Process Setup Process Setup
Time Time Time Time Time Time
(Dp) (D/Q)s (Dp) (D/Q)s (Dp) (D/Q)s
A 750.0 125.0 900.0 150.0 1,250.0 208.3
B 2,000.0 281.3 2,600.0 365.6 3,400.0 478.1
Copyright © 2016 Pearson Education, Inc.
4 Capacity Planning
DISCUSSION QUESTIONS
1. The primary economies of scale concern spreading the instructor’s salary over a
larger class and filling classrooms to capacity (and then some). Diseconomies occur
when additional help is required to review homework, administer tests, and
coordinate schedules of students and assistants. Growth eventually requires larger
classrooms or lecture halls. If we view the product as learning, there is a possibility
that diminishing returns on the amount of learning occur as class size increases.
Symptoms of diseconomies of scale setting in are decreased job satisfaction for
instructors and unmotivated, dissatisfied students. If close customer contact is
needed for this kind of service process, diseconomies of scale tend to set in earlier.
2. When demand for the drink is large enough, there are several ways that economies
of scale would benefit the boy. First, he can save on raw material costs. For
example, one 32-ounce box of lemonade mix costs less than four 8-ounce boxes.
Also, he could get a price break by buying ice in bulk. Second, the cost of larger
iceboxes can be spread over more units (sales), keeping the cost per sale low.
Diseconomies of scale can set in if business expands to the point that the boy cannot
run the lemonade stand efficiently.
3. Answers will vary. By employing an expansionist strategy the firm attempts to stay
ahead of demand thus minimizing the chance of sales lost to insufficient capacity.
Students typically think of firms in high tech or premium service-related industries.
PROBLEMS
Planning Long-Term Capacity
1. Dahlia Medical Center
Labor room capacity = 30 rooms × 3 days × 24 hours/day = 2160 hours
Labor room utilization = (60 babies × 24 hours/baby)/(2160 hours) = 66.67%
Combination labor-delivery room capacity = 15 rooms × 3 days × 24 hours/day
= 1080 hours
Combination labor-delivery room utilization (45 babies × 24 hours/baby)/(1080
hours) = 100.00 %
Delivery room capacity = 3 rooms × 3 days × 24 hours/day = 216 hours
Delivery room utilization = (60 babies × 1 hour/baby)/(216 hours) = 27.78%
The combination labor-delivery rooms have the highest utilization.
6-1
Copyright © 2016 Pearson Education, Inc.
,6-2 l PART 1 l Managing Processes
2. Capacity requirements in five years
This year’s capacity requirement, allowing instead for just a 5-percent capacity cushion,
is 52.63 (or 50 / [1.0 – 0.05]) customers per day. Essentially you should divide by the
desired utilization rate. Five years from now, if demand is only 75 percent of the current
level, the customer requirement will be 39.47 (or 52.63 × 0.75) customers per day.
3. Airline company
This year's capacity requirement, allowing for a 25-percent capacity cushion, is 93.3 (or
70 / [1.0 − 0.25] ) customers per day. Three years from now, if demand increases by 20
percent, the customer requirement will be about 112 (or 93.3 × 1.2) customers per day
for this flight segment.
4. Food Goblin Supermarket
a. Cashier availability = 4 persons x 5 days/week x 6 hours/day = 120 hours per week
Cashier utilization = (20 customers x .0833 hour x 30 hours/week)/ 120 = 41.7%
Bagger availability = 2 persons x 5 days/week x 6 hours/day = 60 hours per week
Bagger utilization = (20 customers x .0833 hour x 30 hours/week)/ 60 = 83.3%
b. Employee availability = 6 persons x 5 days/week x 6 hours/day = 180 hours per
week
Employee utilization = (20 customers x .2 hour x 30 hours/week)/ 180 = 66.7%
5. Food Goblin Supermarket, part 2
a. In order to maintain a 10% capacity cushion for cashiers:
(20 customers x 0.0833 hour x 30 hours/week) / (cashiers x 5 days/week x 6
hours/day) = 0.90 cushion. Thus; 49.98 / (30 x cashiers) = 0.90; solving for
cashiers = 1.85 or 2 cashiers.
Cashier availability = 2 persons x 5 days/week x 6 hours/day = 60 hours per week
Cashier utilization = (20 customers x .0833 hour x 30 hours/week)/ 60 = 83.3%
Baggers provide the same calculation:
Bagger availability = 2 persons x 5 days/week x 6 hours/day = 60 hours per week
Bagger utilization = (20 customers x .0833 hour x 30 hours/week)/ 60 = 83.3%
b. In order to maintain a 10% capacity cushion for independent employees:
(20 customers x 0.2 hour x 30 hour/week) / (employees x 5 days/week x 6
hours/day) = 0.90 cushion, Thus; 120/ (30 x employees) = 0.90; solving for
employees = 4.44 or 5 cross-trained employees.
Employee availability = 5 persons x 5 days/week x 6 hours/day = 150 hours per
week
Employee utilization = (20 customers x .2 hour x 30 hours/week)/ 150 = 80.0%
Therefore, assuming a 10% capacity cushion, only 4 employees are required when
they work together and 5 employees are required when they work independently.
A Systematic Approach to Long-Term Capacity Decisions
Copyright © 2016 Pearson Education, Inc.
, Capacity Planning l CHAPTER 4 l 4-3
6. Purple Swift
The number of hours provided per machine is:
N = [8 hours/day x 220 days/year] = 1760 hours
Summing up the paint hour requirements we get:
M = [2,000(45/60) + 2,000/10(1)] = 1700 hours
The capacity cushion is:
(1-M/N)100 = (1-1700/1760)100 = 3.4%
7. Macon Controls
a. The total machine hour requirements for all three demand forecasts are
provided in the following Excel spreadsheet:
Capacity Information for
Macon Controls Capacity Calculations
Pessimistic Expected Optimistic
Control Unit Process Setup Process Setup Process Setup
Time Time Time Time Time Time
(Dp) (D/Q)s (Dp) (D/Q)s (Dp) (D/Q)s
A 750.0 250.0 900.0 300.0 1,250.0 416.7
B 2,000.0 562.5 2,600.0 731.3 3,400.0 956.3
C 850.0 1,161.7 1,250.0 1,708.3 2,000.0 2,733.3
Demand 5,574.2 Demand 7,489.6 Demand 10,756.3
The number of hours (N) provided per machine is:
N = (2 shifts/day × 8 hours/shift × 5 days/week × 52 weeks/year)(1.0 – 0.2)
= 3,328 hours/machine
The capacity requirements for three forecasts are:
Pessimistic: M = 5,574.2/3328 = 1.67 or 2 machines
Expected: M = 7,489.6/3328 = 2.25 or 3 machines
Optimistic: M = 10,756.3/3328 = 3.23 or 4 machines
b. The total machine hour requirements given that lot sizes are doubled are
provided in the following Excel spreadsheet:
Capacity Information for
Macon Controls Capacity Calculations
Pessimistic Expected Optimistic
Control Unit Process Setup Process Setup Process Setup
Time Time Time Time Time Time
(Dp) (D/Q)s (Dp) (D/Q)s (Dp) (D/Q)s
A 750.0 125.0 900.0 150.0 1,250.0 208.3
B 2,000.0 281.3 2,600.0 365.6 3,400.0 478.1
Copyright © 2016 Pearson Education, Inc.
