Estimate future capacity requirements identify gaps by

Question

1. Drexel's copy center prepares presentations for the LeBow College of Business and the Charles D. Close School of Entrepreneurship.  The center makes multiple copies (the lot size) of each report.  The center operates 250 days/year with 1 - 8 hour shift. The processing time to run, collate, and bind each copy varies based on the number of pages.  Management believes that a capacity cushion of 15% (beyond the allowance built into time standards) is best.  There are 3 copy machines and based on the information below, determine how many machines are needed Drexel's copy center.

Item	Lebow	Entrepreneurship
Annual demand forecast (copies)	2,000	6,000
Standard processing time (hour/copy)	0.5	0.7
Average lot size (copies/report)	20	30
Standard setup time (hours)	0.25	0.40

A Systematic Approach to Long-Term Capacity Decisions:

1. Estimate future capacity requirements
2. Identify gaps by comparing requirements with available capacity
3. Develop alternative plans for reducing the gaps
4. Evaluate each alternative, both qualitatively and quantitatively, and make a final choice

Step 1 - For 1 service or product processed at 1 operation with a 1 year time period, the capacity requirement, M, is

                                                             Process hours required for 1 year's demand

Capacity requirement  =      --------------------------------------------------------------------------------

                                          Hours available from a single capacity unit/year, after deducting desired cushion

                             Dp

Where M =    -----------------------

                      N[1 - (C/100)]     

D =   demand forecast for the year (number of customers served or units produced)

p =  processing time (in hours per customer served or unit produced)

N = total number of hours per year during which the process operates

C = desired capacity cushion (expressed as a percent)

Estimate Capacity Requirements (Setup times may be required if multiple products are produced)

                                                Processing and setup hours required for year's demand, summed over all services or products

Capacity requirement =            -------------------------------------------------------------------------------------------------

                                                                    Hours available from a single capacity unit/year, after deducting desired cushion

                                                           [Dp + (D/Q)s] _{product 1} +  [Dp + (D/Q)s] _{product 2} +  ....... +[Dp + (D/Q)s] _{product n}

                                         M =          -----------------------------------------------------------------------------------------------

                                                                                                N[1 - (C/100)]     

Where Q = number of units in each lot and s = setup time (in hours) per lot

Note - please write your team's work and answer on the backside of this page.

2. ESTIMATE CAPACITY REQUIREMENTS Problem (10 points)

The manufacturer of luxury shoes produces 1) Jimmy Choo and 2) Manoloi Blahnik brands.  It operates 220 days per year with 1 - 10 hour shift.  Management believes a capacity cushion of 15% (beyond the allowance built into time standard) is best.  There are 5 shoe machines, yet based on information below, how many machines are needed?

	Blahnik	Choo
Annual demand forecast (shoes)	1200	1500
Standard processing time (hour/shoe)	4	6
Average lot size (shoe/department store)	25	30
Standard set-up time (hours)	2	3

3. GE PRODUCES 3 DIFFERENT TYPES OF CONTROL UNITS USED FOR THE water industry. Plant operates 2shifts (8 hours per shift), 5 days/week, 52 weeks/year.  The manager believes that a 20% capacity cushion is best.  (15 points)

	Time Standard			Demand Forecast
Component	Processing (hr/unit)	Set-Up (hr/lot)	Lot Size (units/lot)	Pessimistic	Expected	Optimistic
A	0.05	1.0	60	15,000	18,000	25,000
B	0.20	4.5	80	10,000	13,000	17,000
C	0.05	8.2	120	17,000	25,000	40,000

a) How many machines are required to meet the minimum (Pessimistic) demand, expected demand, maximum demand?

b) How many machines are required if the operations manager decides to double lot sizes?

c) 3 machines reduce setup time by 20% (process improvements), does plant have adequate capacity to meet all demand scenarios without increasing lot sizes?

4. Sparkling Car Wash operates a full-service car wash, which operates from 8am to 8pm, 7 days a week.  The car wash has 2 automatic stations: an automatic washing and drying station and a manual interior cleaning station.  The automatic washing and drying station can handle 30 cars/hour. The interior cleaning station can handle 200 cars/day. Sparkling estimates that future demand for the interior cleaning station for the 7 days of the week (expressed in average number of cars per day is:

Day	M	T	W	Th	F	Sa	Su
Cars	160	180	150	140	280	300	250

By installing additional equipment (at a cost of $50,000), Sparkling can increase the capacity of the interior cleaning station to 300 cars/day.  Each car wash generates a pretax contribution of $4.00.  Should Sparkling install additional equipment if they expect a pretax payback period of 3 years or less?