Capacity Planning and Financial Appraisal Essay

Capacity Planning and Financial Appraisal - Essay Example 3. The utilization of the workcentres is assumed to be 100%. This assumption ignores any machine downtime for various reasons such as breakdown, power failure, lack of materials or labour, and planned maintenance. (Vorne industries, 2008) However, the actual number of machines planned for procurement is higher than the calculated number by a substantial amount in the case of each type of workcentre. This has occurred partly due to rounding off of fractional requirements. Where the rounding off involved marginal increases, as in the case of Workcentres A and C, the rounding off has been carried over to the next higher figure. Because of this, there is enough in-built cushion in the calculated figure to take care of lower utilization. 4. Interference or waiting times have been assumed to be zero. Interference and waiting times can arise because of unbalanced line in which some of the machines have less capacity than others causing a pile up at these centres. Waiting times can also occur when disparate products are being scheduled one at a time, and the schedules fail to take care of piling of jobs at the same time at a workcentre, causing some of the parts/products to wait. In the present case, there is a continuous production of five different products with the same processing times. Although this could lead to scheduling problems because of changeover from one product to another, in this particular case, it is unlikely to happen because all products take the same time to process. Moreover, there is sufficient cushion available in the capacities due to rounding off, to take care of any waiting time. The financial viability of the new plant is to be checked using the IRR method. The Operations Director (OD) has set a criterion for selection of projects based on the IRR of the project. According to this criterion, projects having an IRR of more than 30% are to be