Capacity is defined as the maximum output that can be produced over a period of time. Firms make capacity decisions related to carrying out the production of goods and services. Firms make capacity planning decisions that are long range, medium range and short range. These decisions follow naturally from supply chain decisions that already have been made. Capacity decisions must be aligned with the operations strategy of a firm and are based on forecasted estimates of future demands.

Use the Capacity Requirements multiple formula and Gap Analysis to solve the following problem:

Flyers are a producer of kites and wind socks. Data on the operation in the shop for the upcoming fiscal year are given in the following table:

The shop works two shifts per day, 8 hours per shift, 200 days per year.

Currently the company operates four machines, and desires a 25 percent capacity cushion.

1. What is the total capacity requirements for machines (rounded)?

2. How many machines should be purchased to meet the upcoming year?s demand without resorting to any short-term capacity solutions (capacity gap)?

Item Demand forecast Lot size Standard processing time Standard setup time Kites 30,000 units/year 20 units 0.3 hours/unit 3.0 hours/lot Wind Socks 12,000 units/year 70 units 1.0 hour/unit 4.0 hours/lot