An Analysis of Capacity planning of Wasana Bakers PVT

Ltd

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Abstract

The operational management is a key to business as it is a fundamental flat form to any

business activity. Operation management is a very broad subject. The group assignment has
been focused on a specific function of operational management which is capacity planning.
The capacity planning of Wasana Bakers is taken as the main source of analyzing.

Wasana Bakers which was founded in 1995, with a basic capital of Rs.3000 by
Mr.B.Dayananda. Initially the products of Buns, cup cake & Bread were produced, but
overtime the company started to produce various products that can produce within the
company related to the bakery industry. With the expansion of their business premises &
recourses their production capacity expanded day by day. As it made big profit on the
company cake became the main product in the company. Wasana is offering cake as an
ordinary product for every customer in the country with the transparency of good nutrition.
Hence Wasana is the pioneer in Sri Lanka’s cake industry. By expanding further its products
Wasana is producing butter cake, chocolate cake, fruit cake, wedding cake, icing cake, bread,
bun, bytes within its manufacturing workstation.

Though Wasana is producing many bakery related products we have chosen one specific
product in order to narrow down our subject area and analyze it deeply. We selected Butter
cake that Wasana considers as the most demanded product by customers among their
products. Butter cake is produced is mass production way as it is the most selling product.

The production capacity planning at these butter cakes are done in accordance with the orders
placed by the customers and their agents in their outlets in island wide. All the needed input
capacity is also planned based on their designed capacity of daily production.

Wasana bakers is using capacity lag strategy add the capacity on the demand of the
production. As the demand for butter cakes is higher than the amount produced by the
company the company is facing a negative capacity cushion. And use of more labour
technique processes instead capital intensive methods Wasana is unable to full fill the daily
demand of all its customers. We found those major issues within the company as weaknesses
and we recommended some strategies that they can use to enhance the efficiency and
effectiveness of capacity planning according to our knowledge.

Among those recommendations using average capacity strategy in adding capacity and use of
machinery to enhance the productivity are outstanding.

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Acknowledgement

We take this opportunity to express our profound gratitude and deep regards to our guide our
Lecturer for this exemplary guidance, monitoring and constant encouragement throughout the
course of this thesis. The blessing, help and guidance given by him time to time shall carry us
a long way in the journey of life on which we are about to embark.

We also take this opportunity to express a deep sense of gratitude to Wasana Baker’s Director
and staff for her cordial support, valuable information and guidance, which helped us in
completing this task through various stages.

We are obliged to staff members of Wasana Bakery, for the valuable information provided by
them in their respective field. We are grateful for their cooperation during the period of our
assignment.

Lastly, we would like to thank almighty, our team members for their constant encouragement
without which this assignment would not be possible.

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Table of Contents
1. Introduction ................................................................................................ 1

1.1. Content Of The Report .............................................................................. 1

1.2. Wasana Bakers In Sri Lanka ..................................................................... 1

2. Company Background And Function Of Capacity Planning In Wasana

Bakers ........................................................................................................ 1

2.1. Company Background Of Wasana Bakers................................................. 1

2.2. Capacity Planning In Wasana Bakers ........................................................ 2

2.2.1. Daily Input Need For Butter Cake Production. ............................. 2

3. Literature. ................................................................................................... 3

3.1. What Is Capacity Planning? ...................................................................... 3

3.2. Measuring Capacity .................................................................................. 3

3.3. Definition Of Capacity .............................................................................. 4

3.4. Measure Of System Effectiveness ............................................................. 4

3.5. Important Capacity Planning Concepts. .................................................... 4

3.5.1. Best Operating Level. ................................................................... 4

3.5.2. Economies Of Scale. ..................................................................... 5

3.5.3. Capacity Focus. ............................................................................ 5

3.5.4. Capacity Flexibility....................................................................... 5

3.6. Considerations In Adding Capacity. .......................................................... 5

3.7. Capacity Cushion. ..................................................................................... 5

3.8. Adjusting Capacity To Meet Demand ....................................................... 6

4. Detailed Analysis Of The Capacity Planning In Wasana Bakers. ............... 6

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4.1. Measuring Capacity. ................................................................................. 6

4.2. Design Capacity, Effective Capacity & Actual Output Of Butter Cake
Production In Wasana Bakers. .................................................................. 6

4.3. Measure Of System Effectiveness. ............................................................ 6

4.4. Capacity Planning Concepts In Wasana Bakers Butter Cake Production. .. 7

4.5. Capacity Flexibility. .................................................................................. 7

4.6. Consideration In Adding Capacity. ........................................................... 8

4.7. Capacity Cushion In Wasana Bakers Butter Cake Production ................... 9

5. Strengths and weaknesses of the capacity planning in Wasana bakers ...... 10

6. Recommendation for improvement .......................................................... 10

7. Conclusion ............................................................................................... 11

8. References ................................................................................................ 11

9. Group members .......................................... Error! Bookmark not defined.

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1. Introduction

1.1. Content Of The Report

The project is based on capacity planning of Wasana Bakers Pvt.Ltd. The capacity planning
has analyzed based on Butter Cake production within the organization. All the information is
based on the information provided to us in the field visit to Wasana Bakers.

1.2. Wasana Bakers In Sri Lanka

The company was founded in 1995 by Mr. B.Dayananda, with a starting capital of rs.3000 as
a sole proprietorship company with few bakery products for his own survival. In 2002 it was
expanded its business activities producing various kinds of bakery products while producing
cake as the main product. Since Wasana has become the market leader in cake manufacturing
industry it has been recognized as a fast developing company in Sri Lanka

2. Company Background And Function Of Capacity Planning In Wasana

Bakers

2.1. Company Background Of Wasana Bakers.

Wasana Bakers which is located in Horana was found in 1995 by Mr.B.Dayananda as a self
employment. The company was started with the basic capital of Rs 3000 and a one kiln. At
the stage of infant its products were limited to bread and cup buns. In 2002 the company
expanded its business activities creating a vast change in the cake industry. By now it has
given many employment opportunities to around 400 employees in two main factories.
Though the company is a medium scale company and earns a huge profit from its production
per a day. It is conducting its main business activities using more labor intensive techniques as
to enhance the quality of products to satisfy its customers in the best way and through that
objective to be the market leader in the bakery industry for a foreseeable future.

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2.2. Capacity Planning In Wasana Bakers

Capacity planning is an important operation activity within an organization. As it directly

affect the other function of an organization. Every organization gives its priority to plan the
capacity. Planning of capacity gives an idea about the demand of the product. That mean it
gives the idea about the buying behavior of customers towards the product, whether the
customers tend to buy more from the product or whether they tend to switch off from the
product.
For a company like Wasana that is engaged in bakery products manufacturing industry
capacity planning is highly important. As Wasana is not using preservatives for its products
daily capacity planning has become a major activity within the company.
Capacity planning highly involve in saving cost as poor capacity planning waste the money as
well as other resources. So a company should mannerly plan its capacity on what kind of
capacity is needed? How much &needed & when it is needed?
In Wasana bakers the production capacity is designed based on the orders placed by the
customers. Output is mainly based on the customer orders and the orders of agents in island
wide.
The input capacity is planned according to the output produced. Raw materials needed for the
production are also planned based on this requirement. Input needed for the production is
calculated by the production manager and it is passed to the necessary sections to buy those
planned capacity amounts.

2.2.1. Daily Input Need For Butter Cake Production.

Planned output capacity =15000kg

Planned input capacity related to the planned output is as follows.

capacity
Planned input
3750 kg
Egg
3750 kg
Flour
3750 kg
Margarine
3750 kg
Sugar
200kg
Baking powder

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 Input capacity planning to meet daily output capacity

3. Literature.

3.1. What Is Capacity Planning?

Capacity planning is the process of determining the production capacity needed by an

organization to meet changing demands for its products. The basic questions that should be
cover up when planning capacity are what kind of capacity is needed? How much is needed
and when it is needed?

3.2. Measuring Capacity.

Way of measuring capacity is mainly on the input and output (capacity measures) of the
production. It is differed from one business to another based on the products that the relevant
company produces. Measuring capacity can be done in various mannars.

E.g.:
➢ An upper limit on the rate of input

➢ Rupee amount
➢ Output in terms of each product
➢ Availability of inputs

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3.3. Definition Of Capacity

1. Design capacity

The maximum output achieved under ideal conditions.

2. Effective capacity

The maximum possible output given a product mix, scheduling difficulties, machine
maintenance, quality factors so on. Effective capacity is usually less than design capacity.

3. Actual output

The rate of output actually achieved. It cannot exceed effective capacity and often less than
effective capacity, due to breakdowns, defective output, shortage of material and similar
factors.

3.4. Measure of System Effectiveness

To measure the effectiveness of the prevailing system various rates are used in capacity
planning.

Utilization (peak) = Actual output

Design capacity

Utilization (effective) = Actual output

Effective capacity

3.5. Important Capacity Planning Concepts.

These are the concepts used to plan the input capacity. There are 04 input capacity planning
concept.

3.5.1. Best Operating Level.

This is the output level where the average cost need minimum.
The measure of capacity utilization rate reveals how close a firm is to its design capacity (i.e.
best operating level)
Capacity utilization rate = Capacity use / Design capacity

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3.5.2. Economies Of Scale.

Economies of scale are the advantageous of operating large scale. Due to economies of scale
the cost per unit falls as output increases.

3.5.3. Capacity Focus.

A firm should not expect to excel in every aspect of manufacturing performance; cost, quality,
flexibility, reliability .Rather it should select a limited set of tasks that contribute the most of
appropriate objectives.

3.5.4. Capacity Flexibility.

Capacity flexibility means having the ability to rapidly increase or decrease the production
level or shift production capacity quickly from one product or service to another. Such
flexibility is achieved through flexible plants, processes and workers as well as through
strategies that use the capacity of other organizations.

3.6. Considerations In Adding Capacity.

There are three important issues that are considering when adding capacity.

1. Maintaining a system balance.

Output of one stage is the exact input requirements of the next stage.
2. Frequency of capacity addition.
Two types of cost are considered when adding capacity. The cost of upgrading capacity too
frequently and that of upgrading too infrequently. By considering those costs 3 types of
strategies can be used.
1. Capacity lead strategy.
2. Capacity lag strategy.
3. Average capacity strategy.

3.7. Capacity Cushion.

A capacity cushion is an amount in excess of expected demand. When a firm’s design

capacity is less than the capacity required to meet, it is said to have a negative capacity
cushion.

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3.8. Adjusting Capacity To Meet Demand.
This describes the ways that a firm can follow to modify the capacity in short run and long run
strategies that can use.

4. Detailed Analysis Of The Capacity Planning In Wasana Bakers.

In this section the capacity planning of the Wasana Bakers is of the critically analyzed &
strengths & weakness at the capacity planning are identified through observations.

4.1. Measuring Capacity.

In Wasana Bakers, capacity is measured on output in terms of each product. In cake

manufacturing capacity is measured in Kilo grams produced within a day. Their average
capacity of butter cakes per day is 15000kg.

4.2. Design Capacity, Effective Capacity & Actual Output Of Butter Cake
Production In Wasana Bakers.

Statistical information is based on daily basis. The capacities mentioned Butter cake during
the week started from 20/10/2014 – 26/10/2014

Date 20/10/2014 20/10/2014 20/10/2014 20/10/2014 20/10/2014 20/10/2014 20/10/2014

Designed
18000 17000 16000 18000 16000 15500 15000
capacity
Effective
17500 17000 10000 16500 16000 15000 19000
capacity
Actual
15500 15000 14900 15200 15000 14000 14500
capacity

4.3. Measure Of System Effectiveness.

Date 20/10/2014 21/10/2014 22/10/2014 23/10/2014 24/10/2014 25/10/2014 26/10/2014

Utilization 0.88 0.88 1.49 0.9212 0.5375 0.933 1.035

effectiveness
Utilization o.86 0.88 0.93 0.844 0.9375 0.903 0.966
peak

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4.4. Capacity Planning Concepts In Wasana Bakers Butter Cake
Production.

1. Manufacturing the products in best operating level

Wasana Bakers is manufacturing 1 kilo of butter cake at minimum possible cost.

Cost

AC

Best operating level

260

15000 No of kilos

2. Economies of scale.
Wasana Baker is getting its maximum possible economy of scale as it is engaging in mass
production of Butter cakes. Some of reasons for having economies of scale can be started as
follows.
• Discounts on row materials when buying in larger quantities.
E.g. Wasana is buying Margarine necessary for the production at the lowest price that
margarine can be sold in Sri Lanka.

• Clever management.
• Specification

4.5. Capacity Flexibility.

Wasana is having highly flexible workers and machines. A worker who works in Wasana
Baker can do any task & in the same way a cake manufacturing machine can use to produce
various favorable cakes (plant flexibility & employee flexibility).

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Flexible macines and workers in wasana bakers(photoes taken during the field visit.

On the other hand experience workers are available in a huge amount in Wasana bakers
adding a value to their products. So Wasana is facing an experience curve within their
production factories.

Experience curve faced by Wasana bakers

Cost

0 1995 2014 Time

4.6. Consideration In Adding Capacity.

Wasana bakers Is having a system balance system

Wasana Baker is using “capacity lag strategy” to add capacity based on real data. Owing to
that their demand is always higher than the supplied capacity.

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 Design capacity

Demand curve

supply

Week1 week2 Time

4.7. Capacity Cushion In Wasana Bakers Butter Cake Production

Wasana bakers are facing a negative capacity cushion as its daily production is under the
demand level of the customers. Here are some stastics that we gather during our field visit.

Date Demand Capacity Capacity cushion

10/20/2014 19000 15500 -0.184210526
10/21/2014 17000 15000 -0.117647059
10/22/2014 16000 14900 -0.06875
10/23/2014 18000 15200 -0.155555556
10/24/2014 16000 15000 -0.0625
10/25/2014 15500 14000 -0.096774194
10/26/2014 15000 14500 -0.033333333

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5. Strengths and weaknesses of the capacity planning in Wasana bakers

Strengths Weaknesses

• Flexible employees and • Improper planning in forecasted demand

equipment. • Having negative capacity cushion
• Economic of scale. • Labor intensive
• Raw material quality • Improper location of the factories.(Two
• Effective utilization of employees separate factories for producing the same
• Proper inventory control. product)
• Employee loyalty to fulfill the • Use of old technology (use of wood items
needed demand. instead ovens)
• Engage in CSR activity. • Lack of resources to fulfill excess
demand.(Lack of plant, machinery and
labor)

6. Recommendation for improvement

Wasana bakers being the no on cake manufacturing company in sri lanka. Quality and
customer satisfaction are key factors of their production. The recommendation is based on
observation in the field work and employee interviews which ultimately resulted as weakness.

Recommendation 01 - Use Of Capital Intensive Method Instead Labor Intensive

Eliminating The Negative Capacity Cushion.

Wasana Bakers is facing a negative capacity cushion. So it fails to meet its customer
requirements. Wasana Bakers is using labor intensive process for each task. So its efficiency
is lower.

To eliminate this they can use more machinery as labor effectiveness is rather less than the
machinery capacity. If so they will be able to maximize their capacity than the prevailing
manufacturing capacity level.

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Recommendation 02 - Use of An Alternative Capacity Planning Strategy.

Wasana Bakers is using “capacity lag strategy” to plan its capacity. So they are unable to meet
and cover-up the excess demand. We recommend “average capacity strategy” to capacity
planning as we got to know that their capacity is not enough in some seasonal times (new
year, festival seasons) to fill the 2/5of customer requirements.

Recommendation 03 - Division of labor.

As there are flexible workers in Wasana Bakers, they are used to carry out the whole process
of manufacturing the Butter cake. Sometimes a worker has to move from one place to another
to change the process. As it is time consuming we recommend the division of labor to
overcome this and to make the production more efficiently.

Recommendation 04 - Use Of A Good Internal System.

In Wasana Bakers most things are not record properly. Most are done on manual basis and
documentation is not in proper manner. So its forecasting demand is not accurate and to
overcome that we recommend establishing a good internal system within the organization.

• Documentation of the capacity records in a proper manner

• Use of a good forecasting measures to estimate the demand
• Analyzing the daily demand vs. the capacity of production
• Calculation and recording the efficiency and the effective utilization of capacity using
to meet customer needs.

7. Conclusion

This project we have undertaken is the capacity planning of the particular product of Wasana
bakers. We critically analyzed the capacity planning the manufacturing of butter cake process.
The strengths and weakness were portrayed and we have recommended strategies to improve
their capacity planning. As a whole we have recommended average capacity strategy to
Wasana bakers in adding capacity for the market.

8. References

Websites

Wasana baker’s official website: http://www.wasanabakers.lk/

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www.google.com

Books

Operation management manual

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