Chapter-11 - Capacity Planning and Control

Chapter 11 Capacity planning and control
Source: Arup
Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Capacity planning and control
Capacity planning and control The market requires the availability of products and services The operation supplies ... the capacity to deliver products and services
Operations strategy Operations management
Design
Improvement
Planning and control
Objective To provide an appropriate amount of capacity at any point in time The appropriateness of capacity planning in any part of the operation can be judged by its effect on Costs Revenue Working capital Service level
Source: British Airways London Eye
Objectives of capacity planning and control

Measure aggregate capacity and demand Identify the alternative capacity plans Choose the most appropriate capacity plan
Aggregated output
Forecast demand
Estimate of current capacity
Time
The nature of aggregate capacity

Aggregate capacity of a hotel: rooms per night ignores the numbers of guests in each room
Aggregate capacity of an aluminium producer: tonnes per month ignores types of alloy, gauge and batch variations
Causes of seasonality
Climatic
Festive
Behavioural
Political
Financial
Social
Source: Alamy/Medical-on-line
Construction materials Beverages (beer, cola) Foods (ice-cream, Christmas cake) Clothing (swimwear, shoes) Gardening items (seeds, fertilizer) Fireworks
Travel services Holidays Tax processing Doctors (influenza epidemic) Sports services Education services
Demand fluctuations in four operations
Good forecasts are essential for effective capacity planning

but so is an understanding of demand uncertainty, because it allows you to judge the risks to service level
Distribution of demand Only 5% chance of demand being higher than this
DEMAND
DEMAND
Only 5% chance of demand being lower than this TIME TIME
When demand uncertainty is high, the risks to service level of underprovision of capacity are high
Operating equipment effectiveness (OEE)

Loading time Not worked (unplanned) Set-up and changeovers Breakdown failure Equipment idling Slow-running equipment Quality losses Performance rate = p = net operating time/ total operating time Availability rate = a = total operating time/ loading time
Total operating time
Availability losses
Net operating time
Speed losses
Valuable operating time
Quality losses
Quality rate = q =valuable operating time/ net operating time
How capacity and demand are measured

Efficiency = Planned loss of 59 hours Avoidable loss 58 hours per week Actual output 51 hours per week Actual output Effective capacity
Design capacity
Effective capacity 168 hours per week 109 hours per week
Utilization=
Actual output Design capacity
Ways of reconciling capacity and demand
Demand Capacity
Demand Capacity
Demand Capacity
Level capacity
Chase demand
Demand management
Ways of reconciling capacity and demand How do you cope with fluctuations in demand?
Absorb demand
Level capacity
Adjust output to match demand

Chase demand
Change demand
Demand management
Absorb demand Have excess capacity
Keep output level
Source: Madam Tussauds
Make to stock Part finished Finished goods, or Customer inventory
Make customer wait Queues Backlogs
Adjust output to match demand
Hire Temporary labour Overtime Subcontract
Fire Lay-off Short time
Source: Corbis/Photocuisine
Third-party work
Change demand
Change pattern of demand Develop alternative products and/or services
Source: Empics
Moving a peak in demand can make capacity planning easier
Capacity planning and control as a dynamic sequence of decisions

Period t 1 Period t Current capacity Updated estimates forecasts Period t + 1 Current capacity Updated estimates forecasts Outcome Shortages Decision Queues How much Actual Inventory demand capacity and actual next capacity period?
Outcome Shortages Decision Queues Actual Inventory How much demand capacity and actual next capacity period?
Capacity level
Costs Revenues Working capital Customer satisfaction etc.
Costs Revenues Working capital Customer satisfaction etc.
Demand for manufacturing operations output

8000 7000 Forecast in aggregated units of output per month 6000 5000 4000 3000 2000 1000 0 J F M A M J J Months A S O N D
For capacity planning purposes, demand is best considered on a cumulative basis. This allows alternative capacity and output plans to be evaluated for feasibility
60 Forecast cumulative aggregated output (thousands) 50 40 30 20 10 0
40
80 120 160 Cumulative operating days
200
240
Cumulative representations
Cumulative demand Capacity and demand
Cumulative capacity Unable to meet orders
Building stock
Time
Simple queuing system
Distribution of arrival times

Rejecting
Distribution of processing times Balking Reneging
Server 1
Server 2 Source of customers Queue or waiting line Served customers
Boundary of system
Server m
Simple queuing system
Low variability narrow distribution of process times
Time High variability wide distribution of process times Time
Key Terms Test

Capacity The maximum level of value-added activity that an operation, or process, or facility, is capable of over a period of time. Aggregated planning and control A term used to indicate medium-term capacity planning that aggregates different products and services together in order to get a broad view of demand and capacity. Design capacity The capacity of a process or facility as it is designed to be; often greater than effective capacity.
Key Terms Test

Effective capacity The useful capacity of a process or operation after maintenance, changeover and other stoppages and loading have been accounted for. Utilization The ratio of the actual output from a process or facility to its design capacity. Overall equipment effectiveness (OEE) A method of judging the effectiveness of how operations equipment is used.
Key Terms Test

Level capacity plan An approach to medium-term capacity management that attempts to keep output from an operation or its capacity constant, irrespective of demand. Chase demand plan An approach to medium-term capacity management that attempts to adjust output and/or capacity to reflect fluctuations in demand. Demand management An approach to medium-term capacity management that attempts to change or influence demand to fit available capacity.
Key Terms Test

Hire and fire A (usually pejorative) term used in medium-term capacity management to indicate varying the size of the workforce through employment policy. Subcontracting When used in medium-term capacity management, a term that indicates the temporary use of other operations to perform some tasks, or even produce whole products or services, during times of high demand. Demand management An approach to medium-term capacity management that attempts to change or influence demand to fit available capacity.
Key Terms Test

Yield management A collection of methods that can be used to ensure that an operation (usually with a fixed capacity) maximizes its potential to generate profit. Queuing theory A mathematical approach that models random arrival and processing activities in order to predict the behaviour of queuing systems (also called waiting line theory).

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Chapter 11 Capacity planning and control

Capacity planning and control

Operations strategy Operations management

Planning and control

Objectives of capacity planning and control

Estimate of current capacity

The nature of aggregate capacity

Demand fluctuations in four operations

Good forecasts are essential for effective capacity planning

Only 5% chance of demand being lower than this TIME TIME

Operating equipment effectiveness (OEE)

Total operating time

Net operating time

Valuable operating time

Quality rate = q =valuable operating time/ net operating time

How capacity and demand are measured

Actual output Design capacity

Ways of reconciling capacity and demand

Adjust output to match demand

Absorb demand Have excess capacity

Keep output level

Source: Madam Tussauds

Make to stock Part finished Finished goods, or Customer inventory

Make customer wait Queues Backlogs

Adjust output to match demand

Hire Temporary labour Overtime Subcontract

Fire Lay-off Short time

Change pattern of demand Develop alternative products and/or services

Moving a peak in demand can make capacity planning easier

Capacity planning and control as a dynamic sequence of decisions

Costs Revenues Working capital Customer satisfaction etc.

Costs Revenues Working capital Customer satisfaction etc.

Demand for manufacturing operations output

80 120 160 Cumulative operating days

Cumulative demand Capacity and demand

Cumulative capacity Unable to meet orders

Simple queuing system

Distribution of arrival times

Distribution of processing times Balking Reneging

Server 2 Source of customers Queue or waiting line Served customers

Simple queuing system

Low variability narrow distribution of process times

Time High variability wide distribution of process times Time

Key Terms Test

Key Terms Test

Key Terms Test

Key Terms Test

Key Terms Test

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