Operations management Session 4 More on Capacity Management

Operations management Session 4: More on Capacity Management

More on Capacity Management w So far, we analyzed a process given the capacity. w Question: How much capacity do we need to meet demand? Session 4 Operations Management 2

Capacity Requirement Example w Kristen expects higher demand would like to produce 26 dozen cookie (in one-dozen order sizes) a night. w How many ovens and mixers does Kristen need? w What are the utilization rates of Kristen and her roommate? Session 4 Operations Management 3

Capacity Requirement Example w Total throughput rate = 26 dozen/night = 6. 5 dozen/hour Capacity of an oven = 6 dozen/hour Capacity of a mixer = 10 dozen/hour w Need two ovens and one mixer Session 4 Operations Management 4

Capacity Requirement Example w Utilization rate of Kristen = 26*8/240 = 86. 7% w Utilization rate of Roommate = 26*4/240 = 43. 3% w What if Kristen would like to produce 36 dozen cookie (in one dozen order) a night? Is this possible? n Session 4 Yes, by cross-training (both Kristen and her roommate) Operations Management 5

Flexibility & Capacity w What is the capacity of Kristen and Roommate if they were cross-trained (to do the other person’s asks in addition to their own)? w Time taken person per dozen cookies= (8+4)/2=6 min/dozen w 240/6=40 dozen/night w Flexible equipment and cross-training enable a higher utilization rate. Session 4 Operations Management 6

Utilization Rate & Flexibility w Flexible equipment: equipment that can produce several different products efficiently. w In the past, car manufacturers generally produced only one car type in a factory. w Today that is not good enough Session 4 Operations Management 7

Utilization Rate & Flexibility w For decades, mainstream models such as the Ford Taurus sold in such large volumes they could keep a plant or two running at full capacity for years. w Not only was the plant limited, but so was its costly equipment, much of which had to be scrapped when the model was dropped. Session 4 Operations Management 8

Variety and Customization w Growth of variety n Number of automobile lines sold in U. S. : l l n 1971: 41 1992: 65 Total sales per model l l 1950 Chevy Impala: 1. 5 M 1990 Honda Accord: 0. 5 M w To be competitive, one needs to offer consumers many choices. This means the assembly line must be re-thought to allow for different car models. Session 4 Operations Management 9

What Are the Advantages and Disadvantages of Flexibility w Advantages: w Disadvantages: Session 4 Operations Management 10

What Are the Advantages and Disadvantages of Flexibility w Advantages: n Increasing utilization rates l GM originally produced 4 small cars in 4 facilities l It is possible to produce this number in one flexible facility n Equipment lasts longer n Better equipped to meet changing demands w Disadvantages: n Learning curve n Training Session 4 Operations Management 11

Flexibility of Car Manufacturers Session 4 Operations Management 12

Capacity Requirement Example w Kristen did a detailed market study and would like to have a capacity of 26 dozen cookies (in onedozen order sizes) on Monday, Tuesday, Wednesday, Thursday nights, and a capacity of 16 dozen on Friday, Saturday and Sunday nights. w How many ovens and mixers does Kristen need? Session 4 Operations Management 13

Capacity Requirement Example w Maximum throughput rate = 26 dozen/night = 6. 5 dozen/hour Capacity of an oven = 6 dozen/hour Capacity of a mixer = 10 dozen/hour w Two ovens and one mixer Session 4 Operations Management 14

Utilization Rate w What is the utilization rate of the oven on Friday night? n Throughput rate = 16 dozen/night = 4 dozen/hour n Capacity of an oven = 6 dozen/hour w Utilization Rate= Session 4 Operations Management 15

Capacity Requirement Example w Mattel’s demand for dolls is: n 5, 000 dolls in November n 5, 000 dolls in December n 200, 000 every other month. w Each Mattel’s plant is capable of producing 500, 000 dolls per month, how many plants should Mattel build? w Does Mattel have other alternatives? Session 4 Operations Management 16

Capacity Requirement Example Solution w The demand for dolls is: n 5, 000 dolls in November n 5, 000 dolls in December n 200, 000 every other month. w Each Mattel’s plant is capable of producing 500, 000 dolls per month, how many plants should Mattel build? n Max demand/ month=5, 000 per month n If no inventory is held, need 5, 000/500, 000 plants=10 plants n 100% utilization in Nov, Dec n Only 4% utilization in other months Jan-Oct Session 4 Operations Management 17

Alternatives w Does Mattel have other alternatives? n Building inventory l l n Session 4 What are the advantages? What are the disadvantages? No. of Plants= Utilization per year= Outsourcing Operations Management 18

Alternatives Solution w Does Mattel have other alternatives? n Building inventory l l l n Session 4 What are the advantages? What are the disadvantages? Total Demand per year=12 million Total Plant capacity per year=6 million/plant No. of Plants=12/6 = 2 plants Utilization per year= 12 million/(2*6 million) = 1= 100% Outsourcing Operations Management 19

What did we learn in this class? w Capacity planning n Capacity requirement calculation n Flexibility/variety n Impact of randomness/variability n Smooth production/inventory Session 4 Operations Management 20

Reminder w Wednesday, 1/29 n HW #1 due n Team name due n Solver installed on your laptop w Monday, 2/2 Quiz #1 w Wednesday 2/4 Timeshare Exchange Fair Case due w Monday 2/9 HW #2 due w Wednesday 2/11 Mid Term and Little Field code due