PRODUCTION AND OPERATIONS MANAGEMENT Ch 8 Capacity Planning

PRODUCTION AND OPERATIONS MANAGEMENT Ch. 8: Capacity Planning POM - J. Galván 1

Definition and Measures of Capacity: The maximum output of a system in a given period Designed Capacity: The maximum capacity that can be achieved under ideal conditions Effective capacity The percent of design capacity actually expected or utilization: Rated Capacity: Maximum usable capacity of a particular facility RC = (Capacity)(Utilization)(Efficiency) POM - J. Galván 2

Utilization n Measure of planned or actual capacity usage of a facility, work center, or machine Expected capacity Utilization = Capacity Planned hours to be used = Total hours available POM - J. Galván 3

Efficiency n Measure of how well a facility or machine is performing when used Actual output Efficiency = Effective capacity Actual output in units = Standard output in units Average actual time = Standard time POM - J. Galván 4

Capacity Planning Process Forecast Demand Develop Alternative Plans Quantitative Factors (e. g. , Cost) Compute Rated Capacity Evaluate Capacity Plans Qualitative Factors (e. g. , Skills) Compute Needed Capacity Select Best Capacity Plan POM - J. Galván Implement Best Plan 5

WHY PLANNING CAPACITY? POM - J. Galván 6

TYPICAL QUESTIONS n n n n How many machines should be purchased? How many workers should be hired? Consequences of a 20% increase in demand? How many counters should be opened to maintain customer wait below 10 minutes? How many assembly stations are needed to maintain backorders below 20? How often will all 6 operating rooms be full? How will congestion at Logan change if a 5 th runway is built? POM - J. Galván 7

CAPACITY ALTERNATIVES Long Range Planning Intermediate Range Planning Short Range Planning *Limited options exist Add Facilities * Add long lead time equipment Subcontract Add Equipment Add Shifts Add Personnel Build or Use Inventory Schedule Jobs Schedule Personnel Allocate Machinery. Use * Modify Capacity POM - J. Galván Capacity 8

Theory of Constraints 1. Identify the system bottleneck(s) 2. Exploit the bottleneck(s) 3. Subordinate all other decisions to step 2 4. Elevate the bottleneck(s) 5. Do not let inertia set in POM - J. Galván 9 4 -9

Capacity Bottlenecks Inputs 1 2 3 200/hr 50/hr 200/hr To customers (a) Operation 2 a bottleneck POM - J. Galván 10 4 -10

Capacity Bottlenecks Inputs 1 2 3 200/hr To customers (b) All operations bottlenecks POM - J. Galván 11 4 -11

Capacity Cushion n Reserve capacity used to deal with sudden increases in demand n n (100% - Average Utilization %) Primary Disadvantage n unused capacity costs money POM - J. Galván 12

Average unit cost (dollars per patient) Economies & Diseconomies of Scale 250 -bed hospital 500 -bed hospital Economies of scale 750 -bed hospital Diseconomies of scale Output rate (patients per week) POM - J. Galván 13

Capacity Strategy n Planned Capacity n Expected Demand Time n POM - J. Galván Expansionist Strategy Looking to capture strong economies of scale Positive learning 14

Capacity Strategy n Planned Capacity n Build-to-Forecast Strategy Trying to match capacity and demand Expected Demand Time POM - J. Galván 15

Capacity Strategy n Capacity Expected Demand n The Maximize Utilization Strategy Maintains little or no capacity cushion Planned Capacity Time POM - J. Galván 16

Systematic Approach to Capacity Decisions 1. Estimate Capacity Requirements 2. Identify Gaps 3. Develop Alternatives 4. Evaluate Alternatives POM - J. Galván 17

Capacity Decisions Estimate Capacity Requirements Example 4. 1 Item Client X Client Y Annual demand forecast (copies) (D) 2000. 00 Standard processing time (hour/copy)(p) 0. 50 Average lot size (copies per report)(Q) 20. 00 Standard setup time (hours)(s) 0. 25 6000. 00 0. 70 30. 00 0. 40 M= [Dp + (D/Q)s]product 1 +. . . + [Dp + (D/Q)s]product n N[1 – (C/100)] POM - J. Galván 18 4 -18

Capacity Decisions Estimate Capacity Requirements Example 4. 1 Item Client X Client Y Annual demand forecast (copies) 2000. 00 Standard processing time (hour/copy) 0. 50 Average lot size (copies per report) 20. 00 Standard setup time (hours) 0. 25 6000. 00 0. 70 30. 00 0. 40 M= [2000(0. 5) + (2000/20)(0. 25)]client X + [6000(0. 7) + (6000/30)(0. 4)]client Y (250 days/year)(1 shift/day)(8 hours/shift)(1. 0 – 15/100) Used capacity: 85% POM - J. Galván 19 4 -19

Capacity Decisions Estimate Capacity Requirements Example 4. 1 Item Client X Client Y Annual demand forecast (copies) 2000. 00 Standard processing time (hour/copy) 0. 50 Average lot size (copies per report) 20. 00 Standard setup time (hours) 0. 25 6000. 00 0. 70 30. 00 0. 40 5305 M= = 3. 12 4 machines 1700 POM - J. Galván 20 4 -20

Waiting-Line Models n Often used in Capacity Planning • Balances customer service & the cost of extra capacity n Use probability distributions to estimate: n Avg. Customer Delay n Avg. Length of Waiting Lines n Work Center Utilization POM - J. Galván 21

Simulation n A tool that helps identify: • Process Bottlenecks • Capacity Cushions n More effective for complex waiting-line problems POM - J. Galván 22

Capacity Decisions Simulation Figure 6. 5(a) POM - J. Galván 23

Capacity Decisions Simulation Figure 4. 8 POM - J. Galván 24 4 -24

Managing Existing Capacity Demand Management Capacity Management ¨ Vary prices n ¨ Vary promotion n ¨ Change lead times (e. g. , backorders) n ¨ Offer complementary products n Vary staffing Change equipment & processes Change methods Redesign the product for faster processing POM - J. Galván 25

Complementary Products Sales (Units) 5, 000 4, 000 3, 000 2, 000 1, 000 0 Total Heavy clothes Light clothes J M M J S N J Time (Months) POM - J. Galván 26

Matching Capacity to Demand n Demand Management vary prices • change lead times • encourage/discourage business • n Capacity Management adjust staffing • adjust equipment and processes • change methods to facilitate production • redesign the product to facilitate production • POM - J. Galván 27