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

Definition and Measures of Capacity Designed Capacity: Effective capacity or utilization: Rated Capacity: The maximum output of a system in a given period The maximum capacity that can be achieved under ideal conditions The percent of design capacity actually expected Maximum usable capacity of a particular facility RC = (Capacity)(Utilization)(Efficiency) POM - J. Galván 38

Utilization Measure of planned or actual capacity usage of a facility, work center, or machine Expected c apacity Utilizatio n = Capacity Planned ho urs to be used = Total hour s availabl e POM - J. Galván 40

Efficiency Measure of how well a facility or machine is performing when used Actual out put Efficiency = Effective capacity Actual out put in uni ts = Standard o utput in u nits Average ac tual time = Standard t ime POM - J. Galván 41

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 Implement Best Plan POM - J. Galván 42

WHY PLANNING CAPACITY? POM - J. Galván

TYPICAL QUESTIONS 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 5th runway is built? POM - J. Galván

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

Theory of Constraints Identify the system bottleneck(s) Exploit the bottleneck(s) Subordinate all other decisions to step 2 Elevate the bottleneck(s) Do not let inertia set in This slide presents the basic elements of the Theory of Constraints as listed in the text. POM - J. Galván 4-9 14

Capacity Bottlenecks To customers Inputs 1 2 3 200/hr 200/hr 50/hr This slide and the next are based on Figure 4.1. The Figure is shown in two sections to improve legibility. (a) Operation 2 a bottleneck POM - J. Galván 4-10 14

Capacity Bottlenecks To customers Inputs 1 2 3 200/hr 200/hr 200/hr (b) All operations bottlenecks POM - J. Galván 4-11 15

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

Economies & Diseconomies of Scale 250-bed hospital 750-bed hospital 500-bed hospital Average unit cost (dollars per patient) Economies of scale Diseconomies of scale Output rate (patients per week) POM - J. Galván 17

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

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

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

Systematic Approach to Capacity Decisions Estimate Capacity Requirements Identify Gaps Develop Alternatives Evaluate Alternatives POM - J. Galván

[Dp + (D/Q)s]product 1 + ... + [Dp + (D/Q)s]product n Capacity Decisions Estimate Capacity Requirements Example 4.1 Item Client X Client Y Annual demand forecast (copies) (D) 2000.00 6000.00 Standard processing time (hour/copy)(p) 0.50 0.70 Average lot size (copies per report)(Q) 20.00 30.00 Standard setup time (hours)(s) 0.25 0.40 Using the copy center example (Example4.1), this is the basic information. [Dp + (D/Q)s]product 1 + ... + [Dp + (D/Q)s]product n N[1 – (C/100)] M = POM - J. Galván 4-18 31

(250 days/year)(1 shift/day)(8 hours/shift)(1.0 – 15/100) Capacity Decisions Estimate Capacity Requirements Example 4.1 Item Client X Client Y Annual demand forecast (copies) 2000.00 6000.00 Standard processing time (hour/copy) 0.50 0.70 Average lot size (copies per report) 20.00 30.00 Standard setup time (hours) 0.25 0.40 We substitute in the basic information.. [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) M = Used capacity: 85% POM - J. Galván 4-19 33

Capacity Decisions Estimate Capacity Requirements Example 4.1 Item Client X Client Y Annual demand forecast (copies) 2000.00 6000.00 Standard processing time (hour/copy) 0.50 0.70 Average lot size (copies per report) 20.00 30.00 Standard setup time (hours) 0.25 0.40 The equation is solved and the number of machines is known. Notice the rounding up, necessary to actually meet the capacity requirements. 5305 1700 M = = 3.12  4 machines POM - J. Galván 4-20 35

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

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

Capacity Decisions Simulation Figure 6.5(a) The first slide shows the operational backlog over the three days of the simulation. POM - J. Galván 51

Capacity Decisions Simulation 4-24 Figure 4.8 The final slide shows the utilization at the violations subprocess, the station with the biggest backlogs. POM - J. Galván 4-24 51

Managing Existing Capacity Demand Management Capacity Management Vary prices Vary promotion Change lead times (e.g., backorders) Offer complementary products Vary staffing Change equipment & processes Change methods Redesign the product for faster processing POM - J. Galván 43

Complementary Products Sales (Units) 5,000 Total 4,000 Heavy clothes 3,000 2,000 1,000 Light clothes J M M J S N J M M J S N J Time (Months) POM - J. Galván 44

Matching Capacity to Demand Demand Management vary prices change lead times encourage/discourage business Capacity Management adjust staffing adjust equipment and processes change methods to facilitate production redesign the product to facilitate production POM - J. Galván 45