Capacity Management

Trade offs The Fresh Connection is full of trade offs Over multiple roles and within roles Sometimes conflicting with role incentives Capacity management Volatility manaagment Capacity mgt Demand mgt Supplier mgt Inventory mgt

Production Strategies Four basic production strategies: Chase (demand matching) Level Subcontracting Hybrid (combination) © 2009 APICS CONFIDENTIAL AND PROPRIETARY 3

© 2009 APICS CONFIDENTIAL AND PROPRIETARY Chase Strategy © 2009 APICS CONFIDENTIAL AND PROPRIETARY 4

© 2009 APICS CONFIDENTIAL AND PROPRIETARY Chase Strategy Advantages: Stable inventory Varied production to meet sales requirements Disadvantages: Costs of hiring, training, overtime, and extra shifts Costs of layoffs and impact on employee morale Possible unavailability of needed work skills Capacity must match maximum demand © 2009 APICS CONFIDENTIAL AND PROPRIETARY 5

Level Strategy © 2009 APICS CONFIDENTIAL AND PROPRIETARY Source: Arnold et al., Introduction to Materials Management, 6th ed. Reprinted by Permission of Pearson Education © 2009 APICS CONFIDENTIAL AND PROPRIETARY 6

© 2009 APICS CONFIDENTIAL AND PROPRIETARY Level Strategy Advantages: Avoids labor and capacity costs of demand matching Avoids changeover costs and lowers the average production cost per item Disadvantages: Buildup of inventory Requires a very accurate forecast © 2009 APICS CONFIDENTIAL AND PROPRIETARY 7

Meet demand by subcontracting Advantages: No excess capacity Level production Disadvantages: Costs of subcontracting Proprietary production technology © 2009 APICS CONFIDENTIAL AND PROPRIETARY 8

Hybrid Strategy © 2009 APICS CONFIDENTIAL AND PROPRIETARY Source: Arnold et al., Introduction to Materials Management, 6th ed. Reprinted by Permission of Pearson Education © 2009 APICS CONFIDENTIAL AND PROPRIETARY 9

Hybrid Strategy: Characteristics Produces at or close to full capacity for part of the cycle Produces at a lower rate during the other part of the cycle Production is level in both parts of the cycle Inventory and workforce adjustment costs are lower than in the chase strategy Requires an accurate forecast as in the level strategy © 2009 APICS CONFIDENTIAL AND PROPRIETARY 10

Capacity management in TFC Subcontracting in not an option TFC Levelling of capacity is impossible for a fresh product Two choices by varying the frozen period Chasing Hybrid Explore TFC What is the % runtime, breakdowntime, changeover time and unused for the filling line? How can you influence breakdown and change over time?

Capacity Planning Issues in the game Components Finished product Supply Production Distribution Palletlocations FTE Palletlocations FTE Shifts Improvements Explore TFC What is the utilization rate per resource? What is the overtime/overflow per resource? What can you conclude from this?

Capacity in time Resulting in Overtime Overflow Idle time Capacity required Overtime Overflow Idle time Unused capacity Time Resulting in Overtime/Overflow% Utilization rate What is the optimal utilization rate?

Volatility of capacity required is important Costs High volatility capacity required Average volatility capacity required Low volatility capacity required 70% 80% 90% Utilization rate How can you influence the volatility of capacity required? Inbound warehousing Production Outbound warehousing

Capacity volatility reduction Raw materials warehouse Small batches for high volume products (orange) Steady flow of incoming goods Decrease demand volatility caused by production (Increase intake time)

Capacity volatility reduction Production Short fixed period (bullwhip effect) Decrease volatility caused by customer demand Short production intervals

Capacity volatility reduction Finished goods warehouse Early order deadlines Pallet shipments Decrease customer demand volatility Stable production rate

Utilization finished goods warehouse

Influence of overtime in TFC Overtime in production and warehousing will influence your costs. What is the other important effect of overtime?

Production reliability in the game Terms of delivery Overtime% bottling lines Availability components Fixed period Component stock

Overtime % bottling lines in the game # shifts per bottling line Overtime % bottling lines Improve-ment projects Past shelf life Bottling line Raw materials inspection Decrease peaks