Operations Fall 2015 Bruce Duggan Providence University College

Summary strategic capacity planning: investing to match resources capabilities to long-term demand forecast factors to consider: the likely effects of economies of scale the effects of learning curves o how to analyze them the impact of changing facility focus and balance among production stages the degree of flexibility of facilities and the workforce

Operations and SCM in Practice Shouldice Hospital o hernia surgery innovation o Thornhill, Ontario patients stay at hospital for 3 days 7,000 operations annually 90 beds 5 operating rooms patient recovery room laboratory 6 examination rooms

Learning Objectives Evaluate the concept of capacity and how important it is to manage capacity over time. Evaluate the impact of economies of scale on the capacity of a firm. Evaluate what a learning curve is and how to analyze one. Design a multiperiod capacity plan. Know the differences in planning capacity between manufacturing firms and service firms.

Capacity Utilization Capacity utilization rate Measures how close a firm is to its best operating level. Best operating level The level of capacity for which the process was designed and the volume of output at which average unit cost is minimized

Best Operating Level 4-5 average unit cost of output volume overutilizationunderutilization Best Operating Level

Economies and Diseconomies of Scale Economies of Scale: as an plant (an operation) gets larger, and volume increases, the average cost per unit of output drops. Diseconomies of Scale: a situation where the size of the plant becomes too large

Economies & Diseconomies of Scale average unit cost of output volume 100-unit plant 200-unit plant 300-unit plant 400-unit plant diseconomies of scale start working economies of scale working

Capacity Focus Capacity focus can be operationalized through the plants-within-plants (PWP) concept, where a plant has several sub-organizations specialized for different products. This permits finding the best operating level for each sub-organization. 4-8

Capacity Flexibility Capacity flexibility means having the ability to rapidly increase or decrease production levels from one product to another. flexible plants flexible processes flexible workers 4-9

The Learning Curve Learning curve is a line displaying the relationship between unit production time and the cumulative number of units produced. 4-10

Underlying Assumptions of Learning Curves 1.The amount of time required to complete a given task or unit of a product will be less each time the task is undertaken. 2.The time required per unit will decrease. 3.The reduction in time will follow a predictable pattern. 4-11

The Learning Curve As plants produce more products, they gain experience in the best production methods and reduce their costs per unit 4-12

Example of a Learning Curve

The Learning Curve 4-14

Capacity Planning considerations in adding capacity maintaining system balance frequency of capacity additions external sources of operations and supply capacity

Determining Capacity Requirements 1.Use forecasting techniques to predict sales for individual products within each product line. 2.Calculate equipment and labour requirements to meet product line forecasts. 3.Project labour and equipment availabilities over the planning horizon. 4-16

Determining Capacity Requirements 1.Use forecasting techniques to predict sales for individual products within each product line.

Determining Capacity Requirements 2.Calculate equipment and labour requirements to meet product line forecasts.

Determining Capacity Requirements 3.Project labour and equipment availabilities over the planning horizon.

Planning Service Capacity vs. Manufacturing Capacity Time: goods can not be stored for later use and capacity must be available to provide a service when it is needed Location: service goods must be at the customer demand point capacity must be located near the customer Volatility of Demand: much greater than in manufacturing

Capacity Utilization & Service Quality Best operating point is near 70% of capacity From 70% to 100% of service capacity, what do you think happens to service quality?

Learning Objectives Review 1. What is the concept of capacity and how important is it to manage capacity over time? 2. How do economies of scale affect the capacity of a firm? 3. What is a learning curve, and how do you apply it? 4. How do you prepare a multiperiod capacity plan? 5. How is planning capacity in a manufacturing firm different from that of a service firm?

End of Chapter 4

Problems for Chapter 4 One person do problems , 11 & 12 Other person do problems , 11 & 12