OPERATIONS MANAGEMENT for MBAs Fourth Edition 1 Meredith and Shafer John Wiley and Sons, Inc. Chapters 8 & 8S : Capacity, Forecasting Topic 2: Capacity Planning & Forecasting

Outline 2 Capacity Planning Overview Utilization & Efficiency Forecasting (next module) Homework, Ch. 8 Exercise #2 Add A1) Plot the Output/Efficiency Combo Graph. A2) If the hourly demand is 25 units per hour, create a plot that shows how overall process utilization varies with number of machines.

Capacity Planning Decisions 3 Demand Estimates Forecast Market Corporate Strategy Skills Suppliers & Customers

Capacity 4 Maximum rate outputs can be produced or services delivered. Maximum amount of availability for a product or service.

Capacity Timing 5 Planned unused capacity Time Capacity Forecast of capacity required Time between increments Capacity increment (a) Preceding Demand or Expansionist strategy

Capacity Timing 6 Time Capacity (b) Following Demand or Wait-and-see strategy Planned use of short-term options Time between increments Capacity increment Forecast of capacity required

Location Planning Strategies 7 Possible Factors affecting location decisions

Breakeven Location Model 8 LocationFCVC A B C D

Breakeven Location Model 9 Q (thousands of units) A best B bestC best Break-even point A D B C (20, 1390) (20, 1200) (20, 1060) (20, 980) Annual cost (thousands of dollars) Break-even point

Weighted Score Location Method 10 FactorWtABCD Tax environment Employee preference Accessibility51323 Community Costs

Utilization 11 Time Busy / Time Available Actual output / capacity Average output rate / capacity Occupied (in use) / amount available

Efficiency 12 total task time / (N X cycle time) 15 units/hr 6 units/hr 20 units/hr 30 units/hr Capacity or Output Rates: Efficiency = 19 / (4 X 10) =.475 = average utilization based on cycles cycle time  time at which every workstation can pass its completed part to the next station Utilization: 40% 30%100%20%

Efficiency 13 total task time / (N X cycle time) 15 units/hr 12 units/hr 20 units/hr 30 units/hr Capacity or Output Rates: Efficiency = 19 / (5 X 5) =.76 = average utilization based on cycles cycle time  time at which every workstation can pass its completed part to the next station Utilization: 80% 60%100%40% 2 nd Machine C 5 100%

14 Output = number of units per period that the process can produce limited by the bottleneck operation 15 units/hr6 units/hr 20 units/hr30 units/hr Capacity or Output Rates: Operation Cycle Time = time at which every WS can pass its work/part to the next WS the max of the cycle times Effective WS Cycle Times: Efficiency = measure of how well the operation is performing at bottleneck cycle time/demand rate average of the operation utilizations average utilization at bottleneck capacity (sum of the base cycle times) / (number of machines X OCT) No. ofType ofBestEffective WS Processing TimesOp CycleHouly MachNext MConfigABCDTimeOutEff 4BaseA,B,C,D %

15 15 units/hr12 units/hr 20 units/hr30 units/hr Capacity or Output Rates: 1A1B2C1D Effective WS Cycle Time = time it takes to get a unit through a single WS Effective WS Cycle Times: 5 minutes Operation Cycle Time, OCT = Output = Efficiency =

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17 2AB3CDOCTOut units/hr6 units/hr 20 units/hr30 units/hr

18 Efficiency/Output Combo Plot

19 Utilization Example, 1 Workstation Capacity

20 Utilization Example, 2 Workstations Capacity