1. Strategic Capacity Management

2. Capacity is the amount of output that a system is capable of achieving over a specified period of time.
Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size 3

3. Types of Capacity Design or installed capacity
Effective or operating capacity
Normal capacity
Time Horizons
Long Range
Intermediate Range
Short Range

4. Determinants of Effective Capacity
Facilities
Products or services
Processes
Human considerations
Operations
External forces

5. Plants Within Plants (PWP)
Capacity Focus
The concept of the focused factory holds that production facilities work best when they focus on a fairly limited set of production objectives
Plants Within Plants (PWP)
Extend focus concept to operating level 10

6. Capacity Flexibility Flexible plants Flexible processes
Flexible workers 11

7. Efficiency/Utilization Example
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Actual output = units/day
Efficiency = = 90%
Effective capacity units/ day
Utilization = Actual output = units/day = 72%
Design capacity units/day
Capacity cushion is 28%

8. Example of Capacity Utilization
During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant’s capacity utilization rate?
Capacity utilization rate = Actual output.
Best operating level
= 83/120
=0.69 or 69% 6

9. Capacity Bottlenecks Inputs To customers (a) Operation 2 a bottleneck
50/hr 1 2 3
200/hr
This slide and the next are based on Figure 8.2. The Figure is shown in two sections to improve legibility. 14

10. Capacity Bottlenecks 2 3 1 Inputs To customers 200/hr
(b) All operations bottlenecks 15

11. Capacity Planning: Balance
Unbalanced stages of production
Units
per
month
Stage 1
Stage 2
Stage 3
6,000
7,000
5,000
Maintaining System Balance: Output of one stage is the exact input requirements for the next stage
Balanced stages of production
Units
per
month
Stage 1
Stage 2
Stage 3
6,000
6,000
6,000 12

12. Types of Processes (Continued)
Stage 1
Stage 2
Buffer
Multi-stage Process with Buffer 4

13. Kanban Operation

14. Capacity Strategies (MTS)
Planned unused capacity
Forecast of capacity required
Capacity increment
Capacity
Time between increments
We add in the details describing the various components of the graph.
Time
(a) Expansionist strategy 26

15. Capacity Strategies (MTO)
Planned use of short-term options
Forecast of capacity required
Capacity increment
Capacity
Time between increments
The detailed descriptions are added in this slide.
Time
(b) Wait-and-see strategy 29

16. Percent of North American Vehicles Made on Flexible Assembly Lines
Build In Flexibility
Percent of North American Vehicles Made on Flexible Assembly Lines
100% –
80% –
60% –
40% –
20% –
0 –
Nissan
Chrysler
Honda GM
Toyota
Ford

17. Evaluating Alternatives
Production units have an optimal rate of output for minimal cost.
Average cost per unit
Minimum
cost
Rate of output

18. Evaluating Alternatives (contd…)
Minimum cost & optimal operating rate are
functions of size of production unit.
Small
plant
Average cost per unit
Medium
plant
Large
plant
Output rate

19. 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 and capacity must be located near the customer
Volatility of Demand: Much greater than in manufacturing 26

20. What is the Theory of Constraints?
“The core idea in the Theory of Constraints is that every real system such as a profit-making enterprise must have at least one constraint (Internal or External)”. “There really is no choice in the matter. Either you manage constraints or they manage you. The constraints will determine the output of the system whether they are acknowledged and managed or not”

21. Goldratt’s Goal of the Firm
The goal of a firm is to make money 4

22. Significance of Bottlenecks
Maximum speed of the process is the speed of the slowest operation
Any improvements will be wasted unless the bottleneck is relieved
Solving this problem is likely to have the biggest positive impact on the business

23. Constraints
Any system can produce only as much as its critically constrained resource
Constraint
60 units
Per day
70 units
Per day
40 units
Per day
60 units
Per day
Maximum Throughput = 40 units per day

24. Theory of Constraints Continuous Improvement Comparison

25. The Goal-Goldratt
Balance the flow of product through the plant with demand from the market. Not to balance the capacities of operations with demand.
Q. What determines the flow of product through the plant.
The bottleneck resources.
So how do you solve the problem of “bottleneck”?
A. Find more capacity for the bottleneck, don’t try to move them at start or end- which you cant in processes. Have enough capacity to meet demand.
Cut batch sizes for non-bottleneck parts in half.

26. The Goal
How do the “making money” measures translate to the production environment?
Throughput – Is the rate at which the system generates money through “Sales”
Inventory – all the money that the system has invested in purchasing things which it intends to sell.
Operational Expenses – all the money the system spends in order to turn inventory into throughput.

27. The Goal
What was the common word in all three measurement definitions?
Money going into the system
Money stuck inside the system
Money flowing out of the system

28. Issues with TOC Constraining resource must be maximized
All other operations must be geared toward this goal
May require sub optimization in other areas
Upstream operations must provide only what the constraint can handle
Downstream operations will only receive what the constraint can put out
Constraint must be kept operating at its full capacity
If not, the entire process slows further
Advantages
Improves capacity decisions in the short-run
Avoids build up of inventory
Aids in process understanding
Avoids local optimization
Improves communication between departments

29. Goal????
“Most of the time, your struggle for high efficiencies is taking you……[away]from goal”
“A plant in which everyone is working all the time is very inefficient”
“Pareto Principle”

30. from the “cost world” to the “throughput world”
The Goal
Why Alex’s plant was successful:
Change in Focus
from the “cost world” to the “throughput world”
Throughput
Cost
Inventory
Throughput
Cost
Inventory

31. Capacity Utilization & Service Quality
Best operating point is near 70% of capacity
High level of un certainity- Low utilization
High Level of Certainity- 70% to 100% of service capacity 27