1. Capacity Management

2. 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

3. Production Strategies
Four basic production strategies:
Chase (demand matching)
Level
Subcontracting
Hybrid (combination)
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4. © 2009 APICS CONFIDENTIAL AND PROPRIETARY
Chase Strategy
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5. © 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
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6. Level Strategy © 2009 APICS CONFIDENTIAL AND PROPRIETARY
Source: Arnold et al., Introduction to Materials Management, 6th ed.
Reprinted by Permission of Pearson Education
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7. © 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
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8. Meet demand by subcontracting
Advantages:
No excess capacity
Level production
Disadvantages:
Costs of subcontracting
Proprietary production technology
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9. 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

10. 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
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11. 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?

12. 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?

13. 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?

14. 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

15. 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)

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

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

18. Utilization finished goods warehouse

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

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

21. 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