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

2. Outline Capacity Planning Overview Utilization & Efficiency
Effectively Utilizing Capacity / Resource Planning & Scheduling
Production Planning
Aggregate Plan
Master Production Schedule
The Learning Curve
Forecasting
Homework

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

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

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

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

7. Location Planning Strategies
Possible Factors affecting location decisions

8. Breakeven Location ModelFC VC A
150000 62 B
300000 38 C
500000 24 D
600000 30

9. Breakeven Location Model
Q (thousands of units)
200
400
600
800
1000
1200
1400
1600 2 4 6 8 10 12 14 16 18 20 22
A best
B best
C best
Break-even point
6.25
14.3 A D B C
(20, 1390)
(20, 1200)
(20, 1060)
(20, 980)
Annual cost (thousands of dollars)
Break-even
point

10. Weighted Score Location Method
Factor Wt A B C D
Tax environment 20 5 1 4 3
Employee preference 2
Accessibility
Community 25
Costs 30
370
180
275
300

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

12. Efficiency total task time / (N X cycle time) 15 units/hr 20 units/hr
Capacity or Output Rates:
15 units/hr
20 units/hr
6 units/hr
30 units/hr
Littlefield
Utilization:
100%
75%
100%
20%
Utilization:
40%
30%
100%
20%
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

13. Efficiency total task time / (N X cycle time) 5 15 units/hr
2nd Machine C 5
Capacity or Output Rates:
15 units/hr
20 units/hr
12 units/hr
30 units/hr
100%
Utilization:
80%
60%
100%
40%
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

14. Bottlenecks
5 per hour
15 per hour
7 per hour

15. Bottlenecks Operation 1 20/hr. Operation 2 10/hr. Operation 3 15/hr.
Maximum output rate limited by bottleneck

16. The following diagram describes a process that consists of eight separate operations, with sequential relationships and capacities (units per hour) as shown. a. What is the current capacity of the entire process? b. If you could increase the capacity of only two operations through process improvement efforts, which two operations would you select, how much additional capacity would you strive for in each of those operations, and what would the resulting capacity of the entire process be? 1
15/hr. 2
10/hr. 3
20/hr. 7
34/hr. 8
30/hr. 4
5/hr. 5
8/hr. 6
12/hr.

17. Cushion
High Cushion
Low Cushion

18. Resource Planning Long-Range Capacity Planning Aggregate Chase Plan
Level Plan
Master
Production
Schedule
Master
Production
Schedule
Inventory
Information
Production
Planning

19. Resource Planning

20. Resource Planning
MPS gets further broken down in the MRP.

21. Resource Planning At the heart of any organization
Starts with sales and operations plans (or aggregate plan) and plans the input requirements
A process relative to the firm’s competitive priorities and an important part of managing supply chains

22. Resource Planning
Aggregate Plan

23. Materials Requirements Planning
An information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.
Aids in managing dependent demand inventory.
Primary Inputs:
Master Production Schedule
Bill of Materials
Inventory Records

24. MRP Inputs Other sources of demand Authorized master production
schedule
Inventory
transactions
records
MRP
explosion
Bills of
materials
Engineering
and process
designs
Material
requirements
plan

25. Master Production Schedule
MPS for a single
end item
Aggregate Plan

26. Bill of Materials A record of all components of an item
Shows the parent-component relationship
The usage quantities are derived from engineering and process design
Five common terms
End items
Intermediate items
Subassemblies
Purchased items
Part commonality (sometimes called standardization of parts or modularity)

27. Bill of Materials A Ladder-back chair Seat cushion Seat-frame boards
Front legs A
Ladder-back chair
Back legs
Leg supports
Back slats
BOM for a Ladder-Back Chair

28. Bill of Materials A Ladder-back chair C (1) Seat subassembly D (2)
Front
legs
B (1)
Ladder-back
E (4)
Leg
supports
G (4)
Back slats
F (2)
Back legs
I (1)
Seat cushion
H (1)
Seat frame
J (4)
Seat-frame boards

29. Bill of Materials
If 50 units of of end item A are to be assembled, how many additional units of D are needed? Of E?
Item A B C D E F G
LT (wks) 1 2 3 6
Amt. OH 10 15
100 5 A
B(3)
C(1)
D(1)
E(2)
F(1)
D(1)
G(1)

31. Inventory Record
Inventory transactions are the basic building blocks of up-to-date records
Transactions include releasing new orders, receiving scheduled receipts, adjusting due dates for scheduled receipts, withdrawing inventory, canceling orders, correcting inventory errors, rejecting shipments, and verifying losses and stock returns
Inventory records divide the future into time periods called time buckets
Keep track of inventory levels and component replenishment needs

32. Inventory Record
The time-phase information contained in the inventory record consists of:
Gross requirements
Scheduled receipts
Projected on-hand inventory
Planned receipts
Planned order releases = + –
Projected on-hand inventory balance at end of week t
Inventory on hand at end of week t–1
Scheduled or planned receipts in week t
Gross requirements in week t

33. Planning Factors Lot-sizing rules
Fixed order quantity (FOQ) rule maintains the same order quantity each time an order is issued
Lot for lot (L4L), order what is necessary
Periodic order quantity (POQ), order what is necessary to handle P periods

34. MRP Example, Given MPS, Inv Records, BOM
MPS for End Item A, LT=1, Beg Inv=0
Inventory Records
Item A B C D LT 1 2 3
Sch Rec
200 wk 1, 100 wk 6
Amt OH 20
425
Rule
L4L, min 120
L4L
Lot Size, Q=500 A
B(1)
C(2)
D(1)
BOM

35. MRP Example, Solution

36. The Learning Curve
The ability to increase productive capacity through “learning.”
Each time the output doubles, the labor hours decrease by a fixed percentage of their previous value.
Common LC values are 70 to 95 percent.
Units
Hours (.9)
Hours (.8) 1
100 2 90 80 4 81 64 8
72.9
51.2 16
65.61
40.96 32
59.049
32.768

37. LC Application
A customer support center has a 90 (or 0.90) percent learning curve rate for handling customer issues. A new rep has just begun work. Her first support call required 2000 seconds.
Estimate the time needed to complete her first 5 calls.
Estimate the time needed to complete her 5th call.
Estimate the time needed to complete calls 21 through 25.
0.9 1 2 3 4 5 21 22 23 24 25
Using the Tables
2000 X = 8,678
2000 X = 1,566
Using the Tables
2000 X = 35,420 (length of first 25 calls)
2000 X = 29,220 (length of first 20 calls)
6,200

38. LC Application Call Number Length Cumulative 1 2000.00 2 1800.00 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

39. LC Application
A manager wants to estimate an appropriate LC rate for a new type of work his firm will undertake. He has obtained the following completion times for the initial 8 repetitions of a job of this type. What learning curve rate is appropriate? Estimate the duration to complete job unit 45.
Unit
Time (hrs) 1
15.90 2
12.00 3
10.10 4
9.10 5
8.40 6
7.50 7
7.40 8
6.90

40. Factors that may affect the LC rate
Complexity of the task
Human component