1. Operations management Session 4: More on Capacity Management

2. Session 4 Operations Management2 More on Capacity Management  So far, we analyzed a process given the capacity.  Question: How much capacity do we need to meet demand?

3. Session 4 Operations Management3 Capacity Requirement Example  Kristen expects higher demand and would like to produce 26 dozen cookie (in one-dozen order sizes) a night.  How many ovens and mixers does Kristen need?  What are the utilization rates of Kristen and her roommate?

4. Session 4 Operations Management4 Capacity Requirement Example  Total throughput rate = 26 dozen/night = 6.5 dozen/hour Capacity of an oven = 6 dozen/hour Capacity of a mixer = 10 dozen/hour  Need two ovens and one mixer

5. Session 4 Operations Management5 Capacity Requirement Example  Utilization rate of Kristen = 26*8/240 = 86.7%  Utilization rate of Roommate = 26*4/240 = 43.3%  What if Kristen would like to produce 36 dozen cookie (in one dozen order) a night? Is this possible? Yes, by cross-training (both Kristen and her roommate)

6. Session 4 Operations Management6 Flexibility & Capacity  What is the capacity of Kristen and Roommate if they were cross-trained (to do the other person’s asks in addition to their own)?  Time taken per person per dozen cookies= (8+4)/2=6 min/dozen  240/6=40 dozen/night  Flexible equipment and cross-training enable a higher utilization rate.

7. Session 4 Operations Management7 Utilization Rate & Flexibility  Flexible equipment: equipment that can produce several different products efficiently.  In the past, car manufacturers generally produced only one car type in a factory.  Today that is not good enough

8. Session 4 Operations Management8 Utilization Rate & Flexibility  For decades, mainstream models such as the Ford Taurus sold in such large volumes they could keep a plant or two running at full capacity for years.  Not only was the plant limited, but so was its costly equipment, much of which had to be scrapped when the model was dropped.

9. Session 4 Operations Management9 Variety and Customization  Growth of variety Number of automobile lines sold in U.S.: 1971: 41 1992: 65 Total sales per model 1950 Chevy Impala: 1.5M 1990 Honda Accord: 0.5M  To be competitive, one needs to offer consumers many choices. This means the assembly line must be re-thought to allow for different car models.

10. Session 4 Operations Management10 What Are the Advantages and Disadvantages of Flexibility  Advantages:  Disadvantages:

11. Session 4 Operations Management11 What Are the Advantages and Disadvantages of Flexibility  Advantages: Increasing utilization rates GM originally produced 4 small cars in 4 facilities It is possible to produce this number in one flexible facility Equipment lasts longer Better equipped to meet changing demands  Disadvantages: Learning curve Training

12. Session 4 Operations Management12 Flexibility of Car Manufacturers

13. Session 4 Operations Management13 Capacity Requirement Example  Kristen did a detailed market study and would like to have a capacity of 26 dozen cookies (in one- dozen order sizes) on Monday, Tuesday, Wednesday, Thursday nights, and a capacity of 16 dozen on Friday, Saturday and Sunday nights.  How many ovens and mixers does Kristen need?

14. Session 4 Operations Management14 Capacity Requirement Example  Maximum throughput rate = 26 dozen/night = 6.5 dozen/hour Capacity of an oven = 6 dozen/hour Capacity of a mixer = 10 dozen/hour  Two ovens and one mixer

15. Session 4 Operations Management15 Utilization Rate  What is the utilization rate of the oven on Friday night? Throughput rate = 16 dozen/night = 4 dozen/hour Capacity of an oven = 6 dozen/hour  Utilization Rate=

16. Session 4 Operations Management16 Capacity Requirement Example  Mattel’s demand for dolls is: 5,000,000 dolls in November 5,000,000 dolls in December 200,000 every other month.  Each Mattel’s plant is capable of producing 500,000 dolls per month, how many plants should Mattel build?  Does Mattel have other alternatives?

17. Session 4 Operations Management17 Capacity Requirement Example Solution  The demand for dolls is: 5,000,000 dolls in November 5,000,000 dolls in December 200,000 every other month.  Each Mattel’s plant is capable of producing 500,000 dolls per month, how many plants should Mattel build? Max demand/ month=5,000,000 per month If no inventory is held, need 5,000,000/500,000 plants=10 plants 100% utilization in Nov, Dec Only 4% utilization in other months Jan-Oct

18. Session 4 Operations Management18 Alternatives  Does Mattel have other alternatives? Building inventory What are the advantages? What are the disadvantages? No. of Plants= Utilization per year= Outsourcing

19. Session 4 Operations Management19 Alternatives Solution  Does Mattel have other alternatives? Building inventory What are the advantages? What are the disadvantages? Total Demand per year=12 million Total Plant capacity per year=6 million/plant No. of Plants=12/6 = 2 plants Utilization per year= 12 million/(2*6 million) = 1= 100% Outsourcing

20. Session 4 Operations Management20 What did we learn in this class?  Capacity planning Capacity requirement calculation Flexibility/variety Impact of randomness/variability Smooth production/inventory

21. Reminder  Wednesday, 1/29 HW #1 due Team name due Solver installed on your laptop  Monday, 2/2 Quiz #1  Wednesday 2/4 Timeshare Exchange Fair Case due  Monday 2/9 HW #2 due  Wednesday 2/11 Mid Term and Little Field code due