mba 570 summer 2011. how much long-range capacity is needed when more capacity is needed where...
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MBA 570 Summer 2011
Capacity Management Capacity Management
Facility PlanningFacility Planning
How much long-range capacity is needed When more capacity is needed Where facilities should be located
(location) How facilities should be arranged (layout)
Facility planning answers:
CapacityCapacity
Maximum output of a system in a given period (general definition)◦ May be units, hours, dollars, sq. ft. etc.◦ Example: Tons of steel per month
Effective capacity: Maximum output given standards, product mix, etc.
Rated capacity: Maximum usable output given utilization & efficiency◦ RC = (Capacity)(Utilization)(Efficiency)
Capacity Definition Thinking ChallengeCapacity Definition Thinking Challenge
How would you define capacity for the following firms (e.g., steel mill, tons of steel per day):◦ Beer brewery◦ Auto plant◦ Restaurant◦ Warehouse◦ Grocery store
Capacity Definition Solution*Capacity Definition Solution*
Beer brewery: Barrels of beer per year (output)
Auto plant: Cars per week (output) Restaurant: Customers per hour (output) or
number of seats (input) Warehouse: Square feet of space (input) Grocery store: Square inches of shelf space
(input)
ForecastDemand
ComputeNeededCapacity
ComputeRated
Capacity
EvaluateCapacity
Plans
ImplementBest Plan
QualitativeFactors
(e.g., Skills)
Select BestCapacity
Plan
DevelopAlternative
Plans
QuantitativeFactors
(e.g., Cost)
Capacity Planning Process
Types of Planning Over a Time Horizon
Add FacilitiesAdd long lead time equipment
Schedule Jobs Schedule Personnel Allocate Machinery
Sub-ContractAdd EquipmentAdd Shifts
Add PersonnelBuild or Use Inventory
Long Range Planning
Intermediate Range Planning
Short Range Planning
Modify Capacity Use Capacity
*
*
*Limited options exist
Definition and Measures of Capacity
Capacity:
The “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time.
Utilization: Actual output as a percent of design capacity.
Effective capacity:
Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality.
Efficiency: Actual output as a percent of effective capacity.
Actual or Expected Output
Actual (or Expected) Output =
(Effective Capacity)(Efficiency)
UtilizationUtilization
Measure of planned or actual capacity usage of a facility, work center, or machine
Measure of planned or actual capacity usage of a facility, work center, or machine
UtilizationUtilization
Measure of planned or actual capacity usage of a facility, work center, or machine
Measure of planned or actual capacity usage of a facility, work center, or machine
UtilizationExpected capacity
Capacity
Planned hours to be usedTotal hours available
EfficiencyEfficiency
Measure of how well a facility or machine is performing when used
Measure of how well a facility or machine is performing when used
EfficiencyEfficiency
Measure of how well a facility or machine is performing when used
Measure of how well a facility or machine is performing when used
EfficiencyActual output
Effective capacity
Actual output in unitsStandard output in units
Average actual timeStandard time
Special Requirements for Making Good Capacity Decisions Forecast demand accurately Understanding the technology and capacity
increments Finding the optimal operating level (volume) Build for change
Strategies for Matching Capacity to Demand
1. Making staffing changes (increasing or decreasing the number of employees)
2. Adjusting equipment and processes – which might include purchasing additional machinery or selling or leasing out existing equipment
3. Improving methods to increase throughput; and/or
4. Redesigning the product to facilitate more throughput
Approaches to Capacity Expansion
Expected Demand Expected Demand
Expected Demand Expected Demand
Time in Years Time in Years
Time in YearsTime in Years
Dem
and
Dem
and
Dem
and
Dem
and
New Capacity
New Capacity New Capacity
New Capacity
Capacity leads demand with an incremental expansion Capacity leads demand with a one-step expansion
Capacity lags demand with an incremental expansionAttempts to have an average capacity, with an
incremental expansion
Approaches to Capacity Expansion
Expected Demand
Time in Years
Dem
and
New Capacity
Capacity leads demand with an incremental expansion
Approaches to Capacity Expansion
Expected Demand
Time in Years
Dem
and
New Capacity
Capacity leads demand with a one-step expansion
Approaches to Capacity Expansion
Expected Demand
Time in Years
Dem
and
New Capacity
Capacity lags demand with an incremental expansion
Approaches to Capacity Expansion
Expected Demand
Time in Years
Dem
and
New Capacity
Attempts to have an average capacity, with an incremental expansion
Vary prices Vary promotion Change lead times
(e.g., backorders) Offer
complementary products
Managing Existing CapacityManaging Existing Capacity
Demand Management
Complementary ProductsComplementary Products
Complementary ProductsComplementary Products
Time (Months)
Sales (Units)
Snow-mobiles
0
1,000
2,000
3,000
4,000
5,000
J M M J S N J M M J S N J
Complementary ProductsComplementary Products
Time (Months)
Sales (Units)
Jet Skis
Snow-mobiles
0
1,000
2,000
3,000
4,000
5,000
J M M J S N J M M J S N J
Complementary ProductsComplementary Products
Time (Months)
Sales (Units)
Jet Skis
Snow-mobiles
Total
0
1,000
2,000
3,000
4,000
5,000
J M M J S N J M M J S N J
Complementary ProductsComplementary Products
0
1,000
2,000
3,000
4,000
5,000
Time (Months)
Sales (Units)
Jet Skis
Snow-mobiles
Variation is reduced by combining demands
Total
Vary staffing Change equipment
& processes Change methods Redesign the
product for faster processing
Managing Existing CapacityManaging Existing Capacity
Capacity Management Vary prices Vary promotion Change lead times
(e.g., backorders) Offer complementary
products
Demand Management