MBA 8452 Systems and Operations ManagementMBA 8452 Systems and Operations Management

Strategic Capacity Strategic Capacity Planning & Planning &

Aggregate PlanningAggregate Planning

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QualityManagement

StatisticalProcess Control

Inventory Control

Just in Time

Introduction to Operations Management/ Operations Strategy

ProjectManagement

Planning for ProductionProcess Analysisand Design

Process Controland Improvement

Waiting Line Analysis

Services

Manufacturing

Process Analysis

Job DesignAggregate Planning

Capacity Management

Supply ChainManagement

Layout/ Assembly Line Balancing

Scheduling

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Objective: Capacity Management Overview of Capacity Management

Be able to explain why capacity management is important Best Operating Level

Be able to describe the best operating level Capacity Focus

What does capacity focus mean Capacity Requirements

Calculate capacity requirements and compare to available capacity

Strategies for Meeting Demand Be able to explain the concept of Chase and Level

Strategies

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Major Operations Planning ActivitiesOverview

Process Planning

Strategic Capacity Planning

Aggregate Planning

Master Production Scheduling

Material Requirements Planning

Order Scheduling Weekly Workforce &Customer Scheduling

Daily Workforce &Customer Scheduling

LongRange

MediumRange

ShortRange

Manufacturing

Services

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“You can’t build it if you don’t have the capacity” Strategic Capacity Planning

Planning of the overall capacity level of capital-intensive resources—facilities, equipment, and overall labor force size —that supports the company’s long-range competitive strategy.

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Capacity PlanningBasic Questions What kind of capacity is needed?

How much is needed?

When is needed?

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What Is Capacity? The amount of output that a system

is capable of achieving over a specific period of time has a time frame can be also measured in terms of

resource inputs cannot be stored for later use

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Capacity Planning ConceptBest Operating Level

Design capacity for which average unit cost is at the minimum

Averageunit costof output Underutilization

Best OperatingLevel

Overutilization

Volume

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Capacity Planning ConceptCapacity Utilization

level operatingBest usedCapacity on Utilizati

Capacity used rate of output actually achieved

Best operating level design capacity

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Capacity Planning ConceptExample - Capacity Utilization

Design capacity = 50 trucks/day Actual output = 36 trucks/day Utilization = ?

Solution:

.720y trucks/da50y trucks/da36=

level operatingBest usedCapacity nUtilizatio

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Volume

Averageunit costof output

Economies & Diseconomies of Scale

100-unitplant

200-unitplant 300-unit

plant

400-unitplant

Economies of Scale and the Experience Curve working

Diseconomies of Scale start working

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Capacity Planning ConceptThe Experience Curve

Total accumulated production of units

Cost orpriceper unit

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Capacity Expansion Issues Maintaining system balance

External sources of capacity Timing and frequency of capacity expansions

Stage 1 Stage 2 Stage 3Inputs Outputs200/hr

50/hr(bottleneck)

200/hr

Volume

TimeCapacity leads demand

Volume

TimeCapacity lags demand

Timing Strategy

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Capacity Expansion IssuesFrequency of Capacity Expansion

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Determining Capacity Requirements

Forecast sales within each individual product line

Calculate equipment and labor requirements to meet the forecasts

Project equipment and labor availability over the planning horizon

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Determining Capacity Requirements Example

A manufacturer produces two lines of ketchup, FancyFine and a Generic line. Each is sold in small and family-size plastic bottles. Are we really producing two different types of ketchup from the standpoint of capacity requirements? No!The following table shows forecast demand for the next four years.

Year: 1 2 3 4FancyFineSmall (000s) 50 60 80 100Family (000s) 35 50 70 90GenericSmall (000s) 100 110 120 140Family (000s) 80 90 100 110

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Year: 1 2 3 4Small (000s) 150 170 200 240Family (000s) 115 140 170 200

Currently, three 100,000-units-per-year machines are available for small-bottle production. Two operators required per machine.

Two 120,000-units-per-year machines are available for family-sized-bottle production. Three operators required per machine.

Total combined demand forecasts

Determining Capacity Requirements Example (cont.)

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Capacity Requirements Example--Calculation

Year: 1 2 3 4Small (000s) 150 170 200 240Family (000s) 115 140 170 200

Small Mach. Cap. 300,000 Labor 6Family-size Mach. Cap. 240,000 Labor 6

SmallPercent capacity used 50.00%Machine requirement 1.50Labor requirement 3.00Family-sizePercent capacity used 47.92%Machine requirement 0.96Labor requirement 2.88

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Capacity Requirements Example--Projection

Year: 1 2 3 4Small (000s) 150 170 200 240Family (000s) 115 140 170 200

Small Mach. Cap. 300,000 Labor 6Family-size Mach. Cap. 240,000 Labor 6

SmallPercent capacity used 50.00% 56.67% 66.67% 80.00%Machine requirement 1.50 1.70 2.00 2.40Labor requirement 3.00 3.40 4.00 4.80Family-sizePercent capacity used 47.92% 58.33% 70.83% 83.33%Machine requirement 0.96 1.17 1.42 1.67Labor requirement 2.88 3.50 4.25 5.00

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Planning Service Capacity Time – service is perishable and must

be consumed when it is produced

Location – people are not willing to travel long distances to obtain a service so they must be located near the customer

Volatility of Demand – demand for services is subject to change

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Capacity Utilization & Service Quality

Best operating point is near 70% of capacity

From 70% to 100% of service capacity, what might happen to service quality? Why?

Context specific tradeoff

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Aggregate Planning (Chap. 12)

Matches market demand to company resources

Medium-range: 6-18 months Goal: Specify the optimal

combination of production rate workforce level inventory on hand

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Inputs and Outputs to Aggregate Production Planning

AggregateProductionPlanning

CompanyPolicies

FinancialConstraints

StrategicObjectives

Units or dollarssubcontracted,backordered, or

lost

CapacityConstraints

Size ofWorkforce

Productionper month

(in units or $)

InventoryLevels

DemandForecasts

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Strategies for Meeting Demand

Level production - produce at constant rate & use inventory as needed to meet demand

Chase demand - change workforce levels so that production matches demand

Subcontracting - useful if supplier meets quality & time requirements

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Level Production

Time

Production

Demand

Units

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Chase Demand

Time

Units

Production

Demand