om capacity management 10 collier/evans 5 copyright ©2016 cengage learning. all rights reserved....

OMCapacity Management

10

COLLIER/EVANS

5

Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly accessible website, in whole or in part.

LEARNING OUTCOMES

2Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly accessible website, in whole or in part. OM5 | CH10

1 Explain the concept of capacity2 Describe how to compute and use

capacity measures3 Describe long-term capacity expansion

strategies4 Describe short-term capacity adjustment

strategies5 Explain the principles and logic of the

Theory of Constraints


Capacity

• Capability of a manufacturing or service resource to accomplish its purpose over a specified time period

• Viewed in two ways• Maximum rate of output per unit of time or• Units of resource availability

4Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly accessible website, in whole or in part. OM5| CH10

Exhibit

10.1 Examples of Short- and Long-Term Capacity Decisions


Economies and Diseconomies of Scale

• Achieved when the average unit cost of a good or service decreases as the capacity and/or volume of throughput increases

Economies of scale

• Occur when the average unit cost of the good or service begins to increase as the capacity and/or volume of throughput increases

Diseconomies of scale

6Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly accessible website, in whole or in part. OM5 | CH10© 2011 Pearson Education, Inc. publishing as Prentice Hall

Economies and Diseconomies of Scale in capacity investments.

Economies of scale

Diseconomies of scale

25 - room roadside motel 50 - room

roadside motel

75 - room roadside motel

Number of Rooms25 50 75

Ave

rag

e u

nit

co

st(d

olla

rs p

er

roo

m p

er n

igh

t)

Figure S7.2

Cheap, basic no variety, FC/25 Cheaper, basic no

variety, FC/50

Many rooms -must have some variety, FC/75


Focused Factory

• Way to achieve economies of scale without extensive investments in facilities and capacity by focusing on: • Narrow range of goods or services • Target market segments• Dedicated processes to maximize efficiency and

effectiveness


Steel mini mills in USA = focused factory

• Only one product (means no reheating and casting cost).

• Only open when there is demand for the product.• Flexible labour plan • Work = $22/hr all the overtime you want• No work = $8 /hr 20hrs max maintenance


Safety Capacity (Capacity Cushion)

• Amount of capacity reserved for unanticipated events • Demand surges• Materials shortages • Equipment breakdowns

• Average safety capacity(%) = 100% - Average resource utilization(%)


Exhibit

10.2 The Demand Versus Capacity Problem Structure


Capacity Measurement

• Work order: Specification of work to be performed for a customer or a client

• For any production situation, setup time can be a substantial part of total system capacity


Capacity Measurement

• Capacity required (Ci) = Setup time (Si) + [Processing time (Pi) x Order size (Qi)]• Where• Ci = Capacity requirements in units of time for

work order i• Si = Setup or changeover time for work order i as

a fixed amount that does not vary with volume• Pi = Processing time for each unit of work order• Qi = Size of order i in number of units

• ΣCi = Σ[Si + (Pi x Qi)]


Capacity Definitions

Design capacity (measured as utilisation)

is the maximum theoretical output of a system normally expressed as a rate (output/time)

Effective capacity (measured as efficiency)

is the actual output expects to achieve given current operating constraints (e.g. downtime for maintenance)

Often lower than design capacity


Utilization and Efficiency

Utilization is the percent of design capacity achieved

Efficiency is the percent of effective capacity achieved

Utilization = Actual output/Design capacity (as %)

Efficiency = Actual output/Effective capacity (as %)


Capacity Calculations

• A house painting business can (in theory) paint 100 houses per year.

• The boss has set a target of 90 houses per year to allow time for maintenance of the equipment, breakdowns etc.

• The business records show that over the last ten years they only paint 85 houses per year on average.


Long-Term Capacity Strategies

• Long-term capacity planning is closely tied to the strategic direction of the organization

• Complementary goods and services• Produced or delivered using the same resources

available to the firm - Balance seasonal demand cycles and use the

excess capacity available


Main Strategies for capacity management

CHASE – change capacity to ‘chase’ demand changes.

LEVEL – Keep capacity constant , try to manage demand.

© 2011 Pearson Education, Inc. publishing as Prentice Hall

Level Capacity Chase Demand

Size of variation Small Large

Speed of change Slow Fast

Predictability Predictable Unpredictable

Costs Structure Fixed cost high Variable cost high

Cost of complaints High Low

Cost of lost business Low High


Exhibit

10.5 Seasonal Demand and Complementary Goods or Services


Exhibit

Snow mobiles and jetskis

Same components and technology.Opposite seasonal peaks (summer & winter).


Exhibit

10.6 Capacity Expansion Options


Short-Term Capacity Management

• Done by adjusting short-term capacity levels • Add or share equipment • Sell unused capacity• Change labor capacity and schedules• Change labor skill mix• Shift work to slack periods



• Shift and stimulate demand• Vary the price of goods or services• Provide customers with information• Advertising and promotion• Add peripheral goods and/or services• Provide reservations



• Revenue management system(RMS)• Dynamic methods to:

- Forecast demand- Allocate perishable assets across market

segments- Decide when to overbook and by how much- Determine what price to charge different

customer (price) classes

25Copyright ©2016 Cengage Learning. Al l Rights Reserved. May not be scanned, copied or dupl icated, or posted to a publ icly accessible website, in whole or in part. OM5 | CH10© 2011 Pearson Education, Inc. publishing as Prentice Hall

Demand & Capacity Management in Services

Demand management Appointment, reservations, FCFS rule

Capacity management Staffing levels & scheduling

full-time part-time Temporary/casual


Theory of Constraints

• Set of principles that focuses on increasing total process throughput• By maximizing the utilization of all bottleneck

work activities and workstations• Throughput: Amount of money generated

per time period through actual sales


Constraint

• Anything that limits an organization from moving toward or achieving its goal• Physical constraint: Associated with the

capacity of a resource- Bottleneck work activity: Effectively limits

capacity of the entire process- Nonbottleneck work activity: One in which

idle capacity exists• Nonphysical constraint: Associated with

environmental or organizational capacity

SUMMARY


• Capability of a manufacturing or service resource to accomplish its purpose over a specified time period is known as capacity

• Capacity measurement• ΣCi = Σ[Si + (Pi x Qi)]

• In developing a long-range capacity, a firm makes an economic trade-off between:• Cost of capacity• Opportunity cost of not having adequate

capacity

SUMMARY


• If short-term demand is stable and sufficient capacity is available then, managing operations to ensure that demand satisfaction is easy

• Anything that limits an organization from moving toward or achieving its goal is known as constraint

KEY TERMS


• Bottleneck work activity• Capacity• Complementary goods and services• Constraint• Diseconomies of scale• Economies of scale• Focused Factory• Nonbottleneck work activity• Nonphysical constraint

KEY TERMS


• Physical constraint• Revenue management system (RMS)• Safety Capacity• Theory of Constraints• Throughput• Work order

om capacity management 10 collier/evans 5 copyright ©2016 cengage learning. all rights reserved....

Documents

cengage learning

accessible website

capacity investments

longterm capacity decisions

om5 ch105

om5 ch102capacitycapability

om5 ch10exhibit4economies

om5 ch10310