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Course Title: Production and Operations Management

Course Code: MGT 362

Course Book: Operations Management 10th Edition. By Jay Heizer & Barry Render

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Chapter 7S: Capacity and Constraint ManagementChapter 7S: Capacity and Constraint Management

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Summary

Capacity Design and Effective Capacity

Capacity and Strategy

Capacity Considerations

Managing Demand

Demand and Capacity Management in the Service Sector

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Outline – Continued

Bottleneck Analysis and Theory of Constraints Process Times for Stations,

Systems, and Cycles

Theory of Constraints

Bottleneck Management

Break-Even Analysis Single-Product Case

Multiproduct Case

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Tactics for Matching Capacity to Demand

1. Making staffing changes

2. Adjusting equipment Purchasing additional machinery

Selling or leasing out existing equipment

3. Improving processes to increase throughput

4. Redesigning products to facilitate more throughput

5. Adding process flexibility to meet changing product preferences

6. Closing facilities

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Demand and Capacity Management in the Service Sector

Demand management

Appointment, reservations, FCFS rule

Capacity management

Full time, temporary, part-time staff

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Bottleneck Analysis and Theory of Constraints

Each work area can have its own unique capacity

Capacity analysis determines the throughput capacity of workstations in a system

A bottleneck is a limiting factor or constraint

A bottleneck has the lowest effective capacity in a system

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Process Times for Stations, Systems, and Cycles

The process time of a stationprocess time of a station is the time to produce a unit at that single workstation

The process time of a systemprocess time of a system is the time of the longest process in the system … the bottleneck

The process cycle timeprocess cycle time is the time it takes for a product to go through the production process with no waiting

These two might be quite

different!

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A Three-Station Assembly Line

Figure S7.4

2 min/unit 4 min/unit 3 min/unit

A B C

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Process Times for Stations, Systems, and Cycles

The system process timesystem process time is the process time of the bottleneck after dividing by the number of parallel operations

The system capacitysystem capacity is the inverse of the system process time

The process cycle timeprocess cycle time is the total time through the longest path in the system

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Capacity Analysis

Two identical sandwich lines

Lines have two workers and three operations

All completed sandwiches are wrapped

Wrap

37.5 sec/sandwich

Order

30 sec/sandwich

Bread Fill Toast

15 sec/sandwich 20 sec/sandwich 40 sec/sandwich

Bread Fill Toast

15 sec/sandwich 20 sec/sandwich 40 sec/sandwich

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Capacity AnalysisWrap

37.5 sec

Order

30 sec

Bread Fill Toast

15 sec 20 sec 40 sec

Bread Fill Toast

15 sec 20 sec 40 sec

Toast work station has the longest processing time – 40 seconds

The two lines each deliver a sandwich every 40 seconds so the process time of the combined lines is 40/2 = 20 seconds

At 37.5 seconds, wrapping and delivery has the longest processing time and is the bottleneck

Capacity per hour is 3,600 seconds/37.5 seconds/sandwich = 96 sandwiches per hour

Process cycle time is 30 + 15 + 20 + 40 + 37.5 = 142.5 seconds

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Capacity Analysis

Standard process for cleaning teeth

Cleaning and examining X-rays can happen simultaneously

Checkout

6 min/unit

Check in

2 min/unit

DevelopsX-ray

4 min/unit 8 min/unit

DentistTakesX-ray

2 min/unit

5 min/unit

X-rayexam

Cleaning

24 min/unit

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Capacity Analysis

All possible paths must be compared

Cleaning path is 2 + 2 + 4 + 24 + 8 + 6 = 46 minutes

X-ray exam path is 2 + 2 + 4 + 5 + 8 + 6 = 27 minutes

Longest path involves the hygienist cleaning the teeth

Bottleneck is the hygienist at 24 minutes

Hourly capacity is 60/24 = 2.5 patients

Patient should be complete in 46 minutes

Checkout

6 min/unit

Check in

2 min/unit

DevelopsX-ray

4 min/unit 8 min/unit

DentistTakesX-ray

2 min/unit

5 min/unit

X-rayexam

Cleaning

24 min/unit

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Theory of Constraints

Five-step process for recognizing and managing limitationsStep 1:Step 1: Identify the constraint

Step 2:Step 2: Develop a plan for overcoming the constraints

Step 3:Step 3: Focus resources on accomplishing Step 2

Step 4:Step 4: Reduce the effects of constraints by offloading work or expanding capability

Step 5:Step 5: Once overcome, go back to Step 1 and find new constraints

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Bottleneck Management

1. Release work orders to the system at the pace of set by the bottleneck

2. Lost time at the bottleneck represents lost time for the whole system

3. Increasing the capacity of a non-bottleneck station is a mirage

4. Increasing the capacity of a bottleneck increases the capacity of the whole system

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Break-Even Analysis

Technique for evaluating process and equipment alternatives

Objective is to find the point in dollars and units at which cost equals revenue

Requires estimation of fixed costs, variable costs, and revenue

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Break-Even Analysis

Fixed costs are costs that continue even if no units are produced Depreciation, taxes, debt, mortgage

payments

Variable costs are costs that vary with the volume of units produced Labor, materials, portion of utilities

Contribution is the difference between selling price and variable cost

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Break-Even Analysis

Costs and revenue are linear functions Generally not the case in the

real world

We actually know these costs Very difficult to verify

Time value of money is often ignored

AssumptionsAssumptions

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Profit corri

dor

Loss

corridor

Break-Even Analysis

Total revenue line

Total cost line

Variable cost

Fixed cost

Break-even pointTotal cost = Total revenue

–

900 –

800 –

700 –

600 –

500 –

400 –

300 –

200 –

100 –

–| | | | | | | | | | | |

0 100 200 300 400 500 600 700 800 900 10001100

Co

st in

do

llars

Volume (units per period)Figure S7.5

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Break-Even Analysis

BEPx = break-even point in unitsBEP$ = break-even point in dollarsP = price per unit (after all discounts)

x = number of units producedTR= total revenue = PxF = fixed costsV = variable cost per unitTC= total costs = F + Vx

TR = TCor

Px = F + Vx

Break-even point occurs whenBreak-even point occurs when

BEPx =F

P - V

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Break-Even Analysis

BEPx = break-even point in unitsBEP$ = break-even point in dollarsP = price per unit (after all discounts)

x = number of units producedTR= total revenue = PxF = fixed costsV = variable cost per unitTC= total costs = F + Vx

BEP$ = BEPx P

= P

=

=

F(P - V)/P

FP - V

F1 - V/P

Profit = TR - TC= Px - (F + Vx)= Px - F - Vx= (P - V)x - F