School of Management and Languages Capacity Planning

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1 School of Management and Languages Capacity Planning Dr Neil Towers 1

2 Learning Objectives a. To understand Capacity Planning and Control b. To manage the supply chain capabilities effectively Dr Neil Towers 2

3 The tasks of capacity planning Forecast Demand or or Revenue Potential Calculate Capability of of Operations Resources Allocate Resources Over Time Some key questions Can Can you you predict predict the the most most likely likely demand demand at at any any point point in in time? time? Can Can you you predict predict the the uncertainty uncertainty in in demand demand at at any any point point in in time? time? Do Do you you have have realistic realistic work work standards?? standards?? Do Do you you understand understand the the capacity capacity constraints constraints of of all all the the necessary necessary resources? resources? What What are are the the options options for for capacity capacity allocation? allocation? What What are are their their cost, cost, revenue, revenue, work work capital capital and and service service level level implications? implications? What What are are their their flexibility flexibility implications? implications? Design Capacity Control Mechanisms Do Do you you monitor monitor actual actual demand demand against against forecast? forecast? Do Do you you adapt adapt forecasts forecasts accordingly? accordingly? Do Do you you replan replancapacity accordingly? accordingly? Dr Neil Towers 3

4 Priority and Capacity Relationships Production Planning Validates Resource Planning Master Production Scheduling Rough Cut Capacity Planning Material Requirements Planning Capacity Requirements Planning Dr Neil Towers 4

5 The Balance of Capacity a. Capacity can either lead or lag demand. b. Inventory can be used to smooth out the peaks. c. Spare capacity can be used to supply other operations. d. The danger of this is that the original operation may receive a lower level of service Dr Neil Towers 5

6 Objectives of Capacity Planning and Control Step 1 - Measure aggregate, capacity and demand. Aggregated output Step 2 - Step 3 - Identify the alternative capacity plans. Choose the most appropriate capacity plan. Forecast demand Estimate of current capacity Time Dr Neil Towers 6

7 How Capacity and Demand are measured Planned loss of 59 hours Efficiency = Actual output Effective capacity Design capacity 168 hours per week Effective capacity 109 hours per week Avoidable loss - 58 hours per week Actual output - 51 hours per week Utilisation = Actual output Design capacity Dr Neil Towers 7

8 Capacity Management a. Level Capacity Fixed resources, variable demand b. Chase Demand Reactive approach to demand c. Demand Management Proactive approach to demand Dr Neil Towers 8

9 Reconciling Capacity and Demand Demand Demand Demand Capacity Capacity Capacity Level capacity Chase demand Demand management Dr Neil Towers 9

10 How do do you cope with fluctuations in in demand? Absorb Demand Adjust output to to match demand Change demand Dr Neil Towers 10

11 Cost of Increasing Capacity a. Overtime premiums b. Lower efficiencies c. Recruitment and training d. More equipment and space Dr Neil Towers 11

12 Cost of Decreasing Capacity a. Staff Redundancy b. Loss of Goodwill, morale and efficiency c. Permanent loss of skills and experience Dr Neil Towers 12

13 Have excess capacity Absorb demand Keep output level Make to to stock Part finished, Finished Goods, or Customer Inventory Make customer wait Queues Backlogs Dr Neil Towers 13

14 Capacity Requirements Planning Schedule of of Planned Order Releases Work Order Status Routing Data Capacity Requirements Planning Work Centre Data Work Centre Load Reports Revised Schedule of of Planned Factory Order Releases Dr Neil Towers 14

15 Forecast Demand Actual Demand Replan Capacity Allocate Capacity Actual Capacity Refine Forecast Key question - How often do you change capacity in response to deviations from demand forecasts? Dr Neil Towers 15

16 Direction, extent and balance of vertical integration Should excess capacity be used to supply other companies? Raw material suppliers Component maker Assembly operation Wholesaler Retai ler Narrow process span Wide process span Up stream vertical integration Downstream vertical integration Dr Neil Towers 16

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