Flexibility and Capacity Planning

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1 Flexibility and Capacity Planning What is flexibility? GM examples Lessons from Flex Cap software Flex Cap model Flexibility principles Reference Jordan, Graves Principles on the Benefits of Manufacturing Process Flexibility, Management Science, April 1995 Stephen C. Graves Copyright

2 What is flexibility? Ability to respond to change What type of changes? Demand volume Demand mix Product features Process or technology changes Job priorities Process yield How responsive? Stephen C. Graves Copyright

3 How to achieve flexibility? Flexible processes Short setups or changeovers Flexible work force Excess capacity Overtime Out sourcing or subcontracting Product design, e. g., modularity, common components, postponement Contracts, e.g., options Stephen C. Graves Copyright

4 BACKGROUND Forward planning in automotive industry for allocating products to assembly plants Flexibility: Ability to build different product types in the same plant at the same time Motivation: Product demand is VERY uncertain. average forecast error > 50%! Cost of unfilled demand or poorly utilized capacity is very high. Flexible capacity is very expensive. Stephen C. Graves Copyright

5 BOC MY PRODUCT ALLOCATIONS CARLINES CHEV J PONT J L CAR PONT N OLDS N BUICK N PONT H OLDS H BUICK H BUICK C OLDS C CAD C BUICK E OLDS E CAD E/K ASSEMBLY PLANTS LORDSTOWN LINDEN WILMINGTON LANSING A LANSING B BUICK CITY WENTZVILLE ORION HAMTRAMCK IS THIS ENOUGH FLEXIBILITY? Stephen C. Graves Copyright

6 PLANNING VOLUME UNCERTAINTY PLANNING VOLUMES FOR MY NAMEPLATE CARLINES COMPARED TO ACTUAL PRODUCTION: Stephen C. Graves Copyright

7 AVERAGE UNCERTAINTY MY NAMEPLATE-CARLINE PLANNING VOLUMES COMPARED TO ACTUAL PRODUCTION QUARTERS BEFORE SOP AVERAGE ABSOLUTE DIFFERENCE 12 54% 8 44% 4 37% Stephen C. Graves Copyright

8 Dedicated System Sales: Shortfall: Utilization: 88.11% Stephen C. Graves Copyright

9 X ij : amount produced at plant i for product j S j : shortfall for product j Min S j j X ij C i for all plants i j % X ij + S j D j for all products j i Stephen C. Graves Copyright

10 What is the best way to add flexibility to the system? What are the benefits? How much flexibility do you need to add? Stephen C. Graves Copyright

11 sales shortages Util. Dedicated % 1 link % 2 links % 3 links % 4 links % 5 links % 6 links % Total flex % Stephen C. Graves Copyright

12 Limited Flexibility Sales: Shortfall: Utilization: 94.96% Total Flexibility Sales: Shortfall: Utilization: 94.96% Stephen C. Graves Copyright

13 FLEXIBILITY PRINCIPLES A LITTLE FLEXIBILITY GOES A LONG WAY!: SMALL AMOUNT OF FLEXIBILITY APPROPIATELY USED YIELDS MOST OF THE BENEFITS OF TOTAL FLEXIBILITY CHAINING : ADDING FLEXIBILITY TO CHAIN PLANTS AND PRODUCTS TOGETHER IS MOST EFFECTIVE Stephen C. Graves Copyright

14 CHAINS PRODUCTS A B C D E PLANTS CHAIN 1 CHAIN 2 PRODUCTS ASSIGNED TO PLANTS ARE CONNECTED TO LINKS AS SHOWN A CHAIN IS DEFINED SUCH THAT A PATH CAN BE TRACED VIA LINKS FROM ANY PRODUCT OR PLANT TO ANY OTHER PRODUCT OR PLANT WITHIN THE CHAIN. NO PRODUCT IS BUILT BY A PLANT OUTSIDE THE CHAIN NO PLANT BUILDS A PRODUCT FROM OUTSIDE THE CHAIN Stephen C. Graves Copyright

15 MULTI-PLANT EXAMPLE PRODUCTS A B C D E F G H PLANTS DEMAND FOR EACH PRODUCT: EXPECTED = 100 UNITS STANDARD DEVIATION = 40 UNITS PRODUCT DEMANDS UNCORRELATED CAPACITY OF EACH PLANT = 100 UNITS I 9 J 10 Stephen C. Graves Copyright

16 ADD FLEXIBILITY PRODUCTS A B C D E F G H I PLANTS ADD FIRST LINK ADD SECOND LINK ADD THIRD LINK J 10 Stephen C. Graves Copyright

17 NO FLEXIBILITY VS. TOTAL FLEXIBILITY Stephen C. Graves Copyright

18 IMPACT OF ADDING FLEXIBILITY Stephen C. Graves Copyright

19 Stephen C. Graves Copyright LIMITED FLEX. CAN HAVE THE BENEFITS OF TOTAL FLEX. A B C D E F G H I J PRODUCTS PLANTS A B C D E F G H I J PRODUCTS PLANTS

20 CHAINING YIELDS THE GREATEST BENEFITS ONE CHAIN FIVE CHAINS PRODUCTS PLANTS PRODUCTS PLANTS A 1 A 1 B 2 B 2 C 3 C 3 D 4 D 4 E 5 E 5 F 6 F 6 G 7 G 7 H 8 H 8 I J 9 I 9 10 J 10 Stephen C. Graves Copyright

21 IMPACT OF CHAINING Stephen C. Graves Copyright

22 Stephen C. Graves Copyright

23 NEGATIVE DEMAND CORRELATION CHAINING MORE IMPORTANT THAN COMBINING NEGATIVELY CORRELATED PRODUCTS EXAMPLE: ASSUME PRODUCTS A AND C NEGATIVELY CORRELATED. THEN THESE CONFIGURATIONS ARE EQUIVALENT IN TERMS OF FLEXIBILITY BENEFITS. PRODUCTS PLANTS PRODUCTS PLANTS A 1 A 1 B 2 = B 2 C 3 C 3 D 4 D 4 PRODUCT CORRELATIONS ARE NOT A KEY FACTOR IN DECIDING WHICH PRODUCTS TO BUILD TOGETHER IN A PLANT, AS LONG AS THE PRODUCTS ARE CHAINED TOGETHER Stephen C. Graves Copyright

24 REAL EXAMPLE A B CHAINS 270 C D E F EX. DEMAND G CAPACITY 120 (000 S) 80 H (000 S) 140 I J K L M N O 8 2,060 P 240 2,030 24

25 BOC PRODUCT ASSIGNMENT MY 93 PLAN CHEV J PONT J L CAR PONT N OLDS N BUICK N PONT H OLDS H BUICK H BUICK C LORDSTOWN LANSING A LANSING B L PLANT WENTZVILLE BUICK CITY OLDS C OLDS G BUICK G CAD E CAD K CAD Ksp ORION HAMTRAMCK - CHAIN 25

26 ADD FLEXIBILITY 320 A B C D E F G H I J K L M N O P CHAINS EX. DEMAND CAPACITY 120 (000 S) 240 (000 S) ,030 2,060

27 BASE VS. TOTAL FLEXIBILITY Stephen C. Graves Copyright

28 IMPACT OF ADDING FLEXIBILITY Stephen C. Graves Copyright

29 Stephen C. Graves Copyright THERE IS NOT ONE OPTIMAL FLEX. PLAN =

30 SUMMARY A SMALL AMOUNT OF FLEXIBILITY CAN HAVE MOST OF THE BENEFITS OF TOTAL FLEXIBILITY. FLEXIBILITY HAS THE GREATEST BENEFITS WHEN ADDED TO YIELD FEWER, LONGER CHAINS. THERE IS NO SINGLE OPTIMAL FLEXIBILITY PLAN; SEVERAL PLANS WILL YIELD THE BENEFITS OF TOTAL FLEXIBILITY Stephen C. Graves Copyright

31 SUMMARY VALUE FROM FRAMEWORK FOR QUANTIFYING BENEFITS OF FLEXIBILITY FLEX CAP TOOL ALLOWS EXPLORATION OF ALTERNATIVES, AND THEIR EVALUATION UNDER UNCERTAINTY SUBSEQUENT RESEARCH HAS SHOWN HOW IDEAS EXTEND TO SUPPLY CHAIN, I.E, MULTIPLE STAGES Stephen C. Graves Copyright

32 EXAMPLE FLEXIBILITY ADDITIONS B-O-C MY 93 PLAN CHEV J PONT J L CAR PONT N OLDS N BUICK N 4 LORDSTOWN LANSING A LANSING B L PLANT PONT H OLDS H BUICK H BUICK C OLDS C OLDS G BUICK G CAD E CAD K CAD Ksp 2 WENTZVILLE BUICK CITY 3 1 ORION HAMTRAMCK Stephen C. Graves Copyright

33 ADD FLEXIBILITY A B C D E F G H I J 5 6 K L 7 M N O P

34 Principles Limited flexibility can give you the benefit of total flexibility Limited flexibility has greatest benefits when create chains Stephen C. Graves Copyright

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