Chapter 5: Strategic Capacity Planning for Products and Services

Transcription

1 Chapter 5: Strategic Capacity Planning for Products and Services Assistant Prof. Abed Schokry Operations and Productions Management First Semester 2010 / 2011 Learning Outcomes: Chapter 5 After finishing this chapter, You should be able to: Explain the importance of capacity planning Discuss the ways of defining and measuring capacity Describe the determinants of effective capacity Discuss the major considerations related to developing capacity alternatives Briefly describe approaches that are useful for evaluating capacity alternatives 1

2 5-3 Strategic Capacity Planning Capacity can be defined as the ability to hold, receive or store. Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size Capacity Planning Capacity The upper limit or ceiling on the load that an operating unit can handle Goal To achieve a match between the long-term supply capabilities of an organization and the predicted level of longrun demand 2

3 Capacity Planning Questions Key Questions: What kind of capacity is needed? How much capacity is needed to match demand? When is it needed? Related Questions: How much will it cost? What are the potential benefits and risks? Are there sustainability issues? Should capacity be changed all at once, or through several smaller changes Can the supply chain handle the necessary changes? Capacity planning methods vary by industry or service - similar principles: long-term (yrs). Capacity strategy/policy needed (production sites, hotels/hospital (rooms & beds), warehouse space, lines/machinery, computer up-grades. Investment in new facilities etc. medium-term (mths) - forecast demand, schedule capacity to meet /balance it. MRP2 and MRP1 planning, machine scheduling, rotas. Levels of aggregation - plans to assign capacity. short-term - "now" responses. Detail revealed in action. Local staff expertise, flexibility & slack without upsetting aggregate plan/objectives. 3

4 Capacity Decisions Are Strategic Capacity decisions impact the ability of the organization to meet future demands affect operating costs are a major determinant of initial cost often involve long-term commitment of resources can affect competitiveness affect the ease of management are more important and complex due to globalization need to be planned for in advance due to their consumption of financial and other resources Measuring Capacity Examples There is no one best way to measure capacity Output measures like kegs per day are easier to understand With multiple products, inputs measures work better Type of Business Input Measures of Capacity Output Measures of Capacity Car manufacturer Labor hours Cars per shift Hospital Available beds Patients per month Pizza parlor Labor hours Pizzas per day Retail store Floor space in square feet Revenue per foot 4

5 Defining and Measuring Capacity Measure capacity in units that do not require updating Why is measuring capacity in dollars problematic? Two useful definitions of capacity Design capacity The maximum output rate or service capacity an operation, process, or facility is designed for Effective capacity Design capacity minus allowances such as personal time and maintenance Measuring System Effectiveness Actual output The rate of output actually achieved It cannot exceed effective capacity Efficiency Efficiency = Utilization Measured as percentages Utilizatio n = actual output effective capacity actual output design capacity 5

6 Example in Computing Efficiency and Utilization Design Capacity = 50 trucks per day Effective Capacity = 40 trucks per day Actual Output = 36 units per day Efficiency = Actual Output Effective Capacity = 36 per units per day 40 units per day = 90% Utilization = Actual Output Design Capacity = 36 per units per day 50 units per day = 72% Given the information below, compute the efficiency and the utilization of the vehicle repair department Factors that determine effective capacity A. Facilities Design Location Layout Environment B. Product/Service Design Product/Service Mix C. Process Quantity capabilities Quality capabilities D. Human Factors Job content Job design Training and experience Motivation Compensation Learning rates Absenteeism and labor turnover E. Operational Scheduling Materials management Quality assurance Maintenance policies Equipment breakdowns F. External Factors Product standards Safety regulations Unions Pollution control standards 6

7 Planning Service Capacity Need to be near customers Capacity and location are closely tied Inability to store services Capacity must be matched with timing of demand Degree of volatility of demand Peak demand periods In-House or Outsourcing Outsource: obtain a good or service from an external provider 1. Available capacity 2. Expertise 3. Quality considerations 4. Nature of demand 5. Cost 6. Risk 7

8 Developing Capacity Alternatives 1. Design flexibility into systems 2. Take stage of life cycle into account 3. Take a big picture approach to capacity changes 4. Prepare to deal with capacity chunks (mass)! 5. Try to smooth out capacity requirements 6. Identify the optimal operating level 5-16 Capacity Flexibility Flexible plants Flexible processes Flexible workers 8

9 Figure 5.1 Machine #1 Machine #2 10/hr Machine #3 10/hr 10/hr Bottleneck Operation Bottleneck operation: An operation in a sequence of operations whose capacity is lower than that of the other operations Bottleneck Operation 30/hr Machine #4 10/hr Bottleneck Operation Bottleneck Operation 1 20/hr. Operation 2 10/hr. Operation 3 15/hr. 10/hr. Maximum output rate limited by bottleneck 9

10 Economies and Diseconomies of Scale Economies of Scale If output rate is less than the optimal level, increasing the output rate results in decreasing average per unit costs Diseconomies of Scale If the output rate is more than the optimal level, increasing the output rate results in increasing average per unit costs 5-20 Economies & Diseconomies of Scale Economies of Scale and the Learning Curve working Average unit cost of output 100-unit plant 200-unit plant 300-unit plant 400-unit plant Diseconomies of Scale start working Volume 10

11 The Learning Curve As plants produce more products, they gain experience in the best production methods and reduce their costs per unit Cost or price per unit Yesterday Today Tomorrow Total accumulated production of units 5-22 Units per month Unbalanced stages of production Stage 1 Stage 2 Stage 3 6,000 7,000 5,000 Maintaining System Balance: Output of one stage is the exact input requirements for the next stage Units per month Balanced stages of production Stage 1 Stage 2 Stage 3 Capacity Planning: Balance 6,000 6,000 6,000 11

12 How Much Capacity Is Best? The Best Operating Level is the output than results in the lowest average unit cost Economies of Scale: Where the cost per unit of output drops as volume of output increases Spread the fixed costs of buildings & equipment over multiple units, allow bulk purchasing & handling of material Diseconomies of Scale: Where the cost per unit rises as volume increases Often caused by congestion (overwhelming the process with too much work-in-process) and scheduling complexity Capacity Strategies Leading Build capacity in anticipation of future demand increases Following Build capacity when demand exceeds current capacity Tracking Similar to the following strategy, but adds capacity in relatively small increments to keep speed with increasing demand 12

13 Capacity Cushion Capacity Cushion (reduce) Extra capacity used to offset demand uncertainty Capacity cushion = 100% - Utilization Capacity cushion strategy Organizations that have greater demand uncertainty typically have greater capacity cushion Organizations that have standard products and services generally have greater capacity cushion Making Capacity Planning Decisions The three-step procedure for making capacity planning decisions is as follows: Step 1: Identify Capacity Requirements Step 2: Develop Capacity Alternatives Step 3: Evaluate Capacity Alternatives 13

14 Steps in Capacity Planning 1. Estimate future capacity requirements 2. Evaluate existing capacity and facilities; identify gaps 3. Identify alternatives for meeting requirements 4. Conduct financial analyses 5. Assess key qualitative issues 6. Select the best alternative for the long term 7. Implement alternative chosen 8. Monitor results Calculating Processing Requirements Calculating processing requirements requires reasonably accurate demand forecasts, standard processing times, and available work time N R where N = D R p i i k i= 1 p D T i = number = standard = demand of processing for T = processing i required product time machines time i during available for the during product planning the i planning horizon horizon 14

15 5-29 Best Operating Level Example: Engineers design engines and assembly lines to operate at an ideal or best operating level to maximize output and minimize ware Average unit cost of output Underutilization Overutilization Best Operating Level Volume Best Operating Level and Size Alternative 1: Purchase one large facility, requiring one large initial investment Alternative 2: Add capacity incrementally in smaller chunks as needed 15

16 Optimal Operating Level Optimal Output Rate Cost-Volume Relationships 16

17 Generated by Foxit PDF Creator Foxit Software Operations Strategy Capacity planning impacts all areas of the organization It determines the conditions under which operations will have to function Flexibility allows an organization to be agile It reduces the organization s dependence on forecast accuracy and reliability Many organizations utilize capacity cushions to achieve flexibility Bottleneck management is one way by which organizations can enhance their effective capacities Capacity expansion strategies are important organizational considerations Expand-early strategy Wait-and-see strategy Capacity contraction is sometimes necessary Capacity disposal strategies become important under these conditions End of Chapter 5 17