Strategic Capacity Planning. Capacity utilization rate = Discussion. Chapter 11

Transcription

1 2 Strategic Capacity Planning Capacity can be defined as the ability to hold, receive, store, or accommodate Chapter 11 Strategic Capacity Management Strategic capacity planning is an approach for determining the overall capacity level of capital intensive resources, including facilities, equipment, and overall labor force size November 19, 2008 Ref: Capacity at American President's Line: LO3.avi 2 Discussion What are some major capacity considerations in manufacturing / service? 3 Capacity Utilization Capacity utilization rate reveals how close a firm is to its best operating point (i.e. design capacity). Capacity used Capacity utilization rate = Best operating level Capacity used rate of output actually achieved Best operating level capacity for which the process was designed 4 3 4

2 5 6 Best Operating Level Example of Capacity Utilization Average unit cost of output Underutilization Overutilization During one week of production, a plant produced 83 units of a product. Its historic highest or best utilization recorded was 120 units per week. What is this plant s capacity utilization rate? Volume 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 Answer: Capacity utilization rate = Capacity used. Best operating level = 83/120 =0.69 or 69% 5 6 Economies & Diseconomies of Scale 7 The Experience Curve 8 Economies of Scale and the Experience Curve working As plants produce more products, they gain experience in the best production methods and reduce their costs per unit Average unit cost of output 100-unit plant 200-unit plant 300-unit plant 400-unit plant Cost or price per unit Yesterday Today Tomorrow Diseconomies of Scale start working 7 Volume 8 Total accumulated production of units

3 9 10 Capacity Focus Capacity Flexibility The concept of the focused factory holds that production facilities work best when they focus on a fairly limited it set of production objectives Plants Within Plants (PWP) Extend focus concept to operating level 9 Ref: Hospital Within Hospital: St. Alexius Hospital (DVD) The ability to rapidly increase/decrease production levels, or to shift production capacity quickly from one product/service to another. Flexible plants Ultimate: zero-changeover-time; quickly adapt to change Ex: Circus in the old tent Flexible processes Epitomized by flexible manufacturing systems on the one hand and simple, easily set up equipment on the other Flexible workers Multiple skills and the ability to switch easily from one kind of task to another Ref: Louisville Slugger Manufacturing: AB6.avi 10 Capacity Planning: Consideration in adding capacity Unbalanced stages of production Units per Stage 1 Stage 2 Stage 3 month 6,000 7,000 5,000 Maintaining System Balance: Output of one stage is the exact input requirements for the next stage 11 Capacity Planning: Consideration in adding capacity Frequency of Capacity Additions Cost of upgrading too frequently Cost of upgrading too infrequently External Sources of Capacity 12 Units per month Balanced stages of production Stage 1 Stage 2 Stage 3 6,000 6,000 6,

4 13 14 Determining Capacity Requirements Example of Capacity Requirements 1. Forecast sales within each individual product line A manufacturer produces two lines of mustard, FancyFine and Generic line. Each is sold in small and family-size plastic bottles. 2. Calculate equipment and labor requirements to meet the forecasts The following table shows forecast demand for the next four years. 3. Project equipment and labor availability over the planning horizon Year: FancyFine Small (000s) Family (000s) Generic Small (000s) Family (000s) Example of Capacity Requirements (Continued): Product from a Capacity Viewpoint 15 Example of Capacity Requirements (Continued) : Equipment and Labor Requirements 16 Question: Are we really producing two different types of mustards from the standpoint of capacity requirements? Year: Small (000s) Family (000s) Answer: No, it s the same product just packaged differently. Three 100,000 units-per-year machines are available for small-bottle production. Two operators required per machine. Two 120,000 units-per-year machines are available for family-sized-bottle production. Three operators required per machine

5 Question: What are the Year 1 values for capacity, machine, and labor? Year: Small (000s) Family (000s) Small Mach. Cap. 300,000 Labor 6 Family-size Mach. Cap. 240,000 Labor 6 150,000/300,000=50% At 1 machine for 100,000, it Small takes 1.5 machines for 150,000 Percent capacity used 50.00% Machine requirement 1.50 Labor requirement 3.00 At 2 operators for Family-size Percent capacity used 47.92% 100,000, it takes 3 operators for 150,000 Machine requirement 0.96 Labor 17 requirement The McGraw-Hill Companies, Inc., Question: What are the values for columns 2, 3 and 4 in the table below? Year: Small (000s) Family (000s) Small Mach. Cap. 300,000 Labor 6 Family-size Mach. Cap. 240,000 Labor 6 Small Percent capacity used 50.00% 56.67% Machine requirement Labor requirement Family-size Percent capacity used 47.92% 58.33% Machine requirement Labor requirement % % % % The McGraw-Hill Companies, Inc., 2004 Example of a Decision Tree Problem 19 Example of a Decision Tree Problem (Continued): The Payoff Table 20 A glass factory specializing in crystal is experiencing a substantial backlog, and the firm's management is considering three courses of action: A) Arrange for subcontracting B) Construct new facilities C) Do nothing (no change) The correct choice depends largely upon demand, which may be low, medium, or high. By consensus, management estimates the respective demand probabilities as 0.1, 0.5, and 0.4. The management also estimates the profits when choosing from the three alternatives (A, B, and C) under the differing probable levels els of demand. These profits, in thousands of dollars are presented in the table below: Low Medium High A B C

6 Example of a Decision Tree Problem (Continued): Step 1. We start by drawing the three decisions 21 Example of Decision Tree Problem (Continued): Step 2. Add our possible states of nature, probabilities, and payoffs 22 A B C A B C $90k $50k $10k $200k $25k -$120k $60k $40k $20k Example of Decision Tree Problem (Continued): Step 3. Determine the expected value of each decision A $62k $90k $50k $10k EV A =0.4(90)+0.5(50)+0.1(10)=$62k 23 Example of Decision Tree Problem (Continued): Step 4. Make decision $62k A B C $46k $80.5k $90k $50k $10k $200k $25k -$120k $60k $40k $20k Alternative B generates the greatest expected profit, so our choice is B or to construct a new facility 24

7 Planning Service Capacity vs. Manufacturing Capacity 25 Capacity Utilization & Service Quality 26 Time: Goods can not be stored for later use and capacity must be available to provide a service when it is needed Location: Service goods must be at the customer demand point and capacity must be located near the customer Volatility of Demand: Much greater than in manufacturing Best operating point is near 70% of capacity Enough to keep servers busy but allows enough time to serve customers individually and keep enough capacity in reserve so as not to create too many managerial headaches From 70% to 100% of service capacity, what do you think happens to service quality? In the critical zone, service quality declines Above the critical zone, many customers may never be served Ref: NAR-Information Central: QAP3.avi The objective of Strategic Capacity Planning is to provide an approach for determining the overall capacity level l of which h of the following? a. Facilities b. Equipment c. Labor force size 27 Answer: To improve the Capacity Utilization Rate we can do which of the following? a. Reduce capacity used b. Increase capacity used c. Increase best operating level Answer: b. Increase capacity used (This increases the numerator in the Capacity Utilization Rate ratio, which is desirable.) 28

8 29 30 When we talk about Capacity Flexibility which of the following types of flexibility are included? d? a. Plants b. Processes c. Workers Answer: When adding capacity to existing operations which of the following are considerations that should be included in the planning effort? a. Maintaining system balance b. Frequency of additions c. External sources Answer: Which of the following is a term used to describe the difference between projected capacity requirements and the actual capacity requirements? a. Capacity cushion b. Capacity utilization c. Capacity utilization rate Answer: a. Capacity cushion In determining capacity requirements, we must do which of the following? a. Address the demands for individual product lines b. Address the demands for individual plants c. Allocate production throughout the plant network Answer: 31 32

9 33 33 In a Decision Tree problem used to evaluate capacity alternatives, we need which of the following as prerequisite it information? a. Expect values of payoffs b. Payoff values c. A tree Answer: b. Payoff values (Expected values are what is computed, not prerequisite to the analysis.)