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1 MGSM890 Operations Management Facilitator: Dr. Jonathan Farrell.

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Presentation on theme: "1 MGSM890 Operations Management Facilitator: Dr. Jonathan Farrell."— Presentation transcript:

1 1 MGSM890 Operations Management Facilitator: Dr. Jonathan Farrell

2 2 This Evenings Program Capacity Planning & Control –Aggregate Planning –Capacity versus Demand –The Planning Process –Managing Capacity & Demand Case Study – British Airways London Eye (pp 393,394) Exercises – Capacity Management (refer to the Folder of Readings)

3 3 Some Definitions CapacityCapacity is the available time for production and / or the maximum number of items that can be manufactured or delivered within a given time. A BottleneckA Bottleneck occurs when capacity is less than the demand placed on it. A capacity-constrained resource (CCR)A capacity-constrained resource (CCR) is a resource where the capacity is close to demand placed it.

4 4 Operations resources Customer requirements DemandSupply Availability of capacity to deliver products and services The operationThe market Capacity planning and control Required availability of products and services

5 5 Capacity Planning Horizons Long range plans Facilities – major capital expenditures Locations Aggregate (Intermediate) plans Minor equipment purchasing Materials requirements Work force size Production rates Detailed (short-term) schedules Daily, weekly schedules People - machine assignments

6 6 Material Procurement Overtime Hiring and layoffs Subcontracting Ending inventory Market Demand Forecast Aggregate Plans Starting Inventory Actual Demand People-Machine Assignment The Planning Process

7 7 Construction materials Beverages (beer, cola) Foods (ice-cream, Christmas cake) Clothing (swimwear, shoes) Gardening items (seeds, fertilizer) Fireworks Travel services Holidays Tax processing Doctors (influenza epidemic) Sports services Education services BehaviouralPolitical Financial SocialFestiveClimatic Causes of seasonality

8 8 Not worked (unplanned) Quality losses Slow running equipment Equipment idling Breakdown failure Set-up and change- overs Loading time Total operating time Net operating time Valuable operating time Speed losses Quality losses Availability rate = a = total operating time / loading time Performance rate = p = net operating time/total operating time Quality rate = q = valuable operating time / net operating time Availability losses

9 9 Rejecting Balking Source of customers Boundary of system Queue or waiting line Server 1 Served customers Reneging Server 2 Server m Distribution of arrival times Distribution of processing times Simple queuing system

10 10 Time Low variability - narrow distribution of process times High variability - wide distribution of process times Simple queuing system

11 11 Outcome Actual demand and actual capacity Decision How much capacity next period? Outcome Actual demand and actual capacity? Decision How much capacity next period? Shortages Queues Inventory Capacity level Shortages Queues Inventory Current capacity estimates Updated forecasts Current capacity estimates Updated forecasts Costs Revenues Working capital Customer satisfaction etc Costs Revenues Working capital Customer satisfaction etc Period t - 1 Period t Period t + 1

12 12 Lay off staffDelay any action Overtime Hire temporary staff Short-time Idle time Do nothing Overtime Hire temporary staff Make for inventory Short-time Hire and make for inventory Start to recruit Hire staff POOR Outlook < 1 NORMAL Outlook = 1 GOOD Outlook > 1 POOR Outlook < 1 NORMAL Outlook = 1 GOOD Outlook > 1 Short-term outlook Long-term outlook Outlook = Forecast demand Forecast capacity

13 13 The nature of aggregate capacity Aggregate capacity of a hotel: -rooms per night; -ignores the numbers of guests in each room. Aggregate capacity of an aluminium producer: -tonnes per month; -ignores types of alloy, gauge and batch variations.

14 14 Long-, medium- and short-term capacity planning Macro operation with a given set of resources might produce 6 tables or 12 chairs or some combination

15 15 Objectives of capacity planning and control Step 1 -Measure aggregate capacity and demand. Step 2 -Identify the alternative capacity plans. Step 3 -Choose the most appropriate capacity plan. Time Estimate of current capacity Forecast demand Aggregated output

16 16 How capacity and demand are measured Design capacity 168 hours per week Effective capacity 109 hours per week Planned loss of 59 hours Actual output - 51 hours per week Avoidable loss - 58 hours per week Actual output Effective capacity Efficiency = Actual output Design capacity Utilisation =

17 17 Ways of reconciling capacity and demand Level capacity Capacity Demand Chase demand Demand Capacity Demand management Demand Capacity

18 18 Cumulative representations Cumulative demand Cumulative capacity Time Building stock Unable to meet orders Capacity and demand

19 19 The dynamics of controlling planning Short-term outlook NormalGoodPoor Normal Good Poor Short- time working Make for inventory Lay off staff Do nothing Hire and make for inventory Delay any action Overtime Hire staff Overtime Long-term outlook

20 20 The effect of utilisation on customer service Average customer backlog Capacity Utilisation

21 Average customer backlog Capacity Utilisation Service target Reduce variance Add inventory Increase capacity Alternative investments to improve customer service

22 22 OBJECTIVE To provide an appropriate amount of capacity at any point in time. The appropriateness of capacity planning in any part of the operation can be judged by its effect on…... Costs Revenue Working Capital Service Level

23 23 Good forecasts are essential for effective capacity planning. But so is an understanding of demand uncertainty because it allows you to judge the risks to service level. When demand uncertainty is high the risks to service level or underprovision of capacity are high. DEMAND TIME Distribution of demand DEMAND TIME Only 5% chance of demand being higher than this Only 5% chance of demand being lower than this

24 24 It is useful to know not only the average capability of resources but also their variation in capability FREQUENCY TIME TO PROCESS ONE UNIT OF DEMAND Average processing time

25 25 How do you cope with fluctuations in demand? Absorb demand Adjust output to match demand Change demand

26 26 Absorb demand Keep output level Make to stock Make customer wait Part finished, Finished Goods, or Customer Inventory Queues Backlogs Have excess capacity

27 27 Adjust output to match demand HireFire Temporary Labour Lay off Overtime Subcontract Short time 3rd party work

28 28 Managing Capacity Change Demand Pricing Change pattern of demand Develop non-peak demand Develop alternative / complementary products and/or services Reservation systems

29 29 Take no action Unorganised OK Capacity wasted queuing queuing Reduce demand Higher prices - - Increase demand - - Lower prices Inventory Demand - Reservation system Priority for Aim for most - most desirable profitable mix most desirable profitable mix segments of business segments of business - Queuing Override for Try to avoid - most desirable bottleneck most desirable bottleneck segments delays segments delays Excess Demand Sufficient Capacity Excess Capacity Excess Demand Sufficient Capacity Excess Capacity Capacity Relative To Demand Approach Used To Manage Demand Alternative Demand Management Strategies

30 30 Managing Capacity Control Supply Schedule downtime during periods of low demand Maximise efficiency duringpeaks Use part time employees Cross-train employees Increase consumer participation Rent or share extra capacity Invest in ability for future expansion

31 31 Actual Demand Actual Demand Forecast Demand Forecast Demand Replan Capacity Replan Capacity Actual Capacity Actual Capacity Allocate Capacity Allocate Capacity Refine Forecast Refine Forecast Key question - How often do you change capacity in response to deviations from demand forecasts?

32 32 The tasks of capacity planning Some key questions Calculate Capability of Operations Resources Allocate Resources Over Time Design Capacity Control Mechanisms Forecast Demand or Revenue Potential Can you predict the most likely demand at any point in time? Can you predict the uncertainty in demand at any point in time? Can you predict the most likely demand at any point in time? Can you predict the uncertainty in demand at any point in time? Do you have realistic work standards? Do you understand the capacity constraints of all the necessary resources? Do you have realistic work standards? Do you understand the capacity constraints of all the necessary resources? What are the options for capacity allocation? What are their cost, revenue, work capital and service level implications? What are their flexibility implications? What are the options for capacity allocation? What are their cost, revenue, work capital and service level implications? What are their flexibility implications? Do you monitor actual demand against forecast? Do you adapt forecasts accordingly? Do you replan capacity accordingly? Do you monitor actual demand against forecast? Do you adapt forecasts accordingly? Do you replan capacity accordingly?

33 33 Demand for manufacturing operations output 8000 Forecast in aggregated units of output per month JFMAMJJASOND Months

34 34 For capacity planning purposes demand is best considered on a cumulative basis. This allows alternative capacity and output plans to be evaluated for feasibility. Forecast cumulative aggregated output (thousands) Cumulative operating days

35 35 SHORT TERM OUTLOOK P O O R N O R M A LG O O D POORPOOR NORMALNORMAL GOODGOOD Managing demand response LONG TERM OUTLOOK

36 36 A European domestic appliances manufacturers forecast and demand JAN 2003JAN2004

37 37 A European domestic appliances manufacturers forecast and demand Actual demand JAN 2003JAN 2004

38 38 Capacity Utilisation & Service Quality Best operating point is around 70% of capacity for most service delivery environments The 70% factor varies varies inversely with the degree of uncertainty and risk of delivery failure, e.g. emergency services should aim for a lower operating point In the critical zone, what do you think happens to service quality?

39 39 In Summary... Manage Capacity or Manage Demand? What does the organisation want to achieve? Most organisations have a mix of both

40 40 Exercise – Capacity Management

41 41 Case Study – British Airways London Eye What are the main design issues? Calculate the capacity of the London Eye What is the anticipated capacity utilisation? Why is it less than 100%? What is the estimated revenue in the first year?

42 42 The London Eye See for extensive information about the London Eye Capacity Analysis: –The wheel rotates on full revolution / 30 minutes –32 capsules at 25 passengers / capsule –> 1,600 passengers per hour –Available hours – Summer: 10:00 to 22:00 (12 hours) x 7 days Winter: 10:00 to 18:00 (6 hours) x 7 days –Summer is 24 weeks, Winter is 28 weeks, closed Christmas Day

43 43 Possible Performance Objectives Low operating costs Affordable, good valueCost Caters for all ages / abilities Individual questions answered No product flexibility reqd. Volume flexibility to cope with seasonal demand Flexibility Boarding as per timed ticket No unscheduled downtime Available as advertised Completed by target date Dependability No long queues Clear, fast and fair flows boarding / disembarking Short lead time for the design and construction Speed Resembles air travel Professional, smart staff Informative Capsules regularly cleaned Clear reservation system Exceptional aesthetics Strong, durable Good, uninterrupted views Unquestionably safe Comfortable ride (no sway) Quality Design of the processDesign of the product / service Performance objective


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