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Chapter 5: Capacity and Location Planning1 Chapter 5 Capacity and Location Planning.

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Presentation on theme: "Chapter 5: Capacity and Location Planning1 Chapter 5 Capacity and Location Planning."— Presentation transcript:

1 Chapter 5: Capacity and Location Planning1 Chapter 5 Capacity and Location Planning

2 Chapter 5: Capacity and Location Planning2 Examples

3 Chapter 5: Capacity and Location Planning3 Burger King Highly variable demand During lunch hour, demand can increase from 40 to 800 hamburgers/hour Limited in ability to used inventory Facilities designed for flexible capacity During off peak times drive through staffed by one worker

4 Chapter 5: Capacity and Location Planning4 Burger King continued During lunch hour drive through staffed by up to five workers who divide up the duties Second window can be used for customer with special orders Average transaction time reduced from 45 to 30 seconds Sales during peak periods increased 50%

5 Chapter 5: Capacity and Location Planning5 Burger King continued Payroll costs as large as food costs Need to keep costs low but at same time meet highly variable demand BK-50 restaurant is 35% smaller and costs 27% less to build, but can handle 40% more sales with less labor

6 Chapter 5: Capacity and Location Planning6 Semiconductor Industry Learning from the steel industry Both industries require large and expensive factories 1980s steel industry started to abandon economies of scale justification and built minimills Chipmakers are now constructing smaller and more automated wafer fabs

7 Chapter 5: Capacity and Location Planning7 Semiconductor Industry continued Short life cycles make it difficult to recoup $2 billion it will cost to build wafer fab in 1998 Payback time is month to conventional wafer fab versus 10 months for minifab Processing time can be reduced from days to 7 days.

8 Chapter 5: Capacity and Location Planning8 Mercedes-Benz Early 1990s investigated feasibility of producing luxury sports utility vehicle Project team established to find location for new plant Team charged with finding plant outside of Germany Team initially narrowed search to North America

9 Chapter 5: Capacity and Location Planning9 Mercedes-Benz continued Team determined that North America location would minimize combined labor, shipping, and components cost Plans indicated production volume of 65,000 vehicles per year and a breakeven volume of 40,000 vehicles Sites further narrowed to sites within US Close to primary market

10 Chapter 5: Capacity and Location Planning10 Mercedes-Benz continued Minimize penalties associated with currency fluctuations 100 sites in 35 state identified Primary concern was transportation cost Since half production was for export, focused on sites close to seaports, rail lines, and major highways

11 Chapter 5: Capacity and Location Planning11 Mercedes-Benz continued Worker age and mix of skills also considered Sites narrowed to sites in NC, SC, and AL These sites relatively equal in terms of business climate, education level, transportation, and long-term costs AL chosen due to perception of high dedication to the project

12 Chapter 5: Capacity and Location Planning12 Geographic Information Systems View and analyze data on digital maps Retail store in WI analyzed sales data on a map The map demonstrated that each store drew majority of sales from 20 mile radius Map highlighted area where only 15% of potential customers had visited one of its stores

13 Chapter 5: Capacity and Location Planning13 Sport Obermeyer Highly volatile demand Combined costs of stockouts and markdowns can exceed manufacturing costs Determine which items can and cannot be predicted well Products that can be predicted produced furthest in advance Increased its sales of fashion skiwear 50% to 100% over 3 year period in 1990s

14 Chapter 5: Capacity and Location Planning14 Insights Capacity planning applies to both manufacturing and service organizations Capacity options can be categorized as short-term or long-term Changing staffing level is short-term Building new minifab is long-term

15 Chapter 5: Capacity and Location Planning15 Insights continued Semiconductor industry illustrates the enormous cost often associated with expanding capacity Shorter product life cycles add further complications Volatile demand can further complicate capacity planning

16 Chapter 5: Capacity and Location Planning16 Introduction Capacity needs determined on the basis of forecast of demand. In addition to determining capacity needed, the location of the capacity must also be determined. Mercedes-Benz example illustrates that location decisions are often made in stages.

17 Chapter 5: Capacity and Location Planning17 Sport Obermeyer Highly volatile demand Combined costs of stockouts and markdowns can exceed manufacturing costs Determine which items can and cannot be predicted well Products that can be predicted produced furthest in advance Increased its sales of fashion skiwear 50% to 100% over 3 year period in 1990s

18 Chapter 5: Capacity and Location Planning18 Forecasting Purposes and Methods

19 Chapter 5: Capacity and Location Planning19 Primary Uses of Forecasting To determine if sufficient demand exists To determine long-term capacity needs To determine midterm fluctuations in demand so that short-sighted decisions are not made that hurt company in long-run To determine short-term fluctuations in demand for production planning, workforce scheduling, and materials planning

20 Chapter 5: Capacity and Location Planning20 Forecasting Methods Informal (intuitive) Formal Quantitative Qualitative

21 Chapter 5: Capacity and Location Planning21 Forecasting Methods

22 Chapter 5: Capacity and Location Planning22 Qualitative Methods Life cycle Surveys Delphi Historical analogy Expert opinion Consumer panels Test marketing

23 Chapter 5: Capacity and Location Planning23 Quantitative Methods Causal Input-output Econometric Box-Jenkins Autoprojection Multiplicative Exponential smoothing Moving average

24 Chapter 5: Capacity and Location Planning24 Choosing a Forecasting Method Availability of representative data Time and money limitations Accuracy needed

25 Chapter 5: Capacity and Location Planning25 Long-Term Capacity/Location Planning

26 Chapter 5: Capacity and Location Planning26 Terminology Maximum rate of output of the transformation system over some specified duration Capacity issues applicable to all organizations Often services cannot inventory output Bottlenecks Yield (or revenue) management

27 Chapter 5: Capacity and Location Planning27 Long-term Capacity Planning Unit cost as function of facility size Economies of scale Economies of scope

28 Chapter 5: Capacity and Location Planning28 Envelope of Lowest Unit Output Costs with Facility Size

29 Chapter 5: Capacity and Location Planning29 Demand and Life Cycles for Multiple Outputs Demand Seasonality Output Life Cycles

30 Chapter 5: Capacity and Location Planning30 Anti-cyclic Product Sales

31 Chapter 5: Capacity and Location Planning31 Forecast of Required Organizational Capacity from Multiple Life Cycles

32 Chapter 5: Capacity and Location Planning32 Timing of Capacity Increments

33 Chapter 5: Capacity and Location Planning33 Location Planning Strategies

34 Chapter 5: Capacity and Location Planning34 Capabilities and the Location Decision Often driven too much by short-term considerations wage rates exchange rates Better approach is to consider how location impacts development of long- term capabilities

35 Chapter 5: Capacity and Location Planning35 Six Step Process Identify sources of value Identify capabilities needed Assess implications of location decision on development of capabilities Identify potential locations Evaluate locations Develop strategy for building network of locations

36 Chapter 5: Capacity and Location Planning36 Stage 1: Regional-International Minimize transportation costs and provide acceptable service Proper supply of labor Wage rates Unions (right-to-work laws) Regional taxes, regulations, trade barriers Political stability

37 Chapter 5: Capacity and Location Planning37 Stage 2: Community Availability of acceptable sites Local government attitudes Regulations, zoning, taxes, labor supply Tax Incentives Communitys attitude Amenities

38 Chapter 5: Capacity and Location Planning38 Breakeven Location Model

39 Chapter 5: Capacity and Location Planning39 Stage 3: Site Size Adjoining land Zoning Drainage Soil Availability of water, sewers, utilities Development costs

40 Chapter 5: Capacity and Location Planning40 Weighted Score Model W i = importance of factor i S i = score of location being evaluated on factor i i = an index for the factors

41 Chapter 5: Capacity and Location Planning41 Locating Pure Service Organizations Recipient to Facility facility utilization travel distance per citizen travel distance per visit Facility to Recipient

42 Chapter 5: Capacity and Location Planning42 Short Term Capacity Planning

43 Chapter 5: Capacity and Location Planning43 Bottlenecks in Sequential Operations

44 Chapter 5: Capacity and Location Planning44 Efficiency and Output Increase when Machines are Being Added

45 Chapter 5: Capacity and Location Planning45 Product and Service Flows

46 Chapter 5: Capacity and Location Planning46 Process Flow Map for a Service

47 Chapter 5: Capacity and Location Planning47 Implementing the Theory of Constraints Identify the systems constraints Exploit the constraint Subordinate all else to the constraint Elevate the constraint If constraint is no longer a bottleneck, find the next constraint and repeat the steps.

48 Chapter 5: Capacity and Location Planning48 Relationship between Capacity and Scheduling Capacity is oriented toward the acquisition of productive resources Scheduling related to the timing of the use of resources

49 Chapter 5: Capacity and Location Planning49 Gantt Charts for Capacity Planning and Scheduling (Infeasible)

50 Chapter 5: Capacity and Location Planning50 Gantt Charts for Capacity Planning and Scheduling (Feasible)

51 Chapter 5: Capacity and Location Planning51 Short-Term Capacity Alternatives Increase resources Improve resource use Modify the output Modify the demand Do not meet demand

52 Chapter 5: Capacity and Location Planning52 Increase Resources Overtime Add shifts Employ part-time workers Use floating workers Subcontract

53 Chapter 5: Capacity and Location Planning53 Improve Resource Use Overlap or stagger shifts Schedule appointments Inventory output Backlog demand

54 Chapter 5: Capacity and Location Planning54 Modify the Output Standardize the output Have recipient do part of the work Transform service operations into inventoriable product operations Cut back on quality

55 Chapter 5: Capacity and Location Planning55 Demand Options Modify the Demand change the price change the promotion Do Not Meet Demand

56 Chapter 5: Capacity and Location Planning56 Capacity Planning for Services Large fluctuations in demand Inventory often not an option Problem often is to match staff availability with customer demand May attempt to shift demand to off-peak periods Can measure capacity in terms of inputs

57 Chapter 5: Capacity and Location Planning57 The Learning Curve

58 Chapter 5: Capacity and Location Planning58 Background In airframe manufacturing industry observed that each time output doubled, labor hour per plane decreased by fixed percentage

59 Chapter 5: Capacity and Location Planning59 Learning Curve Function M = mN r M = labor-hours for Nth unit m = labor-hours for first unit N = number of units produced r = exponent of curve = log(learning rate)/0.693

60 Chapter 5: Capacity and Location Planning60 Typical Pattern of Learning and Forgetting

61 Chapter 5: Capacity and Location Planning61 Queuing and the Psychology of Waiting

62 Chapter 5: Capacity and Location Planning62 Waiting-Line Analysis Mechanism to determine several key performance measures of operating system. Trade-off two costs cost of waiting cost of service

63 Chapter 5: Capacity and Location Planning63 Waiting Line Analysis

64 Chapter 5: Capacity and Location Planning64 Principles of Waiting Unoccupied time feels longer than occupied time. Pre-service waiting feels longer than in- service waiting. Anxiety makes waiting seem longer. Uncertain waiting is longer than known, finite waiting.

65 Chapter 5: Capacity and Location Planning65 Principles of Waiting continued Unexplained waiting is longer than explained waiting. Unfair waiting is longer than fair waiting. Solo waiting is longer than group waiting. The more valuable the service, the longer it is worth waiting for.

66 Chapter 5: Capacity and Location Planning66


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