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Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston 2010 11.1 Chapter 11 Capacity planning.

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Presentation on theme: "Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston 2010 11.1 Chapter 11 Capacity planning."— Presentation transcript:

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2 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Chapter 11 Capacity planning and control Photodisc. Photolink

3 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Capacity planning and control Design Planning and control Operations strategy Improvement The operation supplies… the capacity to deliver products and services The market requires… the availability of products and services Capacity planning and control

4 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston In Chapter 11 – Capacity planning and control – Slack et al. identify the following key questions: What is capacity planning and control? How are demand and capacity measured? What are the alternative ways of coping with demand fluctuation? How can operations plan and control their capacity level? How can queuing theory be used to plan capacity? Key operations questions

5 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Capacity in the static, physical sense means the scale of an operation. What is capacity? However, this may not reflect the operation’s processing capability. Hence, we must incorporate a time dimension appropriate to the use of assets. –For example, 24,000 litres per day; –10,000 calls per day; –57 patients per session; –Etc.

6 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston The objectives of capacity planning and control 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.

7 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston The Objectives of capacity planning and control (Continued) Forecast demand Time Aggregated output Estimate of current capacity Measure aggregate capacity and demand. Identify the alternative capacity plans. Choose the most appropriate capacity plan.

8 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston The nature of aggregate capacity –rooms per night; –ignores the numbers of guests in each room. –tonnes per month; –ignores types of alloy, gauge and batch variations. Aggregate capacity of a hotel: Aggregate capacity of an aluminium producer:

9 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Climatic Festive Behavioural Political Financial Social Causes of seasonality Construction materials Beverages (beer, cola) Foods (ice-cream) Clothing (swimwear, shoes) Gardening items (seeds) Fireworks Travel services Holidays Tax processing Doctors (influenza epidemic) Sports services Education services.

10 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Demand fluctuations in four operations

11 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston 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 of under provision of capacity are high. Demand Time Only 5% chance of demand being lower than this Demand Time Distribution of demand Only 5% chance of demand being higher than this

12 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Loading time Equipment ‘idling’ Speed losses Slow running equipment Net operating time Not worked (unplanned) Breakdown failure Set-up and change-overs Total operating time Availability losses Operating equipment effectiveness (OEE) 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 Quality losses Valuable operating time Quality losses

13 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston 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 Efficiency Actual output Effective capacity = Utilization Actual output Design capacity =

14 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Ways of reconciling capacity and demand Level capacity Demand Capacity Chase demand Demand management Capacity Demand

15 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston How do you cope with fluctuations in demand? Absorb demand Change demand Adjust output to match demand Level capacity Chase demand Demand management Ways of reconciling capacity and demand (Continued)

16 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Absorb demand Part finished Finished goods, or Customer inventory Queues Backlogs. Have excess capacity Make to stock Keep output level Make customer wait Absorb demand

17 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Adjust output to match demand HireFire Temporary labourLay-off Overtime Subcontract Short time 3rd party work

18 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Change demand Change pattern of demand. Develop alternative products and/or services. Change demand

19 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Moving a peak in demand can make capacity planning easier

20 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Shortages queues inventory Actual demand and actual capacity Period t – 1 Outcome How much capacity next period? Current capacity estimates Updated forecasts Period t Decision How much capacity next period? Current capacity estimates Updated forecasts Period t + 1 Decision Capacity level Shortages queues inventory Costs Revenues Working capital Customer satisfaction, etc. Actual demand and actual capacity? Costs Revenues Working capital Customer satisfaction, etc. Outcome Capacity planning and control as a dynamic sequence of decisions

21 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Demand for a manufacturing operation’s output 8000 Forecast in aggregated units of output per month JFMAMJJASOND Months

22 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston 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 But will not satisfy demand at all points throughout the year Producing at average demand Producing at average demand allows inventory to be accumulated

23 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Cumulative representations Cumulative demand Time Building stock Unable to meet orders Capacity and demand Cumulative capacity

24 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Time Low variability – narrow distribution of process times High variability – wide distribution of process times Simple queuing system

25 Slack, Chambers and Johnston, Operations Management, 6 th Edition, © Nigel Slack, Stuart Chambers, and Robert Johnston Boundary of system Queue or ‘waiting line’ Served customers Rejecting Balking Reneging Server 1 Server 2 Server m Distribution of arrival times Distribution of processing times Simple queuing system (Continued) Source of customers


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