1 Strategic Capacity Planning & Aggregate Planning MBA 8452 Systems and Operations ManagementStrategic Capacity Planning & Aggregate Planning
2 Introduction to Operations Management/ Operations Strategy Process Analysisand DesignProjectManagementPlanning for ProductionProcess Controland ImprovementProcess AnalysisCapacity ManagementQualityManagementAggregate PlanningJob DesignStatisticalProcess ControlJust in TimeSchedulingManufacturingLayout/Assembly Line BalancingInventory ControlSupply ChainManagementServicesWaiting Line Analysis
3 Objective: Capacity Management Overview of Capacity ManagementBe able to explain why capacity management is importantBest Operating LevelBe able to describe the best operating levelCapacity FocusWhat does capacity focus meanCapacity RequirementsCalculate capacity requirements and compare to available capacityStrategies for Meeting DemandBe able to explain the concept of Chase and Level Strategies
4 Major Operations Planning Activities Overview Process PlanningStrategic Capacity PlanningAggregate PlanningMaster Production SchedulingMaterial Requirements PlanningOrder SchedulingWeekly Workforce &Customer SchedulingDaily Workforce &LongRangeMediumShortManufacturingServices
5 “You can’t build it if you don’t have the capacity” Strategic Capacity Planning Planning of the overall capacity level of capital-intensive resources—facilities, equipment, and overall labor force size —that supports the company’s long-range competitive strategy.
6 Capacity Planning Basic Questions What kind of capacity is needed?How much is needed?When is needed?
7 What Is Capacity?The amount of output that a system is capable of achieving over a specific period of timehas a time framecan be also measured in terms of resource inputscannot be stored for later use
8 Capacity Planning Concept Best Operating Level Design capacity for which average unit cost is at the minimumAverageunit costof outputUnderutilizationBest OperatingLevelOverutilizationVolume
11 Economies & Diseconomies of Scale Economies of Scale and the Experience Curve workingVolumeAverageunit costof output100-unitplant200-unitplant400-unitplant300-unitplantDiseconomies of Scale start working
12 Capacity Planning Concept The Experience Curve Cost orpriceper unitTotal accumulated production of units
13 Capacity Expansion Issues Maintaining system balanceExternal sources of capacityTiming and frequency of capacity expansionsStage 1Stage 2Stage 3InputsOutputs200/hr50/hr(bottleneck)VolumeTimeCapacity leads demandVolumeTimeCapacity lags demandTiming Strategy
14 Capacity Expansion Issues Frequency of Capacity Expansion
15 Determining Capacity Requirements Forecast sales within each individual product lineCalculate equipment and labor requirements to meet the forecastsProject equipment and labor availability over the planning horizon
16 Determining Capacity Requirements Example A manufacturer produces two lines of ketchup, FancyFine and a Generic line. Each is sold in small and family-size plastic bottles. Are we really producing two different types of ketchup from the standpoint of capacity requirements? No!The following table shows forecast demand for the next four years.
17 Determining Capacity Requirements Example (cont.) Currently, 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.Total combined demand forecasts
20 Planning Service Capacity Time – service is perishable and must be consumed when it is producedLocation – people are not willing to travel long distances to obtain a service so they must be located near the customerVolatility of Demand – demand for services is subject to change
21 Capacity Utilization & Service Quality Best operating point is near 70% of capacityFrom 70% to 100% of service capacity, what might happen to service quality? Why?Context specific tradeoff
22 Aggregate Planning (Chap. 12) Matches market demand to company resourcesMedium-range: 6-18 monthsGoal: Specify the optimal combination ofproduction rateworkforce levelinventory on hand
23 Inputs and Outputs to Aggregate Production Planning CapacityConstraintsStrategicObjectivesCompanyPoliciesDemandForecastsFinancialConstraintsAggregateProductionPlanningSize ofWorkforceUnits or dollarssubcontracted,backordered, orlostProductionper month(in units or $)InventoryLevels
24 Strategies for Meeting Demand Level production - produce at constant rate & use inventory as needed to meet demandChase demand - change workforce levels so that production matches demandSubcontracting - useful if supplier meets quality & time requirements