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MBA 8452 Systems and Operations Management MBA 8452 Systems and Operations Management Strategic Capacity Planning & Aggregate Planning.

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Presentation on theme: "MBA 8452 Systems and Operations Management MBA 8452 Systems and Operations Management Strategic Capacity Planning & Aggregate Planning."— Presentation transcript:

1 MBA 8452 Systems and Operations Management MBA 8452 Systems and Operations Management Strategic Capacity Planning & Aggregate Planning

2 2 Quality Management Statistical Process Control Inventory Control Just in Time Introduction to Operations Management/ Operations Strategy Project Management Planning for Production Process Analysis and Design Process Control and Improvement Waiting Line Analysis Services Manufacturing Process Analysis Job Design Aggregate Planning Capacity Management Supply Chain Management Layout/ Assembly Line Balancing Scheduling

3 3 Objective: Capacity Management Overview of Capacity Management Be able to explain why capacity management is important Best Operating Level Be able to describe the best operating level Capacity Focus What does capacity focus mean Capacity Requirements Calculate capacity requirements and compare to available capacity Strategies for Meeting Demand Be able to explain the concept of Chase and Level Strategies

4 4 Major Operations Planning Activities Overview Process Planning Strategic Capacity Planning Aggregate Planning Master Production Scheduling Material Requirements Planning Order Scheduling Weekly Workforce & Customer Scheduling Daily Workforce & Customer Scheduling Long Range Medium Range Short Range Manufacturing Services

5 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 6 Capacity Planning Basic Questions What kind of capacity is needed? How much is needed? When is needed?

7 7 What Is Capacity? The amount of output that a system is capable of achieving over a specific period of time has a time frame can be also measured in terms of resource inputs cannot be stored for later use

8 8 Capacity Planning Concept Best Operating Level Design capacity for which average unit cost is at the minimum Average unit cost of output Underutilization Best Operating Level Overutilization Volume

9 9 Capacity Planning Concept Capacity Utilization Capacity used rate of output actually achieved Best operating level design capacity

10 10 Capacity Planning Concept Example - Capacity Utilization Design capacity = 50 trucks/day Actual output = 36 trucks/day Utilization = ? Solution:

11 11 Volume Average unit cost of output Economies & Diseconomies of Scale 100-unit plant 200-unit plant 300-unit plant 400-unit plant Economies of Scale and the Experience Curve working Diseconomies of Scale start working

12 12 Capacity Planning Concept The Experience Curve Total accumulated production of units Cost or price per unit

13 13 Capacity Expansion Issues Maintaining system balance External sources of capacity Timing and frequency of capacity expansions Stage 1Stage 2Stage 3 InputsOutputs 200/hr 50/hr (bottleneck) 200/hr Volume Time Capacity leads demand Volume Time Capacity lags demand Timing Strategy

14 14 Capacity Expansion Issues Frequency of Capacity Expansion

15 15 Determining Capacity Requirements Forecast sales within each individual product line Calculate equipment and labor requirements to meet the forecasts Project equipment and labor availability over the planning horizon

16 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 17 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 Determining Capacity Requirements Example (cont.)

18 18 Capacity Requirements Example--Calculation

19 19 Capacity Requirements Example--Projection

20 20 Planning Service Capacity Time – service is perishable and must be consumed when it is produced Location – people are not willing to travel long distances to obtain a service so they must be located near the customer Volatility of Demand – demand for services is subject to change

21 21 Capacity Utilization & Service Quality Best operating point is near 70% of capacity From 70% to 100% of service capacity, what might happen to service quality? Why? Context specific tradeoff

22 22 Aggregate Planning (Chap. 12) Matches market demand to company resources Medium-range: 6-18 months Goal: Specify the optimal combination of  production rate  workforce level  inventory on hand

23 23 Inputs and Outputs to Aggregate Production Planning Aggregate Production Planning Company Policies Financial Constraints Strategic Objectives Units or dollars subcontracted, backordered, or lost Capacity Constraints Size of Workforce Production per month (in units or $) Inventory Levels Demand Forecasts

24 24 Strategies for Meeting Demand Level production - produce at constant rate & use inventory as needed to meet demand Chase demand - change workforce levels so that production matches demand Subcontracting - useful if supplier meets quality & time requirements

25 25 Level Production Time Production Demand Units

26 26 Chase Demand Time Units Production Demand


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