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Strategic Capacity Planning & Aggregate Planning

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Presentation on theme: "Strategic Capacity Planning & Aggregate Planning"— Presentation transcript:

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

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

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 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 & Long Range Medium Short Manufacturing Services

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 time has a time frame can be also measured in terms of resource inputs cannot be stored for later use

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

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

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

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

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

14 Capacity Expansion Issues Frequency of Capacity Expansion

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 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

18 Capacity Requirements Example--Calculation

19 Capacity Requirements Example--Projection

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

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 Level Production Time Production Demand Units

26 Chase Demand Time Units Production Demand

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