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Capacity Management. Trade offs The Fresh Connection is full of trade offs –Over multiple roles and within roles –Sometimes conflicting with role incentives.

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Presentation on theme: "Capacity Management. Trade offs The Fresh Connection is full of trade offs –Over multiple roles and within roles –Sometimes conflicting with role incentives."— Presentation transcript:

1 Capacity Management

2 Trade offs The Fresh Connection is full of trade offs –Over multiple roles and within roles –Sometimes conflicting with role incentives Supplier mgt Capacity mgt Inventory mgt Demand mgt Capacity management Volatility manaagment

3 3  3© 2009 APICS CONFIDENTIAL AND PROPRIETARY Production Strategies Four basic production strategies: –Chase (demand matching) –Level –Subcontracting –Hybrid (combination)

4 3  4© 2009 APICS CONFIDENTIAL AND PROPRIETARY Chase Strategy

5 3  5© 2009 APICS CONFIDENTIAL AND PROPRIETARY Chase Strategy Advantages: –Stable inventory –Varied production to meet sales requirements Disadvantages: –Costs of hiring, training, overtime, and extra shifts –Costs of layoffs and impact on employee morale –Possible unavailability of needed work skills –Capacity must match maximum demand

6 3  6© 2009 APICS CONFIDENTIAL AND PROPRIETARY Level Strategy Source: Arnold et al., Introduction to Materials Management, 6 th ed. Reprinted by Permission of Pearson Education

7 3  7© 2009 APICS CONFIDENTIAL AND PROPRIETARY Level Strategy Advantages: –Avoids labor and capacity costs of demand matching –Avoids changeover costs and lowers the average production cost per item Disadvantages: –Buildup of inventory –Requires a very accurate forecast

8 3  8© 2009 APICS CONFIDENTIAL AND PROPRIETARY Meet demand by subcontracting Subcontracting Advantages: –No excess capacity –Level production Disadvantages: –Costs of subcontracting –Proprietary production technology

9 3  9© 2009 APICS CONFIDENTIAL AND PROPRIETARY Hybrid Strategy Source: Arnold et al., Introduction to Materials Management, 6 th ed. Reprinted by Permission of Pearson Education

10 3  10© 2009 APICS CONFIDENTIAL AND PROPRIETARY Hybrid Strategy: Characteristics Produces at or close to full capacity for part of the cycle Produces at a lower rate during the other part of the cycle Production is level in both parts of the cycle Inventory and workforce adjustment costs are lower than in the chase strategy Requires an accurate forecast as in the level strategy

11 Capacity management in TFC Subcontracting in not an option TFC Levelling of capacity is impossible for a fresh product Two choices by varying the frozen period –Chasing –Hybrid What is the % runtime, breakdowntime, changeover time and unused for the filling line? How can you influence breakdown and change over time? Explore TFC

12 Capacity Planning Issues in the game Finished product Components SupplyProductionDistribution Palletlocations FTE Palletlocations FTE Shifts Improvements What is the utilization rate per resource? What is the overtime/overflow per resource? What can you conclude from this? Explore TFC

13 Capacity in time Capacity required Time Overtime Overflow Idle time Unused capacity Resulting in Overtime/Overflow% Utilization rate What is the optimal utilization rate?

14 Volatility of capacity required is important Costs Utilization rate High volatility capacity required Average volatility capacity required Low volatility capacity required How can you influence the volatility of capacity required? Inbound warehousing Production Outbound warehousing 90%80%70%

15 Capacity volatility reduction Small batches for high volume products (orange) Steady flow of incoming goods Decrease demand volatility caused by production (Increase intake time) Raw materials warehouse

16 Capacity volatility reduction Short fixed period (bullwhip effect) Decrease volatility caused by customer demand Short production intervals Production

17 Capacity volatility reduction Early order deadlines Pallet shipments Decrease customer demand volatility Stable production rate Finished goods warehouse

18 Utilization finished goods warehouse

19 Influence of overtime in TFC Overtime in production and warehousing will influence your costs. What is the other important effect of overtime?

20 Production reliability in the game Production reliability Terms of delivery Overtime% bottling linesAvailability components Fixed period Component stock

21 Overtime % bottling lines in the game # shifts per bottling line Overtime % bottling lines Improve- ment projects Past shelf lifeBottling line Raw materials inspection Decrease peaks


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