Operations & Logistics Management Lesson 7- Process Design & Lesson 8- Capacity & Buffering Operations

DESIGN 1.Goods and Services. 2.The process that will be responsible for producing the goods and services. 3.The process technology that will be used to produce the goods and services. 4.The supply network that supports the production process. 5.The layout and flow of material and resources as part of the production process. 6.The manner in which the product will be produced – job design and work organisation.

IMPORTANT The design activity provides one of the most important realisations in the operations environment, this realisation is that the entire operation is designed. If the operation is not working in the manner in which it should, then it can be changed. The quality of the design process has a direct bearing on the quality of the final process, goods and services.

QUESTION Define design in the context of operations management. _____________________________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________

CAPACITY Capacity of Operation – Maximum level of value added over a period of time. Achievable under normal operating conditions. Design Capacity of Operation – maximum output rate of an operation, process or machine under optimal conditions. No consideration is given to the real world. – Restrictions within the real world: Lunch and tea breaks Length of shifts Setup time Maintenance.

CAPACITY Effective Capacity – Calculated from the basis that the design capacity is a theoretical capacity only and this must be adjusted to take into consideration influences all real- world restrictions. Design Capacity – (lunch + setup + maintenance) = Effective Capacity.

APPROACH TO CAPACITY IMPLEMENTATION Large storage facilities had to be created to accommodate the manufactured goods. The turn-around time between production and sale are usually very long. Additional quality considerations had to be considered, with specific reference to storage considerations. Additional insurance to accommodate the storage of manufactured goods. To produce at maximum capacity; maximum materials and parts are required.

APPROACH TO CAPACITY IMPLEMENTATION Storage for all the materials, parts and packaging must be provided. To purchase bulk materials, parts and packaging funds must be made available. This directly affects cash flow. Cash flow was further restricted due to the delay between production and actual sale of the goods. Risk of goods becoming obsolete in terms of market demand increased the longer the delay between production and store-front.

WHERE IS CAPACITY LOCATED WITHIN THE OPERATION? Mixing Capacity – Can mix bread dough for 400 loaves. Oven Capacity – Can bake 1000 loaves of bread. Packaging – Can package 100 loaves of bread in 10 minutes.

CAPACITY PLANNING AND CONTROL The objective of capacity planning and control is to implement capacity to allow it to produce enough goods and services to meet demand, regardless of the various factors that influence the stability of demand over time. To allow for fluctuations, capacity planning is done on a short-term, medium-term and long-term basis.

SHORT-TERM CAPACITY PLANNING AND CONTROL Day-to-day requirements of running an effective operations function. Factors that have direct bearing on short-term capacity include scheduling, production shifts, balancing resource capacities, maintenance requirements and absenteeism.

LONG-TERM CAPACITY PLANNING AND CONTROL Primary long-term capacity questions: What should our capacity be in 5, 10, 15 years from now? To what extent do current capacity specifications provide us with a platform to extent capacity? What are the location considerations that must be investigated when considering the placement of capacity?

CAPACITY WITHIN THE ENTIRE OPERATION If the accounts department does not have the capacity, in the form of human resources, to ensure the timely collection of income then the organisation will not have the financial resources to purchase the necessary materials needed to produce the product. If the distribution department does not have sufficient capacity in the form of delivery trucks, then the product produced can not be delivered on time. If the sales department does not have sufficient capacity to promote the organisation’s goods and services then orders will be missed.

IMPORTANT Each function or part of the operation has its own capacity. When dealing with capacity, considerations and constraints it is important to identify the bottlenecks within the operation. The capacity of all facets of the organisation has a bearing on the success of the operations. A common mistake made when evaluating problems within the operations is jumping to the “it’s a lack of capacity problem” conclusion.

QUESTIONS What is meant by the term capacity? What are the advantages/disadvantages of producing according to maximum capacity? What is the purpose of capacity planning and control? What is the difference between the design capacity and the physical capacity?

BUFFERING OPERATIONS Focus production on demand so that you do not produce more than you can sell. - Goldratt Variation characteristic: demand is not always the same. Predictable fluctuations in demand: - holiday/ school terms - religious events - summer/ winter - salary pay-cycles

BUFFERING OPERATIONS However, some events impact on demand with no warning. i.e. unpredictable fluctuations include: Strikes within various industries may disrupt the movement of people, preventing people from spending. Bad weather usually has an adverse impact on spending. Unforeseen storms could directly influence people’s ability to purchase their required goods and services. Bad publicity can decrease demand/good publicity can increase demand.

BUFFERING OPERATIONS These events can also directly affect the supply side of production. All these are environmental factors over which organisations have very little control. Factors & events can only be dealt with when they actually occur. Does not provide organisations with much time to respond effectively to the changes in supply/ demand.

CRITICISM AGAINST BUFFERING The operations function never learns how to interpret and assess environmental uncertainties. Through the buffering process, operations have a build in safety net that could prevent them from taking responsibility for its actions. When it is known that a safety net will always be available for a bail-out, then there is less motivation to ensure that work activities are correctly completed.

IMPORTANT Buffering as a solution can entail buffering the entire production process, or only buffering a critical section of the operation. The latter would provide a greater focus on the potential problem areas while limiting some of the disadvantages of a full scale buffering.

QUESTIONS What is meant by “buffering”? What are the advantages and disadvantages of buffering? Identify three organisations which would be dependent on the buffering option.