Capacity planning and control Chapter 11 Capacity planning and control Photodisc. Photolink

Capacity planning and control Operations strategy Design Improvement Capacity planning and control Planning and control The operation supplies… the capacity to deliver products and services The market requires… the availability of products and services

Key operations questions In Chapter 11 – Capacity planning and control – Slack et al. identify the following key questions: What is capacity planning and control? How are demand and capacity measured? What are the alternative ways of coping with demand fluctuation? How can operations plan and control their capacity level? How can queuing theory be used to plan capacity?

What is capacity? Capacity in the static, physical sense means the scale of an operation. However, this may not reflect the operation’s processing capability. Hence, we must incorporate a time dimension appropriate to the use of assets. For example, 24,000 litres per day; 10,000 calls per day; 57 patients per session; Etc.

The objectives of capacity planning and control To provide an ‘appropriate’ amount of capacity at any point in time. The ‘appropriateness’ of capacity planning in any part of the operation can be judged by its effect on… Costs Revenue Working capital Service level.

The Objectives of capacity planning and control (Continued) Measure aggregate capacity and demand. Identify the alternative capacity plans. Time Aggregated output Choose the most appropriate capacity plan. Forecast demand Estimate of current capacity

The nature of aggregate capacity Aggregate capacity of a hotel: rooms per night; ignores the numbers of guests in each room. Aggregate capacity of an aluminium producer: tonnes per month; ignores types of alloy, gauge and batch variations.

Causes of seasonality Climatic Festive Behavioural Political Financial Social Construction materials Travel services Beverages (beer, cola) Holidays Foods (ice-cream) Tax processing Clothing (swimwear, shoes) Doctors (influenza epidemic) Gardening items (seeds) Sports services Fireworks Education services.

Demand fluctuations in four operations

Distribution of demand Good forecasts are essential for effective capacity planning But, so is an understanding of demand uncertainty because it allows you to judge the risks to service level. Only 5% chance of demand being higher than this Distribution of demand Demand Time Demand Time Only 5% chance of demand being lower than this When demand uncertainty is high, the risks to service level of under provision of capacity are high.

Operating equipment effectiveness (OEE) Not worked (unplanned) Breakdown failure Set-up and change-overs Total operating time Availability losses Loading time Availability rate = a = Total operating time Loading time Performance rate = p = Net operating time Total operating time Equipment ‘idling’ Speed losses Slow running equipment Net operating time Quality rate = q = Valuable operating time Net operating time Quality losses Valuable operating time Quality losses

How capacity and demand are measured Efficiency Actual output Effective capacity = Design capacity 168 hours per week Effective capacity 109 hours per week Planned loss of 59 hours Actual output – 51 hours per week Avoidable loss – 58 hours per week Utilization Actual output Design capacity =

Ways of reconciling capacity and demand Level capacity Chase demand Demand management Demand Demand Demand Capacity Capacity Capacity

Ways of reconciling capacity and demand (Continued) How do you cope with fluctuations in demand? Absorb demand Adjust output to match demand Change demand Demand management Level capacity Chase demand

Absorb demand Absorb demand Have excess capacity Keep output level Make to stock Make customer wait Part finished Queues Finished goods, or Backlogs. Customer inventory

Adjust output to match demand Hire Fire Temporary labour Lay-off Overtime Short time Subcontract 3rd party work

Change demand Change demand Change pattern of demand. Develop alternative products and/or services.

Moving a peak in demand can make capacity planning easier

Capacity planning and control as a dynamic sequence of decisions Actual demand and actual capacity Period t – 1 Outcome How much capacity next period? Current capacity estimates Updated forecasts Period t Decision How much capacity next period? Current capacity estimates Updated forecasts Period t + 1 Decision Shortages queues inventory Actual demand and actual capacity? Costs Revenues Working capital Customer satisfaction, etc. Outcome Shortages queues inventory Capacity level Costs Revenues Working capital Customer satisfaction, etc.

Forecast in aggregated units of output per month Demand for a manufacturing operation’s output 8000 7000 6000 5000 Forecast in aggregated units of output per month 4000 3000 2000 1000 J F M A M J J A S O N D Months

But will not satisfy demand at all points throughout the year For capacity planning purposes demand is best considered on a cumulative basis. This allows alternative capacity and output plans to be evaluated for feasibility 60 But will not satisfy demand at all points throughout the year 50 Producing at average demand 40 Producing at average demand allows inventory to be accumulated Forecast cumulative aggregated output (thousands) 30 20 10 40 80 120 160 200 240 Cumulative operating days

Cumulative representations Cumulative capacity Cumulative demand Unable to meet orders Capacity and demand Building stock Time

Simple queuing system Low variability – narrow distribution of process times Time High variability – wide distribution of process times Time

Simple queuing system (Continued) Distribution of arrival times Distribution of processing times Server 1 Server 2 Server m Source of customers Rejecting Balking Reneging Queue or ‘waiting line’ Served customers Boundary of system