1. Basics of Supply Chain Management
Session 5
Capacity Management and Production Activity Control

2. Course Outline Session 1: Introduction to Supply Chain Management
Session 2: Forecasting
Session 3: Master Planning
Session 4: Material Requirements Planning
Session 5: Capacity Management and Production Activity Control
Session 6: Inventory Fundamentals
Session 7: Inventory Management
Session 8: Physical Distribution
Session 9: Quality Management and Purchasing
Session 10:Just-in-Time Manufacturing
Basics of Supply Chain Management, Version 2.1 — August 2001
5-1a

3. Session 5 Objectives
Capacity management and its relation to priority planning
Rated or calculated capacity
Capacity required for a shop order
Purpose and activities of production activity control (PAC)
Basics of Supply Chain Management, Version 2.1 — August 2001
5-1b

4. Session 5 Objectives (cont.)
Process of order preparation and data requirements for a PAC system
Techniques of scheduling
Purpose of a shop order and necessary information
Implementation and control of work orders
Input/output reports
Basics of Supply Chain Management, Version 2.1 — August 2001
5-2

5. Capacity Management
Planning and controlling resources needed to meet production objectives
Planning: Determining resources needed to meet the priority plan
Selecting methods to make that capacity available
Controlling: Monitoring output, comparing with the plan, and taking corrective action
Capacity management occurs at each planning level
Basics of Supply Chain Management, Version 2.1 — August 2001
5-3

6. Planning Levels Capacity Management Techniques
Figure adapted from CPIM Exam Content Manual, APICS, 1997
Capacity Management Techniques
Capacity Requirements Planning (CRP)
Priority Management Techniques
Resource Requirements Planning (RRP)
Production Plan
Rough-Cut Capacity Planning (RCCP)
Master Production Schedule
Material Requirements Planning (MRP)
Production Activity Control (PAC)
Operation Sequencing
Input/Output Control
Basics of Supply Chain Management, Version 2.1 — August 2001
5-4

7. Defining Capacity
The capability of a system to perform its expected function
The capability of a worker, machine, work center, plant, or organization to produce output per time period
Basics of Supply Chain Management, Version 2.1 — August 2001
5-5

8. Capacity Planning Process
Determine the capacity available
Translate the released and planned orders into capacity required
Sum up capacities required for each work center
Resolve differences between available capacity and required capacity
Basics of Supply Chain Management, Version 2.1 — August 2001
5-6

9. Determining Capacity Available
Capacity available is
“The capability of a system or resource to produce a quantity of output in a particular time period”
—APICS Dictionary
Available capacity can be calculated or measured
To calculate available capacity, identify
Available time
Utilization
Efficiency
Basics of Supply Chain Management, Version 2.1 — August 2001
5-7

10. Number of machines (or number of workers) × hours of operation
Available Time
Available time: depends on the number of machines, number of workers, and hours of operation
Number of machines (or number of workers) × hours of operation
What is the weekly available time for a work center that has four machines and works eight hours a day for five days a week?
Basics of Supply Chain Management, Version 2.1 — August 2001
5-8

11. Utilization
Utilization: Percentage of the time that the work center is active
Example: Work center is available 120 hours a week, but actually produces goods for 90 hours 90 ×
100% =
75%
utilization
120
Basics of Supply Chain Management, Version 2.1 — August 2001
5-9

12. Efficiency Efficiency: Actual output rated against standard output
Example: A work center is utilized hours per week and produces standard hours of work
Basics of Supply Chain Management, Version 2.1 — August 2001
5-10

13. Problem 5.1
A work center produces 90 standard hours of work in one week. The hours scheduled are 80, and 70 are actually worked. Calculate the utilization and efficiency of the work center.
Utilization =
Efficiency =
Basics of Supply Chain Management, Version 2.1 — August 2001
5-11

14. Rated Capacity
Rated capacity = available time x utilization x efficiency
Example: A work center consists of three machines and is operated eight hours a day for five days a week. Past utilization has been 75%, and efficiency has been 110%.
Available time =
Rated capacity =
Basics of Supply Chain Management, Version 2.1 — August 2001
5-12

15. Problem 5.2
A work center consists of six machines that are available 16 hours per day for five days a week. Utilization is 80%, and efficiency is 110%. What is the rated weekly capacity?
Rated weekly capacity =
Basics of Supply Chain Management, Version 2.1 — August 2001
5-13

16. Demonstrated Capacity
Proven capacity calculated from actual performance data
Example: Over the previous four weeks, a work center produced 110, 140, 120, and standard hours of work. What is the demonstrated capacity?
Demonstrated weekly capacity = standard hours/week
Basics of Supply Chain Management, Version 2.1 — August 2001
5-14

17. Load Generated by the priority planning system (MRP)
Translates the priorities, given in units, into time required at each work center in each time period
Takes place at each planning level
Basics of Supply Chain Management, Version 2.1 — August 2001
5-15

18. Capacity Requirements Planning
Need to Know Take Information From
Open shop orders Open order file
Planned order releases MRP
Where work is done Routing file
Time needed (standard hours) Routing file
Lead times Routing file
Work center file
Work center capacity Work center file
Basics of Supply Chain Management, Version 2.1 — August 2001
5-16

19. Shop Calendar Month Week Mon. Tues. Wed. Thurs. Fri. Sat. Sun. 27 28
July 29 30 31 2
July 2
Work Day—123
Defines non-work days
123
Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, Prentice-Hall.
Basics of Supply Chain Management, Version 2.1 — August 2001
5-17

20. Lead-Time Elements Lead Time Queue Setup Run Wait Move
Queue Time waiting before operation begins
Setup Time getting ready for operation
Run Time performing operation
Wait Time waiting after operation ends
Move Time physically moving between operations
Adapted from Material and Capacity Requirements Planning Certification Review Course, 1993, APICS
Basics of Supply Chain Management, Version 2.1 — August 2001
5-18

21. Scheduling Orders
To determine when orders should be started and completed on each work center
Calculate operation time required at each work center
Operation time = setup time + run time
Allow for queue, wait, and move times
Basics of Supply Chain Management, Version 2.1 — August 2001
5-19

22. Scheduling Example Order quantity = 100 units From route sheet
From work center files
Schedule
Basics of Supply Chain Management, Version 2.1 — August 2001
5-20

23. Problem 5.3
Basics of Supply Chain Management, Version 2.1 — August 2001
5-21

24. Typical Load Profile
Shows the capacity required at a work center based on planned and released orders for each time period
Example
Work center: 10 Rated capacity: 110 standard hours/week
Basics of Supply Chain Management, Version 2.1 — August 2001
5-22

25. Resolving Differences
Change the available Use overtime or
capacity: undertime
Hire or lay off
Shift work force
Use alternate routings
Subcontract
Alter the load: Alter lot sizes
(May complicate schedule Reschedule
for other work centers)
Basics of Supply Chain Management, Version 2.1 — August 2001
5-23

26. Production Activity Control
Production Plan
Planning
Implement
control
Purchasing
Production
Activity
Control
Master
Schedule
Materials
Requirements
Capacity
Input/Output
Basics of Supply Chain Management, Version 2.1 — August 2001
5-24

27. Objectives of PAC Execute the MPS and MRP Optimize use of resources
Minimize work in process
Maintain customer service
Basics of Supply Chain Management, Version 2.1 — August 2001
5-25

28. PAC Functions Plan Execute Control Ensure resources are available
Schedule start and completion dates
Execute
Gather relevant shop order information
Release shop orders
Control
Establish and maintain order priority
Track actual performance
Monitor and control WIP, lead times, and queues
Report work center performance
Basics of Supply Chain Management, Version 2.1 — August 2001
5-26

29. Planning, Executing, and Controlling
Production Activity Control
Plan
Schedule
Replan
Execute
Work
Authorization
Control
Compare
Decide
Manufacturing Operations
Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, Prentice-Hall.
Basics of Supply Chain Management, Version 2.1 — August 2001
5-27

30. Data Requirements Must Know Obtained From What and how many to produce
When parts are needed
What operations are needed
How much time operations will take
How much capacity is available at each work center
Basics of Supply Chain Management, Version 2.1 — August 2001
5-28

31. Scheduling Objectives Involves Meet delivery dates
Effectively use manufacturing resources
Involves
Establishing start and finish dates for each operation needed to complete an order
Basics of Supply Chain Management, Version 2.1 — August 2001
5-29

32. Scheduling and Loading Techniques
Forward scheduling: Activities are schedule from a start date with the completion date of an order computed
Backward scheduling: Activities are scheduled back from the due date
Infinite loading: Assumes capacity is infinite at any work center
Finite loading: Assumes there is a definite limit to capacity at any work center
Basics of Supply Chain Management, Version 2.1 — August 2001
5-30

33. Backward and Forward Scheduling
Reprinted with permission, BMS Associates, Inc.
Basics of Supply Chain Management, Version 2.1 — August 2001
5-31

34. Infinite versus Finite Loading
Source: Bihun and Musolf, Capacity Management Review Course, 1985
Basics of Supply Chain Management, Version 2.1 — August 2001
5-32

35. Bottlenecks
Bottlenecks control the throughput of all products processed by them
Work centers feeding bottlenecks should be scheduled at the rate the bottleneck can process
A time buffer inventory should be established before the bottleneck
Work centers fed by the bottleneck have their throughput controlled by the bottleneck
Basics of Supply Chain Management, Version 2.1 — August 2001
5-33

36. Execute the Plan—Shop Order Packet
Order number, part number, name and description, and quantity
Engineering drawings
Bills of material
Route sheets
Material issue tickets
Tool requisitions
Job tickets and move tickets
Basics of Supply Chain Management, Version 2.1 — August 2001
5-34

37. Input/Output Control Work center: 201
Capacity per period: 40 standard hours
Period 1 2 3 4 5
Total
Planned input 38 32 36 40 44
190
Actual input 34 32 32 42 40
180
Cumulative variance
Planned output 40 40 40 40 40
200
Actual output 32 36 44 44 36
192
Cumulative variance
Planned backlog 32
Actual backlog 32
Basics of Supply Chain Management, Version 2.1 — August 2001
5-35

38. Problem 5.4 Work center: 20 Capacity per period: 40 standard hours1 2 3
Total
Planned input 38 36 42
Actual input 34 36 40
Cumulative variance
Planned output 40 40 40
Actual output 42 36 42
Cumulative variance
Planned backlog 30
Actual backlog 30
Basics of Supply Chain Management, Version 2.1 — August 2001
5-36

39. Dispatch List Work center: 10
Rated capacity: 100 standard hours per week
Shop date: 250
Order Part Order Setup Run Operation Date Number Number Quantity Hours Hours Start Finish
Total standard hours
Jobs coming:
Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management,3rd ed. Prentice-Hall, 1998
Basics of Supply Chain Management, Version 2.1 — August 2001
5-37

40. Dispatching Rules
First come, first served (FCFS) Jobs performed in order received
Earliest job due date (EDD) Jobs performed according to due dates
Earliest operation due date (ODD) Jobs performed according to operation due dates
Shortest process time (SPT) Jobs sequenced according to process time
Critical ratio (CR)
Basics of Supply Chain Management, Version 2.1 — August 2001
5-38

41. Critical Ratio Example: Today’s date is 180 Critical Time Work
Order Due Date Remaining Remaining Ratio
A days 10 days .5
B days 10 days 1.0
C days 10 days 1.5
If CR less than (<) 1: Order is late
If CR equal to (=) 1: Order is on time
If CR greater than (>)1: Order is ahead of schedule
Basics of Supply Chain Management, Version 2.1 — August 2001
5-39

42. Production Reporting
Feedback on what is actually happening plantwide and by work center
Order status
Exception reports
Inventory status
Labor reports
Machine performance
Basics of Supply Chain Management, Version 2.1 — August 2001
5-40

43. Session 5: Objectives
Discuss objectives of capacity management and its relation to priority planning
Understand how to determine rated or calculated capacity (available capacity)
Understand how to calculate the capacity required for a shop order (required capacity)
Define the purpose of production activity control (PAC) and the activities performed
Understand the process of order preparation and the data requirements for a PAC system
Describe the basic techniques of scheduling
Describe the purpose of a shop order and the information it should contain
Summarize the process of implementing and controlling work orders
Develop a simple input/output report
Basics of Supply Chain Management, Version 2.1 — August 2001
5-41

44. Problem 5.5 Available hours = Hours actually worked =
Standard hours produced =
Utilization =
Efficiency =
Weekly available time =
Rated capacity =
Basics of Supply Chain Management, Version 2.1 — August 2001
5-42

45. Problem 5.5 (Solution) Available hours = 12,000
Hours actually worked = 10,440
Standard hours produced = 11,480
Utilization = x 100% = 87%
Efficiency = x 100% = 110%
Weekly available time = 3 x 16 x 5 = 240 hours
Rated capacity = 240 x .87 x 1.10 = 229.7
10,440
12,000
11,480
10,440
Basics of Supply Chain Management, Version 2.1 — August 2001
5-42a

46. Problem 5.6 Work center: 20 Capacity per period: 40 standard hours1 2 3 4
Total
Planned input 36 38 35 40
Actual input 34 32 32 42
Cumulative variance
Planned output 40 40 40 40
Actual output 38 36 40 38
Cumulative variance
Planned backlog 32
Actual backlog
Basics of Supply Chain Management, Version 2.1 — August 2001
5-43

47. Problem 5.6 (Solution) Work center: 20
Capacity per period: 40 standard hours
Period 1 2 3 4
Total
Planned input 36 38 35 40
149
Actual input 34 32 32 42
140
Cumulative variance -2 -8
-11 -9 -9
Planned output 40 40 40 40
160
Actual output 38 36 40 38
152
Cumulative variance -2 -6 -6 -8 -8
Planned backlog 32 28 26 21 21
Actual backlog 28 24 16 20
Basics of Supply Chain Management, Version 2.1 — August 2001
5-43a