1. Capacity planning and control
Chapter 11
Capacity planning and control
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2. 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

3. 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?

4. 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.

5. 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.

6. 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

7. 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.

8. 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.

9. Demand fluctuations in four operations

10. 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.

11. 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

12. 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 =

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

14. 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

15. 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

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

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

18. Moving a peak in demand can make capacity planning easier

19. 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.

20. 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

21. 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

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

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

24. 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