1. Strategic Capacity Planning & Aggregate Planning
MBA 8452 Systems and Operations Management
Strategic Capacity Planning & Aggregate Planning

2. Introduction to Operations Management/ Operations Strategy
Process Analysis
and Design
Project
Management
Planning for Production
Process Control
and Improvement
Process Analysis
Capacity Management
Quality
Management
Aggregate Planning
Job Design
Statistical
Process Control
Just in Time
Scheduling
Manufacturing
Layout/
Assembly Line Balancing
Inventory Control
Supply Chain
Management
Services
Waiting Line Analysis

3. Objective: Capacity Management
Overview of Capacity Management
Be able to explain why capacity management is important
Best Operating Level
Be able to describe the best operating level
Capacity Focus
What does capacity focus mean
Capacity Requirements
Calculate capacity requirements and compare to available capacity
Strategies for Meeting Demand
Be able to explain the concept of Chase and Level Strategies

4. Major Operations Planning Activities Overview
Process Planning
Strategic Capacity Planning
Aggregate Planning
Master Production Scheduling
Material Requirements Planning
Order Scheduling
Weekly Workforce &
Customer Scheduling
Daily Workforce &
Long
Range
Medium
Short
Manufacturing
Services

5. “You can’t build it if you don’t have the capacity” Strategic Capacity Planning
Planning of the overall capacity level of capital-intensive resources—facilities, equipment, and overall labor force size —that supports the company’s long-range competitive strategy.

6. Capacity Planning Basic Questions
What kind of capacity is needed?
How much is needed?
When is needed?

7. What Is Capacity?
The amount of output that a system is capable of achieving over a specific period of time
has a time frame
can be also measured in terms of resource inputs
cannot be stored for later use

8. Capacity Planning Concept Best Operating Level
Design capacity for which average unit cost is at the minimum
Average
unit cost
of output
Underutilization
Best Operating
Level
Overutilization
Volume

9. Capacity Planning Concept Capacity Utilization
Capacity used
rate of output actually achieved
Best operating level
design capacity

10. Capacity Planning Concept Example - Capacity Utilization
Design capacity = 50 trucks/day
Actual output = 36 trucks/day
Utilization = ?
Solution:

11. Economies & Diseconomies of Scale
Economies of Scale and the Experience Curve working
Volume
Average
unit cost
of output
100-unit
plant
200-unit
plant
400-unit
plant
300-unit
plant
Diseconomies of Scale start working

12. Capacity Planning Concept The Experience Curve
Cost or
price
per unit
Total accumulated production of units

13. Capacity Expansion Issues
Maintaining system balance
External sources of capacity
Timing and frequency of capacity expansions
Stage 1
Stage 2
Stage 3
Inputs
Outputs
200/hr
50/hr
(bottleneck)
Volume
Time
Capacity leads demand
Volume
Time
Capacity lags demand
Timing Strategy

14. Capacity Expansion Issues Frequency of Capacity Expansion

15. Determining Capacity Requirements
Forecast sales within each individual product line
Calculate equipment and labor requirements to meet the forecasts
Project equipment and labor availability over the planning horizon

16. Determining Capacity Requirements Example
A manufacturer produces two lines of ketchup, FancyFine and a Generic line. Each is sold in small and family-size plastic bottles. Are we really producing two different types of ketchup from the standpoint of capacity requirements? No!
The following table shows forecast demand for the next four years.

17. Determining Capacity Requirements Example (cont.)
Currently, three 100,000-units-per-year machines are available for small-bottle production. Two operators required per machine.
Two 120,000-units-per-year machines are available for family-sized-bottle production. Three operators required per machine.
Total combined demand forecasts

18. Capacity Requirements Example--Calculation

19. Capacity Requirements Example--Projection

20. Planning Service Capacity
Time – service is perishable and must be consumed when it is produced
Location – people are not willing to travel long distances to obtain a service so they must be located near the customer
Volatility of Demand – demand for services is subject to change

21. Capacity Utilization & Service Quality
Best operating point is near 70% of capacity
From 70% to 100% of service capacity, what might happen to service quality? Why?
Context specific tradeoff

22. Aggregate Planning (Chap. 12)
Matches market demand to company resources
Medium-range: 6-18 months
Goal: Specify the optimal combination of
production rate
workforce level
inventory on hand

23. Inputs and Outputs to Aggregate Production Planning
Capacity
Constraints
Strategic
Objectives
Company
Policies
Demand
Forecasts
Financial
Constraints
Aggregate
Production
Planning
Size of
Workforce
Units or dollars
subcontracted,
backordered, or
lost
Production
per month
(in units or $)
Inventory
Levels

24. Strategies for Meeting Demand
Level production - produce at constant rate & use inventory as needed to meet demand
Chase demand - change workforce levels so that production matches demand
Subcontracting - useful if supplier meets quality & time requirements

25. Level Production
Time
Production
Demand
Units

26. Chase Demand
Time
Units
Production
Demand