1. Chapter 11
Capacity management

2. Capacity management Direct Design Develop Deliver Capacity management
Operations management
Capacity management
The operation supplies... the capacity to deliver products and services
The market requires… the availability of products and services
Figure A definition of capacity planning and control

3. Key operations questions
In Chapter 11 – Capacity planning and control – Slack et al. identify the following key questions…
What is capacity management?
How is capacity measured?
What are the ways of coping with demand fluctuation?
How can operations plan their capacity level?
How capacity management a queuing problem?

4. What is capacity?
Capacity is in the static, physical sense means the scale of an operation.
But this may not reflect the operation’s processing capability.
So 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 management
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, in terms of…
Quality
Speed
Dependability
Flexibility

6. Objectives of capacity planning and control
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
Figure The steps in capacity management

7. Input and output capacity measures for different operations
Input measure of capacity
Output measure of capacity
Air- conditioner plant
Machine hours available
Number of units per week
Hospital
Beds available
Number of patients treated per week
Theatre
Number of seats
Number of customers entertained per week
University
Number of students
Students graduated per year
Retail store
Sales floor area
Number of items sold per day
Airline
Number of seats available on the sector
Number of passengers per week
Table Input and output capacity measures for different operations Note: The most commonly used measure is shown in bold.

8. 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.

9. 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

10. Demand fluctuations in four operations
Figure Aggregate demand fluctuations for four organizations Sources: Shutterstock/Cuiphoto, Shutterstock/yuyangc, Shutterstock/Light & Magic, Shutterstock/Lucky Photo

11. Distribution of demand
Good forecasts 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.

12. Operating equipment effectiveness (OEE)
Not worked (unplanned)
Breakdown failure
Set-up and changeovers
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
Figure Operating equipment effectiveness

13. 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 =

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

15. 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

16. 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

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

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

19. Moving a peak in demand can make capacity planning easier
Figure A mixed capacity plan for the woollen knitwear factory

20. 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.

21. Forecast in aggregated units of output per month
Demand for a manufacturing operation’s output
8,000
7,000
6,000
5,000
Forecast in aggregated units of output per month
4,000
3,000
2,000
1,000 J F M A M J J A S O N D
Months

22. Demand for a manufacturing operation’s output (Continued)
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

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

24. Simple queuing system
Low variability – narrow distribution of process times
Time
High variability – wide distribution of process times
Time
Figure S11.1 Low and high arrival variation

25. Simple queuing system (Continued)
Distribution of arrival times
Distribution of processing times
Server 1
Server 2
Server m
Baulking
Source of customers
Rejecting
Reneging
Queue or ‘waiting line’
Served customers
Boundary of system
Figure The general form of the capacity decision in queuing systems

26. Operation Arrivals Processing capacity Bank Customers Tellers
Supermarket
Shoppers
Checkouts
Hospital clinic
Patients
Doctors
Graphic artist
Commissions
Artists
Custom cake decorators
Orders
Cake decorators
Ambulance service
Emergencies
Ambulances with crews
Telephone switchboard
Calls
Telephonists
Maintenance department
Breakdowns
Maintenance staff
Table Examples of operations which have parallel processors

27. Short-term outlook for volume
Capacity management – long and short-term outlook
Short-term outlook for volume
Decreasing below current capacity
Level with current capacity
Increasing above current capacity
Reduce capacity (semi) permanently. For example, reduce staffing levels, reduce supply agreements.
Plan to reduce capacity (semi) permanently. For example, freeze recruitment, modify supply agreements.
Increase capacity temporarily. For example, increase working hours, and/or hire temporary staff, modify supply agreements.
Reduce capacity temporarily. For example, reduce staff working hours, modify supply agreements.
Maintain capacity at current level.
Increase capacity temporarily. For example, increase working hours, and/or hire temporary staff, modify supply agreements.
Long-term outlook for volume
Decreasing below current capacity
Level with current capacity
Increasing above current capacity
Reduce capacity temporarily. For example, reduce staff working hours, but plant to recruit, modify supply agreements.
Plan to increase capacity above current level, plan to increase supply agreements.
Increase capacity (semi) permanently. For example, hire staff, increase supply agreements.
Figure Capacity management strategies are partly dependent on the long- and short-term outlook for volumes

28. Blackberry Hill Farm Daily number of visitors August 1 5 20 15 10 3025
500
1000
1500
Date
Figure Daily number of visitors in August last year

29. Capacity management – long and short-term outlook
Month
Total visitors
January
1,006
February
971
March
2,874
April
6,622
May
8,905
June
12,304
July
14,484
August
15,023
September
12,938
October
6,687
November
2,505
December
3,777
Total
88,096
Average
7,341.33
Table 11.3(a) Number of visitors last year

30. Public holiday in August
Blackberry Hill Farm
Visitor arrivals, public holiday August and Wednesday in February
8.00
100
200
10.00
12.00
14.00
16.00
18.00
20.00
300
400
Public holiday in August
Wednesday in February
Time
Figure Visitor arrivals on public holiday in August and a Wednesday in February

31. Blackberry Hill Farm (Continued)
Facility
Issues
Car park
85 car parking spaces, 4 × 40-seater tour bus spaces
Fixed exhibits, etc.
Recreation of old farmhouse kitchen and barnyard, old-fashioned milking parlour, various small exhibits on farming past and present, adventure playground, ice-cream and snack stands.
Most exhibits in, or adjacent to farm museum.
At peak times have helpers dressed in period costume to entertain visitors.
Feedback indicates customers find exhibits more interesting than they thought they would.
Visitor free to look when they wish absorbs demand from busy facilities.
Tractor rides
One tractor towing decorated covered cart with maximum capacity of 30 people, tour takes 20 minutes on average (including stops). Waits 10 minutes between tours except at peak times when tractor circulates continuously.
Tractor acts both as transport and entertainment, approximately 60 per cent of visitors stay on for the whole tour, 40 per cent use it as ‘hop-on hop-off’ facility.
Overloaded at peak times, long queues building.
Feedback indicates it is popular, except for queuing.
Jim reluctant to invest in further cart and tractor.
Table The farm’s main facilities and some of the issues concerned with managing them

32. Blackberry Hill Farm (Continued)
Facility
Issues
Pick-your-own area
Largest single facility on the farm. Use local press, dedicated telephone line (answering machine) and website to communicate availability of fruit and vegetables. Checkout and weighing area next to farm shop, also displays picked produce and preserves etc. for sale.
Very seasonal and weather dependent, both for supply and demand.
Farm plans for a surplus over visitor demand, uses surplus in preserves.
Six weighing/paying stations at undercover checkout area.
Queues develop at peak times. Feedback indicates some dissatisfaction with this.
Can move staff from farm shop to help with checkout in busy periods, but farm shop also tends to be busy at the same time.
Considering using packers at pay stations to speed up the process.
Petting zoo
Accommodation for smaller animals including sheep and pigs. Large animals (cattle, horses) brought to viewing area daily. Visitors can view all animals and handle/stroke most animals under supervision.
Approximately 50 per cent of visitors view petting zoo.
Number of staff in attendance varies between 0 (off-peak) and 5 (peak periods).
The area can get congested during peak periods.
Staff need to be skilled at managing children.
Table The farm’s main facilities and some of the issues concerned with managing them (Continued)

33. Blackberry Hill Farm (Continued)
Facility
Issues
Preserving kitchen
Boiling vats, mixing vats, jar sterilizing equipment, etc. Visitor viewing area can hold 15 people comfortably. Average length of stay 7 minutes in off-season, 14 minutes in peak season.
Capacity of kitchen is theoretically 4,500 kilograms per month on a 5-day week and 6,000 kilograms on a 7-day week.
In practice, capacity varies with season because of interaction with visitors. Can be as low as 5,000 kilograms on a 7-day week in summer, or up to 5,000 kilograms on a 5-day week in winter.
Shelf-life of products is on average 12 months.
Current storage area can hold 16,000 kilograms.
Table The farm’s main facilities and some of the issues concerned with managing them (Continued)

34. Blackberry Hill Farm (Continued)
Facility
Issues
Bakery
Contains mixing and shaping equipment, commercial oven, cooling racks, display stand, etc. Just installed doughnut making machine. All pastries contain farm’s preserved fruit.
Starting to become a bottleneck since doughnut making machine installed, visitors like watching it.
Products also on sale at farm shop adjacent to bakery.
Would be difficult to expand this area because of building constraints.
Farm shop and café
Started by selling farm’s own products exclusively. Now sells a range of products from farms in the region and wider. Started selling frozen menu dishes (lasagne, goulash, etc.) produced off-peak in the preserving kitchen.
The most profitable part of the whole enterprise, Jim and Mandy would like to extend the retailing and café operation.
Shop includes area for cooking displays, cake decoration, fruit dipping (in chocolate), etc.
Some congestion in shop at peak times but little visitor dissatisfaction.
More significant queuing for café in peak periods.
Considering allowing customers to place orders before they tour the farm’s facilities and collect their purchases later.
Retailing more profitable per square metre than café.
Table The farm’s main facilities and some of the issues concerned with managing them (Continued)

35. Cumulative demand (kg) Cumulative product (kg)
Blackberry Hill Farm (Continued)
Month
Demand
(kg)
Cumulative demand (kg)
Production (kg)
Cumulative product (kg)
Inventory (kg)
January
682
4,900
4,218
February
794
1,476
4,620
9,520
8,044
March
1,106
2,582
4,870
14,390
11,808
April
3,444
6.026
5,590
19,980
13,954
May
4,560
10,586
5,840
25,820
15,234
June
6,014
16,600
5,730
31,550
14,950
July
9,870
26,470
5,710
37,260
10,790
August
13,616
40,086
5,910
43,170
3,084
September
5,040
45,126
48,900
3,774
October
1,993
47,119
1,570*
50,470
3,351
November
2,652
49,771
2,770*
53,240
3,467
December
6,148
55,919
57,800
1,881
Average demand
4,660
Average inventory
7,880
*Technical problems reduced production level
Table Preserve demand and production (previous year)

36. Chapter 11 ‘end-of-chapter’ case
Blackberry Hill Farm
Source: AL RF (Imagestate/John Foxx Images)

37. Visitor numbers (Monthly)
Number of Visitors
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

38. Visitor numbers: August
Daily visitors in August
200
400
600
800
1,000
1,200
1,400 1 8 15 22 29
Figure Daily number of visitors in August last year

39. Visitors on site: public holiday in August and Wednesday in February
Number of visitors on site
100
200
300
400
08:00
10:00
12:00
14:00
16:00
18:00
Public holiday in August
Wed in Feb
Figure Visitor arrivals on public holiday in August and a Wednesday in February

40. Preservers – cumulative analysis
10,000
20,000
30,000
40,000
50,000
60,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

41. Preservers – cumulative analysis
10,000
20,000
30,000
40,000
50,000
60,000
Level production = Average demand
Cumulative demand
Shortage
Inventory
Stock age
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

42. Preservers – cumulative analysis
10,000
20,000
30,000
40,000
50,000
60,000
Level production to fulfil demand
Cumulative demand
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

43. Preservers – cumulative analysis
10,000
20,000
30,000
40,000
50,000
60,000
Chase demand plan
Modified chase demand plan
Cumulative demand
Production rate = 3,958/month
Production rate = 8,515/month
Production rate = 1,500/month
Exceeds current capacity limit
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

44. Layout on tractor ride Current layout Possible new layout
A separate entrance and exit means trailer loading can start whilst passengers from the previous trip are still alighting.
Single entrance and exit leads to congestion and sub optimal flow.