operations in capactiy ppt

1. Strategic Capacity
Management

2. • Capacity is the amount of output that
a system is capable of achieving over
a specified period of time.
• Strategic capacity planning is an
approach for determining the overall
capacity level of capital intensive
resources, including facilities,
equipment, and overall labor force
size

3. Types of Capacity
• Design or installed capacity
• Effective or operating capacity
• Normal capacity
Time Horizons
• Long Range
• Intermediate Range
• Short Range

4. Determinants of Effective Capacity
• Facilities
• Products or services
• Processes
• Human considerations
• Operations
• External forces

5. Capacity Focus
• The concept of the focused factory holds that
production facilities work best when they
focus on a fairly limited set of production
objectives
• Plants Within Plants (PWP)
– Extend focus concept to operating level

6. Capacity Flexibility
• Flexible plants
• Flexible processes
• Flexible workers

7. Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day
Actual output = 36 units/day
Efficiency = = 90%
Effective capacity 40 units/ day
Utilization = Actual output = 36 units/day = 72%
Design capacity 50 units/day
Capacity cushion is 28%
Efficiency/Utilization Example

8. Example of Capacity Utilization
During one week of production, a plant produced
83 units of a product. Its historic highest or
best utilization recorded was 120 units per
week. What is this plant’s capacity utilization
rate?
Capacity utilization rate = Actual output.
Best operating level
= 83/120
=0.69 or 69%

9. Capacity Bottlenecks
Inputs
To customers
(a) Operation 2 a bottleneck
50/hr
1 2 3
200/hr 200/hr

10. (b) All operations bottlenecks
2 3
1
Inputs
To customers
200/hr 200/hr 200/hr
Capacity Bottlenecks

11. Capacity Planning: Balance
Stage 1 Stage 2 Stage 3
Units
per
month
6,000 7,000 5,000
Unbalanced stages of production
Stage 1 Stage 2 Stage 3
Units
per
month
6,000 6,000 6,000
Balanced stages of production
Maintaining System Balance: Output of one stage is the
exact input requirements for the next stage

12. Types of Processes (Continued)
Stage 1 Stage 2
Buffer
Multi-stage Process with Buffer

13. Kanban Operation
WK(2)
PK(1) PK(i+1)
PK(2) PK(N)
WK(1) WK(N)
WK(i+1)
WK(i) PK(i)
RM FG
Kanban Stage
1
Kanban Stage
i
Station
1
Station
2
Station
i
Station
i+1
Station
N+1
Figure 3.3. A kanban stage formed by two adjacent stations.
From stage i-1 To stage i+1
1
2
i
3
Kanban Stage
i
i +1
WK
PK
4
K
K-1
5

14. Capacity Strategies (MTS)
Time between
increments
Capacity
increment
Planned unused
capacity
Time
(a) Expansionist strategy
Forecast of
capacity required
Capacity

15. Capacity Strategies (MTO)
Time between
increments
Capacity
increment
Time
Forecast of
capacity required
Capacity
Planned use of
short-term options
(b) Wait-and-see strategy

16. The Goal
How do the “making money” measures translate
to the production environment?
(Jonah’s translation)
• Throughput – Is the rate at which the system
generates money through “Sales”
• Inventory – all the money that the system has
invested in purchasing things which it intends
to sell.
• Operational Expenses – all the money the
system spends in order to turn inventory into
throughput.

17. Theory of Constraints- Goldratt
• Any system can produce only as much as its
critically constrained resource
70 units
Per day
40 units
Per day
60 units
Per day
Constraint
Maximum Throughput = 40 units per day
60 units
Per day

18. The Goal
Why Alex’s plant was successful:
Change in Focus
from the “cost world” to the “throughput world”
Cost
Throughput
Inventory
Throughput
Inventory
Cost

19. Managing Seasonal Stock
• Capacity versus inventory tradeoff in
seasonal demand/supply situation
• Two basic approaches in aggregate
planning ( Sales and operations Planning)
– Chase Option : Produce as per demand, hiring
and firing strategy
– Level Option: Produce at the same level, level
the workforce
– Mix approaches

20. Managing Seasonal Stock (Sales and
Operations Planning)
• “Chase” strategy (chase the demand)
Matching capacity to demand; the planned output for a
period is the expected demand for that period.
 Exact Production vary workforce
• “Level” strategy (level work force)
Maintaining a steady rate of regular-time output while
meeting variations in demand by a combination of
options.
 Constant work force, vary inventory and stock out

21. Illustration
A Toy manufacturer faces seasonal demand. The manufacturer
expects that the last quarter is going to have a peak demand
and the other three quarters will have a lean demand.
Demand in units
• Q1 8000
• Q2 8000
• Q3 8000
• Q4 12000
• Inventory carrying cost per quarter is Rs 3
• Each worker can produce 500 toys per quarter
• Number of workers=18
• Each worker for 1 quarter the additional cost is Rs 6000
• The company can decide either to work with level production, which is to
produce at the same level throughout the year of the total requirement
of 36,000 toys, it can produce 9,000 every quarter or produce the
quantity exactly equal to demand in each quarter.

22. Q1 Q2 Q3 Q4
Demand 8000 8000 8000 12000
Level option
Production 9000 9000 9000 9000
Hiring Cost 0 0 0 0
Inv. C. Cst 3000 6000 9000 0
Chase option
Production 8000 8000 8000 12000
Hiring Cost 0 0 0 48000
Inv. C. Cst 0 0 0 0
Illustration: Managing Seasonal Stock
Cost: level option= 18,000 Chase option= 48000

23. Seasonal Demand- Managing Inventory
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500
5500
7000
10000
8000
6000
0
2000
4000
6000
8000
10000
Jan Feb Mar Apr May Jun
4500 4000
9000
8000
4000
6000
Suppose the figure to
the right represents
forecast demand in
units
Now suppose this
lower figure represents
the aggregate capacity
of the company to
meet demand
What we want to do is
balance out the
production rate,
workforce levels, and
inventory to make
these figures match up

24. Aggregate Planning Examples:
Unit Demand and Cost Data
Materials $5/unit
Holding costs $1/unit per mo.
Marginal cost of stock out $1.25/unit per mo.
Hiring and training cost $200/worker
Layoff costs $250/worker
Labor hours required .15 hrs/unit
Straight time labor cost $8/hour
Beginning inventory 250 units
Productive hours/worker/day 7.25
Paid straight hrs/day 8
Suppose we have the following unit demand and cost
information:
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000

25. Jan Feb Mar Apr May Jun
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1063.33 918.33 1015 1015 1063.33 966.67
$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Productive hours/worker/day 7.25
Paid straight hrs/day 8
Demand/mo Jan Feb Mar Apr May Jun
4500 5500 7000 10000 8000 6000
Given the demand and cost information below, what
are the aggregate hours/worker/month, units/worker, and
dollars/worker?
7.25x22
7.25x22=159.5 hrs
& 159.5
/.15=1063.33
22x8hrsx$8=$1408
Cut-and-Try Example: Determining
Straight Labor Costs and Output

26. Chase Strategy
(Hiring & Firing to meet demand)
Jan
Days/mo 22
Hrs/worker/mo 159.5
Units/worker 1,063.33
$/worker $1,408
Jan
Demand 4,500
Beg. inv. 250
Net req. 4,250
Req. workers 3.997
Hired
Fired 3
Workforce 4
Ending inventory 0
Lets assume our current workforce is 7
workers.
First, calculate net requirements for
production, or 4500-250=4250 units
Then, calculate number of workers
needed to produce the net
requirements, or
4250/1063.33=3.997 or 4 workers
Finally, determine the number of
workers to hire/fire. In this case we
only need 4 workers, we have 7, so
3 can be fired.

27. Jan Feb Mar Apr May Jun
Days/mo 22 19 21 21 22 20
Hrs/worker/mo 159.5 137.75 152.25 152.25 159.5 145
Units/worker 1,063 918 1,015 1,015 1,063 967
$/worker $1,408 1,216 1,344 1,344 1,408 1,280
Jan Feb Mar Apr May Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Below are the complete calculations for the remaining
months in the six month planning horizon

28. Jan Feb Mar Apr May Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250
Net req. 4,250 5,500 7,000 10,000 8,000 6,000
Req. workers 3.997 5.989 6.897 9.852 7.524 6.207
Hired 2 1 3
Fired 3 2 1
Workforce 4 6 7 10 8 7
Ending inventory 0 0 0 0 0 0
Jan Feb Mar Apr May Jun Costs
Material $21,250.00 $27,500.00 $35,000.00 $50,000.00 $40,000.00 $30,000.00 203,750.00
Labor 5,627.59 7,282.76 9,268.97 13,241.38 10,593.10 7,944.83 53,958.62
Hiring cost 400.00 200.00 600.00 1,200.00
Firing cost 750.00 500.00 250.00 1,500.00
$260,408.62
Below are the complete calculations for the remaining months in
the six month planning horizon with the other costs included

29. Level Workforce Strategy (Surplus and
Shortage Allowed)
Jan
Demand 4,500
Beg. inv. 250
Net req. 4,250
Workers 6
Production 6,380
Ending inventory 2,130
Surplus 2,130
Shortage
Lets take the same problem as
before but this time use the
Level Workforce strategy
This time we will seek to use
a workforce level of 6 workers
1063 x6=6378

30. Jan Feb Mar Apr May Jun
Demand 4,500 5,500 7,000 10,000 8,000 6,000
Beg. inv. 250 2,130 2,140 1,230 -2,680 -1,300
Net req. 4,250 3,370 4,860 8,770 10,680 7,300
Workers 6 6 6 6 6 6
Production 6,380 5,510 6,090 6,090 6,380 5,800
Ending inventory 2,130 2,140 1,230 -2,680 -1,300 -1,500
Surplus 2,130 2,140 1,230
Shortage 2,680 1,300 1,500
Note, if we recalculate this sheet with 7 workers
we would have a surplus
Below are the complete calculations for the remaining months in the six
month planning horizon

31. Jan Feb Mar Apr May Jun
4,500 5,500 7,000 10,000 8,000 6,000
250 2,130 10 -910 -3,910 -1,620
4,250 3,370 4,860 8,770 10,680 7,300
6 6 6 6 6 6
6,380 5,510 6,090 6,090 6,380 5,800
2,130 2,140 1,230 -2,680 -1,300 -1,500
2,130 2,140 1,230
2,680 1,300 1,500
Jan Feb Mar Apr May Jun
$8,448 $7,296 $8,064 $8,064 $8,448 $7,680 $48,000.00
31,900 27,550 30,450 30,450 31,900 29,000 181,250.00
2,130 2,140 1,230 5,500.00
3,350 1,625 1,875 6,850.00
$241,600.00
Below are the complete calculations for the
remaining months in the six month
planning horizon with the other costs
included
Note, total costs
under this strategy
are less than
Chase at
$260.408.62
Labor
Material
Storage
Stockout

32. Build In Flexibility
100% –
80% –
60% –
40% –
20% –
0 –
Nissan
Chrysler
Honda
GM
Toyota
Ford
Percent of North American Vehicles
Made on Flexible Assembly Lines

33. Evaluating Alternatives
Minimum
cost
Average
cost
per
unit
0
Rate of output
Production units have an optimal rate of output for minimal cost.

34. Evaluating Alternatives (contd…)
Minimum cost & optimal operating rate are
functions of size of production unit.
Average
cost
per
unit
0
Small
plant Medium
plant Large
plant
Output rate

35. Planning Service Capacity vs. Manufacturing
Capacity
• Time: Goods can not be stored for later use and
capacity must be available to provide a service
when it is needed
• Location: Service goods must be at the customer
demand point and capacity must be located near
the customer
• Volatility of Demand: Much greater than in
manufacturing

36. Capacity Utilization &
Service Quality
• Best operating point is near 70% of capacity
• High level of un certainty- Low utilization
• High Level of Certainty- 70% to 100% of service
capacity