2. Capacity Management
• Capacity = Maximum Output Rate (how many
products can be produced or how much service
can be provided when system is running at full
tilt)
• What is the capacity of:
– Theatre
– Coffee Shop
– Mechanic Shop
– Factory
– Human Brain
3. Factors Impacting Capacity
s and
Regulation Manual an
d
Policies Automate
d
y and
Technolog e
tur
Infrastruc
t and Skilled and
Consisten
Variant Unskilled
6. Selecting the right capacity
• Essentially a Decision
Making Problem
• Can be objective or
subjective
• Find optimal solution
using multiple 60%
30%
capacity variables and
constraints
70%
• Use decision trees
7. Inventory Management
• Why is Inventory required?
• What will happen if we have too little inventory?
• What will happen if we have too much
inventory?
• When can we say that we have optimum
inventory?
8. Inventory is required as a cover for
all kinds of variations and
uncertainties in the production
process and supply chain
Inventory allows economies of
scale to kick in
11. EOQ Model – Wilson Model
• Underlying assumptions
– The ordering cost is constant.
– The rate of demand is known, and spread evenly throughout the
year.
– The lead time is fixed.
– The purchase price of the item is constant i.e. no discount is
available
– The replenishment is made instantaneously, the whole batch is
delivered at once.
– Only one product is involved.
– EOQ is the quantity to order, so that ordering cost + carrying
cost finds its minimum. (A common misunderstanding is that
the formula tries to find when these are equal.)
12. EOQ Model – Author Ken Homa
Microsoft
PowerPoint 97-2003 Presentation
14. ABC Analysis
Classify all items in inventory into ABC classes or categories as per
Pareto principle
Class A 70 – 80% expenditure Usually small in number
Class B 10-15% expenditure Medium to large in number
Class C 5-10% expenditure Maybe large in number
