OPRATIN management assignment ( uploaded all related chapters ) &

CapacityPlanning11.pdf

Home >Business & Finance homework help >Operations Management homework help >OPRATIN management assignment ( uploaded all related chapters ) &

Operations Management in the Supply Chain Decisions and Cases Seventh Edition

Chapter 11

Capacity Planning

© McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.

11-2© McGraw-Hill Education.

Learning Objectives

11.1 Define capacity and utilization

11.2 Illustrate with an example a facilities strategy that considers: amount, size, timing, location and type.

11.3 Explain how S&OP is done.

11.4 Identify the demand and supply options that are available for S&OP

11.5 Contrast and compare the chase and level strategies

11.6 Define the various costs associated with aggregate planning

11.7 Create an alternative strategy for the Hefty Beer Company example

11-3© McGraw-Hill Education.

Hierarchy of Capacity Decisions

Months Planning Horizon

11-4© McGraw-Hill Education.

Definition of Capacity

Maximum output that can be produced over a given period of time.

• Theoretical capacity

– Labor availability and overtime

– Physical assets, delayed maintenance, etc.

– Can be used for short-term demand spikes

• Effective capacity

– Used for planning

– Subtracts maintenance downtime, shift breaks,

absenteeism, etc.

11-5© McGraw-Hill Education.

Capacity Utilization

100% Capacity

outputActual ×=nUtilizatio

→ Utilization is seldom 100%.

→ Estimates capacity usage and ‘busyness.’

A production facility that builds 1000 cars during the time it can actually produce 1200 cars has utilization = 1000/1200 = 83%

A doctor who is busy working for 6 hours during an 8 hour shift has utilization = 6/8 = 75%

11-6© McGraw-Hill Education.

Facilities Decisions

• How much capacity is needed?

• How large should each facility be?

• When is the capacity needed?

• Where should the facilities be located?

• What type of facilities/capacity are needed?

11-7© McGraw-Hill Education.

Facilities Strategy

• How much? Amount of capacity

– Size of capacity cushion

• How large? Size of facilities

– Economies/diseconomies of scale

• When? Timing of facility decisions

– Preemptive, wait-and-see

• Where? Location of facilities

– Variety of factors to consider

• What type? Types of facilities

– Product-focused, market-focused, process- focused, general-purpose

11-8© McGraw-Hill Education.

Factors Affecting Facilities Strategy

• Predicted demand

• Cost of facilities

• Likely behavior of competitors

• Business strategy

• Global considerations

11-9© McGraw-Hill Education.

How Much? Strategies for Capacity Cushion

• Capacity cushion = 100% – utilization

• Three strategies:

– Large cushion (e.g., make-to-order)

– Moderate cushion (cost of running out

balanced with cost of excess capacity)

– Small cushion (e.g., make-to-stock)

11-10© McGraw-Hill Education.

How Large? Selecting Facility Size

• Economies of scale

– Production costs are not linear

– Overhead costs spread over more units

• Diseconomies of scale

– Increased transportation costs

– Cost of more bureaucracy

– Increased organizational complexity

11-11© McGraw-Hill Education.

When? Timing of Facility Additions

• Preemptive Strategy

– Build capacity ahead of need

– Positive capacity cushion

• Wait-and-see Strategy

– Small or negative capacity cushion

– Lower-risk strategy

11-12© McGraw-Hill Education.

Where? Facility Location

• Quantitative Factors

– ROI, NPV

– Transportation, Taxes

– Lead times

• Qualitative Factors

– Language, norms

– Worker and customer attitudes

– Proximity to customers, suppliers, competitors

11-13© McGraw-Hill Education.

What Type? Types of Facilities

• Product-focused (55%)

– One family of products/services (e.g., computers)

• Market-focused (30%)

– Located near sales (e.g., electricity, bakeries)

• Process-focused (10%)

– Few technologies (e.g., computer chips, MRI center)

• General purpose (5%)

– Several products/services (e.g., furniture, banking)

11-14© McGraw-Hill Education.

Sales & Operations Planning (S&OP)

• Matching supply & demand over a medium time range

• Time horizon of about 12 months

• Aggregated demand for one or few categories of product. Demand may fluctuate or be uncertain.

• Possible to change both supply and demand

• Variety of management objectives

• Facilities are fixed (cannot be expanded or reduced) during this timeframe

11-15© McGraw-Hill Education.

Cross-Functional Nature of S&OP

• Budgeting: closely tied to aggregate plan

• HR: workforce availability

• Operations: capacity/inventory planning

• Accounting: cost analysis

• Finance: capital investments

• Marketing: sales plan

11-16© McGraw-Hill Education.

Demand Management

• Influence demand through:

– Pricing

– Advertising and promotion

– Backlogs or reservations (shift demand)

– Development of complementary offerings

 Seasonal products/service spread demand

o Lawn mower, snow blower

o Ski resort, mountain biking

11-17© McGraw-Hill Education.

Supply Management

• Influence (control) supply through:

– Hiring and layoff of employees

– Using overtime and undertime

– Using part-time or temporary labor

– Carrying inventory

– Outsourcing/subcontracting

– Cooperative arrangements

 Share capacity during demand peaks

 e.g., airlines, hotels, utilities

11-18© McGraw-Hill Education.

Aggregate Planning Strategies

• Level Strategy

– Constant workforce size

– Inventory as buffer

• Chase Strategy

– Vary workforce size

– Produce to meet demand

– Typical for services

Aggregate Planning Costs

• Hiring and firing costs (Chase Strategy)

• Overtime and undertime costs (Chase)

• Subcontracting costs (Chase)

• Part-time labor costs (Chase)

• Inventory-carrying costs (Level Strategy)

• Cost of stockout or back order (Level)

Aggregate Planning - Level Strategy

Aggregate Planning Costs:

Level Workforce

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Total

Resources

Regular workers 45 45 45 45 45 45 45 45 45 45 45 45

Overtime (%) 0 0 0 0 0 0 0 0 0 0 0 0

Units Produced 450 450 450 450 450 450 450 450 450 450 450 450 5400

Sales Forecast 300 300 350 400 450 500 650 600 475 475 450 450 5400

Inventory (end of month)

200 350 450 500 500 450 250 100 75 50 50 50

Costs

Regular time $180 ### ### ### ### ### ### ### ### ### ### ### $2,160

Overtime 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Hire/Layoff 25 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 25

Inventory carrying

24 42 54 60 60 54 30 12 9 6 6 6 363

Total Cost $229 ### ### ### ### ### ### ### ### ### ### ### $2,548

Aggregate Planning - Chase Strategy

Aggregate Planning Costs:

Chase Demand

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Total

Resources

Regular workers 30 30 35 40 45 50 65 60 48 47 45 45

Overtime (%) 0 0 0 0 0 0 0 0 0 0 0 0

Units Produced 300 300 350 400 450 500 650 600 480 470 450 450 5400

Sales Forecast 300 300 350 400 450 500 650 600 475 475 450 450 5400

Inventory (end of month)

50 50 50 50 50 50 50 50 55 50 50 50

Costs

Regular time $120 ### ### ### ### ### ### ### ### ### ### ### $2,160

Overtime 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Hire/Layoff 40.0 0.0 25.0 25.0 25.0 25.0 75.0 20.0 48.0 4.0 8.0 0.0 295

Inventory carrying

6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.6 6.0 6.0 6.0 72.60

Total Cost $166 ### ### ### ### ### ### ### ### ### ### ### $2,527.60

Summary