capacity management planning the resource capacity that a firm will need to meet its demand
TRANSCRIPT
Capacity Management
Planning the resource capacity Planning the resource capacity that a firm will need to meet its demand.that a firm will need to meet its demand.
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Capacity Management and Its Relationship to Value
Capacity management:critical component of long-term decision making due to facility investment decisions.
Capacity: the maximum output of an organization, piece of equipment, or worker
There are costs to having too much capacity, just as there are costs to not having enough.
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Peak and Effective Capacity
Peak capacity: the maximum output rate that a process or facility can achieve in the short term under ideal conditions
Effective capacity: the maximum output that a company or process can economically sustain under normal circumstances for an extended time period
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Capacity Strategy: Wait and See
Wait-and-see strategy: postponing firm commitments to build expensive new facilities until demand has already exceeded capacity
Typically fits best in industries with slow growth where facilities are very expensive
Such as?
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Wait-and-See Capacity Strategy
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Capacity Strategy:Aggressive Expansion
Aggressive expansion: a strategy in which capacity is added in large leaps, with the expectation that demand will eventually catch upSuch as?
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An Aggressive Capacity Strategy
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Capacity Cushion
Capacity cushion: the difference between average utilization and 100 percent capacity
A central component of capacity strategy is the recognition that it is impossible to exactly match capacity to demand
= most companies maintain a capacity cushion of some size
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Capacity Cushion
The size of the capacity cushion that a company
wishes to have varies greatly based on a number
of factors:1. Organizations that compete based on low cost will
generally choose to have fairly small capacity cushions.
2. Organizations that compete based on quality or flexibility will employ larger cushions. WHY?
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Capacity Planning Overview Long-range planning (Strategic)
– Greater than one year planning horizon Intermediate-range planning (Tactical)
– Months out (roughly 2-18 months)“Big Picture” approach to planning
– Families or groups (aggregation) of: Products Resources Technologies or skills
– Provide “rough” estimates Short-range planning (Detailed Planning)
– Days & weeks out
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Capacity Production Planning
Annual demand byitem and by region
“Clutch Covers in US”
Monthly demandfor 15 months by
product type“Ducati Parts”
Monthly demandfor 5 months by
Item“Clutch Covers”
Forecasts neededSum up all items &
allocatesproduction
among plants
Determinesseasonal plan by
product type
Determines monthlyitem production
schedules
Decision ProcessDecision Level
Corporate
Plant managerAggregate Planner
Shopsuperintendent
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Capacity Planning Approaches
Top-Down Similar products OR
stable mix
Standards available for planning
– time, cost requirements from history and/or planning documentation
Can “Average” product
Bottom-Up Different products AND
unstable mix
Requires forecasts and production data for individual products
Can be extremely data-intensive
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Top-Down Planning
1. Develop the aggregate sales forecast and planning values.
2. Translate the sales forecast into resource requirements.
Personnel, equipment, materials
3. Generate alternative production plans. Chase, level, mixed
4. Select the best of the plans. Lowest cost, best fit to capability
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Top-Down Example II(“Average” Products)
Product % of Total Labor/UnitA100 10% 40 hours
B200 50% 20 hours
C300 20% 15 hours
D400 5% 10 hours
E500 10% 20 hours
F600 5% 10 hours
Weighted Planning Value for labor/unit?
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Top-Down Example Ill(Demand Forecast for 6 months)
Month Demand (units)
Worker
Hours
Workers
March 1592
April 1400
May 1200
June 1000
July 1504
August 1992
“Average” unit requires 20 worker hoursEach worker works 160 hours per monthConvert to workers needed
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Primary Objectives of Capacity Planning
Match Supply and Demand Minimize Costs
13-5
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Alternatives for Changing Demand
Pricing Advertising and Promotion Backlogs and Reservations Develop Alternative Products
13-6
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Alternatives for Changing Supply
Overtime/Undertime Hiring/Firing of Personnel Temporary/Part-time Personnel Subcontracting Adjusting Inventories Adjusting Lead Times
13-7
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Capacity or Aggregate Planning
Inputs: Strategic objectives, demand forecasts, company policy, financial constraints, capacity constraints.
Outputs: Size of workforce, production per month (units or $), Inventory levels, and Units or dollars subcontracted, back ordered, or lost.
APP= What is the company wide game plan for allocation of resources?
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ObjectivesObjectives
Minimize Costs/Maximize ProfitsMinimize Costs/Maximize Profits Maximize Customer ServiceMaximize Customer Service Minimize Inventory InvestmentMinimize Inventory Investment Minimize Changes in Production RatesMinimize Changes in Production Rates Minimize Changes in Work-force Minimize Changes in Work-force
LevelsLevels Maximize Utilization of Plant and Maximize Utilization of Plant and
EquipmentEquipment
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What are the alternatives to meeting seasonal demand?
Pure Strategies
Level: – Constant Production or output rate (workforce can fluctuate)– Constant Workforce (output can fluctuate)– What else vary if there is still seasonal demand? Costs?
Reactive or Chase – Vary Production rates or output– Vary Workforce– What will stay constant? Costs?
Mixed Strategies
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Pure Level Strategy U
nits
Time
Demand
Production
-I
+I
13-10
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Pure Chase Strategy U
nits
Time
Demand
Production
13-9
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Goal: Specify the optimal combination of
production rate
workforce level
inventory on hand
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Good and Rich Candy Company
Quarter Sales Forecast (lb)
Spring 80000
Summer 50000
Fall 120000
Winter 150000
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Costs and starting information
Hiring cost =$100 per worker Firing cost =$500 per worker Inventory carrying cost=$0.50 per
pound/quarter Production per employee=1000
pounds per quarter (constant) Beginning work force=100 workers
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Cost of Level versus Chase Strategy?