capacity planning and control chapter -11

What is capacity?

Capacity is the maximum amount of work that an operation can do over a specific period of time.

Two important questions while considering the capacity:

1. How much?2. How long?

Capacity of an organization consists of many elements:

• Facilities • Equipments• Human Resource • Skills So, make a balance between capacity and demand is

the most important function of operations management.

To conclude we can say capacity is the maximum amount of work that an organization can do is capacity.

Any organizations operate below their maximum capacity! Discuss the reasons behind this.

1. There is insufficient demand 2. Policy for responding to new demand quickly

as new order comes.3. One part of the operation is capacity ceiling

or maximum capacity, so the other is below capacity.

Three different types of capacity strategies

• Long-term capacity strategy • Medium-term capacity strategy • Short-term capacity strategy

1. Long-term capacity planning strategy Changing the main production facilities. It can be

adding new or deleting the old. For example new plant, factory, capital intensive

machines e.t.c

2.Medium-term capacity planning strategy

It happen between 2-18 months usually. Here the output is changed by increasing number of machines or operating hours.

3. Short-term Capacity planning strategy This happens over a short time. According to the

changes in demand, necessary adjustments are made.

For example hotels or restaurents.

What you mean by aggregate demand and capacity?

• A medium term capacity planning, that calculates different services and products together to get a broad view of demand and capacity. For example hotel think about demand and capacity in terms of rooms per night, without thinking about the number of guests in each room and their requirements.

Objectives of planning and control

1. Cost effectiveness – overcapacity means high cost 2. Revenue generation - capacity equals or higher than demand

means no revenue lost.3. Schedule working capital – if inventory before demand the

fund is wasted.4. Increase quality - by hiring new staff for new demand may

affect quality.5. Increase speed – arranging surplus capacity so no queing.6. Increase dependability - the more capacity closer to demand

less dependability for delivery.7. Increase flexibility – volume flexibility increased by extra

capacity.

What are the three important steps involved in capacity planning and control?

1.Measure aggregate demand and supply 2.Identify the alternative capacity plans 3. Choose the most appropriate capacity plan.

I. Measuring demand and capacity

a. Forecasting the demand Forecasting is important for planning and control.

Without the forecasting or estimate of future demand, it is impossible to plan for the future capacity.

But the forecast or prediction should have 3 qualities.1.Forecasting should be expressed in terms, which are

useful for capacity planning. For example in units such as machine hour per year,

space required, how many hours, how much et.c

2.Should be accurate as possiblewrong forecast making planning useless. For example recruiting new staff after the forecast will end up in wasting money.

3.Should give the indication about the potential or possible uncertainty.

How much difference can be expected in actual demand? It has to be clear. For example if the change from average demand is predicted a mange in a supermarket can arrange the staff for the peak and lean period.

Demand seasonality and supply seasonality

Demand seasonality means demand changes according to various factors:

Climate Festive Behavioral Political Financial Social For example hotel demand changes according to season.

Seasonality of supply

The inputs changes according to different factors.For example agricultural products supply is

decided by climate. Measuring capacity Can be done in two ways :Output capacity measure – how much from

operationInput capacity measure –how much for operation

Design capacity and effective capacity

Design capacity is the capacity of the process as it is designed to be.

For example when you buy a motor bike the fuel efficiency promise will be higher than that reality.

Effective capacity is the actual or useful capacity of operation. Why there is difference in design capacity and effective capacity?1.Maintenance 2.Changeover 3.Stoppings Utilization The ratio of actual output from a process or facility.

How can capacity be measured accurately

• By reducing changeover set-ups • Re-examining preventive maintenance • Allocate work in different manner Overall equipment effectiveness Method of judging effectiveness of equipments.

The alternative capacity plans

Three methods for this:Level capacity plan Chase capacity demand plan Demand management

Level capacity plan

• Level capacity plan – where capacity is kept constant, the operation either tolerating the under use of the capacity or its inability to serve all demand, or alternatively (if it is capable of it) making to stock for future periods when demand will exceed capacity.

For example aluminum production

Chase demand plan

• – where capacity is frequently adjusted in an attempt to match it to demand at any point in time. This can be done a number of ways such as using overtime, varying the size of the workforce(hire&fire), using part-time staff, or subcontracting(Ben).

For example customer service

Managing demand– where demand is influenced or changed in order to bring it closer to capacity at

any point in time. Discounts Sale-offs For example airlines.( Moon cake )Two methods for this:Alternative products and services - develop alternative products. For example

universities halls used for wedding or conferences. Greetings cards for all seasons

Yield management – methods to make sure that an operation maximizes the potential to generate profit

Examples : airlines and hotel by overbooking, discount, varying service type.

In fact many organizations use some combination of these three pure strategies.

Choosing a capacity planning and control approach

We have three capacity plans and now the task is to choose the one that suits your organization. Before adopting any plan an organization must be aware of the consequences.

So the organization must decide what changes must be brought into the output rate and facilities.

There are two methods to find this out:

• Cumulative representation • Queuing theory Cumulative representation is a graphical presentation

method used in capacity planning. In this method demand and capacity are clearly

indicated, where operational managers can easily find out high demand season and low, and make necessary operation changes.

So here ability of operations to store the finished goods as inventory is essential.

Queuing theory or waiting line management

It is used in the case of service operations and perishable goods, because there is no chance for stocking or inventory.

In cumulative representation the focus is to make sure the production is above the demand line.

Here demand is treated as it comes, thereby queuing happens.

Customer preceptions of queing page 349