Capacity Management

1. Capacity Management MBA 570 Summer 2011

2. Facility Planning • How muchlong-range capacity is needed • When more capacity is needed • Where facilities should be located (location) • Howfacilities should be arranged (layout) Facility planning answers:

3. Capacity • Maximum output of a system in a given period (general definition) • May be units, hours, dollars, sq. ft. etc. • Example: Tons of steel per month • Effective capacity: Maximum output given standards, product mix, etc. • Rated capacity: Maximum usable output given utilization & efficiency • RC = (Capacity)(Utilization)(Efficiency)

4. Capacity Definition Thinking Challenge • How would you define capacity for the following firms (e.g., steel mill, tons of steel per day): • Beer brewery • Auto plant • Restaurant • Warehouse • Grocery store

5. Capacity Definition Solution* • Beer brewery: Barrels of beer per year (output) • Auto plant: Cars per week (output) • Restaurant: Customers per hour (output) or number of seats (input) • Warehouse: Square feet of space (input) • Grocery store: Square inches of shelf space (input)

6. Develop Quantitative Forecast Alternative Factors Demand Plans (e.g., Cost) Compute Evaluate Qualitative Rated Capacity Factors Capacity Plans (e.g., Skills) Compute Select Best Implement Needed Capacity Best Plan Capacity Plan Capacity Planning Process

7. Long Range Planning Add Facilities Add long lead time equipment * Intermediate Range Planning Sub-Contract Add Equipment Add Shifts Add Personnel Build or Use Inventory Schedule Jobs Schedule Personnel Allocate Machinery * Short Range Planning Modify Capacity Use Capacity *Limited options exist Types of Planning Over a Time Horizon

8. Capacity: The “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time. Capacity a firm can expect to receive given its product mix, methods of scheduling, maintenance, and standards of quality. Effective capacity: Utilization: Actual output as a percent of design capacity. Efficiency: Actual output as a percent of effective capacity. Definition and Measures of Capacity

9. Actual or Expected Output Actual (or Expected) Output = (Effective Capacity)(Efficiency)

10. Utilization • Measure of planned or actual capacity usage of a facility, work center, or machine

11. Utilization • Measure of planned or actual capacity usage of a facility, work center, or machine

12. Efficiency • Measure of how well a facility or machine is performing when used

13. Efficiency • Measure of how well a facility or machine is performing when used

14. Special Requirements for Making Good Capacity Decisions • Forecast demand accurately • Understanding the technology and capacity increments • Finding the optimal operating level (volume) • Build for change

15. Strategies for Matching Capacity to Demand • Making staffing changes (increasing or decreasing the number of employees) • Adjusting equipment and processes – which might include purchasing additional machinery or selling or leasing out existing equipment • Improving methods to increase throughput; and/or • Redesigning the product to facilitate more throughput

16. Approaches to Capacity Expansion Expected Demand Expected Demand New Capacity New Capacity Demand Demand Time in Years Time in Years Capacity leads demand with a one-step expansion Capacity leads demand with an incremental expansion Expected Demand Expected Demand New Capacity New Capacity Demand Demand Time in Years Time in Years Attempts to have an average capacity, with an incremental expansion Capacity lags demand with an incremental expansion

17. Approaches to Capacity Expansion Expected Demand New Capacity Demand Time in Years Capacity leads demand with an incremental expansion

18. Approaches to Capacity Expansion Expected Demand New Capacity Demand Time in Years Capacity leads demand with a one-step expansion

19. Approaches to Capacity Expansion Expected Demand New Capacity Demand Time in Years Capacity lags demand with an incremental expansion

20. Approaches to Capacity Expansion Expected Demand New Capacity Demand Time in Years Attempts to have an average capacity, with an incremental expansion

21. Vary prices Vary promotion Change lead times(e.g., backorders) Offer complementary products Managing Existing Capacity Demand Management

22. Complementary Products

23. Complementary Products Sales (Units) 5,000 4,000 Snow-mobiles 3,000 2,000 1,000 0 J M M J S N J M M J S N J Time (Months)

24. Complementary Products Sales (Units) 5,000 4,000 Snow-mobiles 3,000 2,000 1,000 Jet Skis 0 J M M J S N J M M J S N J Time (Months)

25. Complementary Products Sales (Units) 5,000 Total 4,000 Snow-mobiles 3,000 2,000 1,000 Jet Skis 0 J M M J S N J M M J S N J Time (Months)

26. Complementary Products Variation is reduced by combining demands Sales (Units) Total Snow-mobiles Jet Skis Time (Months)

27. Vary staffing Change equipment & processes Change methods Redesign the product for faster processing Managing Existing Capacity Capacity Management Demand Management • Vary prices • Vary promotion • Change lead times(e.g., backorders) • Offer complementary products