MBA 8452 Systems and Operations Management

1. MBA 8452 Systems and Operations Management Strategic Capacity Planning & Aggregate Planning

2. Introduction to Operations Management/ Operations Strategy Process Control and Improvement Process Analysis and Design Project Management Planning for Production Quality Management Process Analysis Capacity Management Aggregate Planning Job Design Statistical Process Control Just in Time Scheduling Manufacturing Layout/ Assembly Line Balancing Inventory Control Supply Chain Management Services Waiting Line Analysis

3. Objective: Capacity Management • Overview of Capacity Management • Be able to explain why capacity management is important • Best Operating Level • Be able to describe the best operating level • Capacity Focus • What does capacity focus mean • Capacity Requirements • Calculate capacity requirements and compare to available capacity • Strategies for Meeting Demand • Be able to explain the concept of Chase and Level Strategies

4. Process Planning Long Range Strategic Capacity Planning Medium AggregatePlanning Range Manufacturing Services Master Production Scheduling Material Requirements Planning Weekly Workforce & Order Scheduling Customer Scheduling Short Range Daily Workforce & Customer Scheduling Major Operations Planning ActivitiesOverview

5. “You can’t build it if you don’t have the capacity”Strategic Capacity Planning • Planning of the overall capacity level of capital-intensive resources—facilities, equipment, and overall labor force size —that supports the company’s long-range competitive strategy.

6. Capacity PlanningBasic Questions • What kind of capacity is needed? • How much is needed? • When is needed?

7. What Is Capacity? • The amount of output that a system is capable of achieving over a specific period of time • has a time frame • can be also measured in terms of resource inputs • cannot be stored for later use

8. Average unit cost of output Underutilization Overutilization Best Operating Level Volume Capacity Planning ConceptBest Operating Level • Design capacity for which average unit cost is at the minimum

9. Capacity Planning ConceptCapacity Utilization • Capacity used • rate of output actually achieved • Best operating level • design capacity

10. Capacity Planning ConceptExample - Capacity Utilization • Design capacity = 50 trucks/day • Actual output = 36 trucks/day • Utilization = ? Solution:

11. 100-unit plant Average unit cost of output 200-unit plant 400-unit plant 300-unit plant Volume Economies & Diseconomies of Scale Economies of Scale and the Experience Curve working Diseconomies of Scale start working

12. Capacity Planning ConceptThe Experience Curve Cost or price per unit Total accumulated production of units

13. Inputs Stage 1 Stage 2 Stage 3 Outputs 200/hr 50/hr (bottleneck) 200/hr Volume Volume Time Time Capacity leads demand Capacity lags demand Capacity Expansion Issues • Maintaining system balance • External sources of capacity • Timing and frequency of capacity expansions Timing Strategy

14. Capacity Expansion IssuesFrequency of Capacity Expansion

15. Determining Capacity Requirements • Forecast sales within each individual product line • Calculate equipment and labor requirements to meet the forecasts • Project equipment and labor availability over the planning horizon

16. Determining Capacity RequirementsExample A manufacturer produces two lines of ketchup, FancyFine and a Generic line. Each is sold in small and family-size plastic bottles.Are we really producing two different types of ketchup from the standpoint of capacity requirements? No! The following table shows forecast demand for the next four years.

17. Determining Capacity RequirementsExample (cont.) Currently, three 100,000-units-per-year machines are available for small-bottle production. Two operators required per machine. Two 120,000-units-per-year machines are available for family-sized-bottle production. Three operators required per machine. Total combined demand forecasts

18. Capacity RequirementsExample--Calculation

19. Capacity RequirementsExample--Projection

20. Planning Service Capacity • Time – service is perishable and must be consumed when it is produced • Location – people are not willing to travel long distances to obtain a service so they must be located near the customer • Volatility of Demand– demand for services is subject to change

21. Capacity Utilization & Service Quality • Best operating point is near 70% of capacity • From 70% to 100% of service capacity, what might happen to service quality? Why? • Context specific tradeoff

22. Aggregate Planning (Chap. 12) • Matches market demand to company resources • Medium-range: 6-18 months • Goal: Specify the optimal combination of • production rate • workforce level • inventory on hand

23. Inputs and Outputs to Aggregate Production Planning Capacity Constraints Strategic Objectives Company Policies Demand Forecasts Financial Constraints Aggregate Production Planning Size of Workforce Units or dollars subcontracted, backordered, or lost Production per month (in units or $) Inventory Levels

24. Strategies for Meeting Demand • Level production - produce at constant rate & use inventory as needed to meet demand • Chase demand - change workforce levels so that production matches demand • Subcontracting - useful if supplier meets quality & time requirements

25. Demand Production Units Time Level Production

26. Demand Units Production Time Chase Demand