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Operations management

Operations management. Session 4: More on Capacity Management. More on Capacity Management. So far, we analyzed a process given the capacity. Question: How much capacity do we need to meet demand?. Capacity Requirement Example.

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Operations management

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  1. Operations management Session 4: More on Capacity Management

  2. More on Capacity Management • So far, we analyzed a process given the capacity. • Question: How much capacity do we need to meet demand? Operations Management

  3. Capacity Requirement Example • Kristen expects higher demand and would like to produce 26 dozen cookie (in one-dozen order sizes) a night. • How many ovens and mixers does Kristen need? • What are the utilization rates of Kristen and her roommate? Operations Management

  4. Capacity Requirement Example • Total throughput rate = 26 dozen/night = 6.5 dozen/hour Capacity of an oven = 6 dozen/hour Capacity of a mixer = 10 dozen/hour •  Need two ovens and one mixer Operations Management

  5. Capacity Requirement Example • Utilization rate of Kristen = 26*8/240 = 86.7% • Utilization rate of Roommate = 26*4/240 = 43.3% • What if Kristen would like to produce 36 dozen cookie (in one dozen order) a night? Is this possible? • Yes, by cross-training (both Kristen and her roommate) Operations Management

  6. Flexibility & Capacity • What is the capacity of Kristen and Roommate if they were cross-trained (to do the other person’s asks in addition to their own)? • Time taken per person per dozen cookies= (8+4)/2=6 min/dozen • 240/6=40 dozen/night • Flexible equipment and cross-training enable a higher utilization rate. Operations Management

  7. Utilization Rate & Flexibility • Flexible equipment: equipment that can produce several different products efficiently. • In the past, car manufacturers generally produced only one car type in a factory. • Today that is not good enough Operations Management

  8. Utilization Rate & Flexibility • For decades, mainstream models such as the Ford Taurus sold in such large volumes they could keep a plant or two running at full capacity for years. • Not only was the plant limited, but so was its costly equipment, much of which had to be scrapped when the model was dropped. Operations Management

  9. Variety and Customization • Growth of variety • Number of automobile lines sold in U.S.: • 1971: 41 • 1992: 65 • Total sales per model • 1950 Chevy Impala: 1.5M • 1990 Honda Accord: 0.5M • To be competitive, one needs to offer consumers many choices. This means the assembly line must be re-thought to allow for different car models. Operations Management

  10. What Are the Advantages and Disadvantages of Flexibility • Advantages: • Disadvantages: Operations Management

  11. What Are the Advantages and Disadvantages of Flexibility • Advantages: • Increasing utilization rates • GM originally produced 4 small cars in 4 facilities • It is possible to produce this number in one flexible facility • Equipment lasts longer • Better equipped to meet changing demands • Disadvantages: • Learning curve • Training Operations Management

  12. Flexibility of Car Manufacturers Operations Management

  13. Capacity Requirement Example • Kristen did a detailed market study and would like to have a capacity of 26 dozen cookies (in one-dozen order sizes) on Monday, Tuesday, Wednesday, Thursday nights, and a capacity of 16 dozen on Friday, Saturday and Sunday nights. • How many ovens and mixers does Kristen need? Operations Management

  14. Capacity Requirement Example • Maximum throughput rate = 26 dozen/night = 6.5 dozen/hour Capacity of an oven = 6 dozen/hour Capacity of a mixer = 10 dozen/hour • Two ovens and one mixer Operations Management

  15. Utilization Rate • What is the utilization rate of the oven on Friday night? • Throughput rate = 16 dozen/night = 4 dozen/hour • Capacity of an oven = 6 dozen/hour • Utilization Rate= Operations Management

  16. Capacity Requirement Example • Mattel’s demand for dolls is: • 5,000,000 dolls in November • 5,000,000 dolls in December • 200,000 every other month. • Each Mattel’s plant is capable of producing 500,000 dolls per month, how many plants should Mattel build? • Does Mattel have other alternatives? Operations Management

  17. Capacity Requirement ExampleSolution • The demand for dolls is: • 5,000,000 dolls in November • 5,000,000 dolls in December • 200,000 every other month. • Each Mattel’s plant is capable of producing 500,000 dolls per month, how many plants should Mattel build? • Max demand/ month=5,000,000 per month • If no inventory is held, need 5,000,000/500,000 plants=10 plants • 100% utilization in Nov, Dec • Only 4% utilization in other months Jan-Oct Operations Management

  18. Alternatives • Does Mattel have other alternatives? • Building inventory • What are the advantages? • What are the disadvantages? • No. of Plants= • Utilization per year= • Outsourcing Operations Management

  19. AlternativesSolution • Does Mattel have other alternatives? • Building inventory • What are the advantages? • What are the disadvantages? • Total Demand per year=12 million • Total Plant capacity per year=6 million/plant • No. of Plants=12/6 = 2 plants • Utilization per year= 12 million/(2*6 million) = 1= 100% • Outsourcing Operations Management

  20. What did we learn in this class? • Capacity planning • Capacity requirement calculation • Flexibility/variety • Impact of randomness/variability • Smooth production/inventory Operations Management

  21. Reminder • Wednesday, 1/29 • HW #1 due • Team name due • Solver installed on your laptop • Monday, 2/2 Quiz #1 • Wednesday 2/4 Timeshare Exchange Fair Case due • Monday 2/9 HW #2 due • Wednesday 2/11 Mid Term and Little Field code due

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