7 -managing_capacity

Alex Hill and Terry Hill

Managing capacityAlex Hill and Terry Hill

Learning objectives

• Understand NATURE of capacity and the mix of RESOURCES involved

• Appreciate the PURPOSE of managing capacity and the IMPACT of having too little or too much capacity

• Explain how to DEFINE and MEASURE capacity in different organisations

• Understand the FACTORS involved in determining the level of capacity required

• Explain the key STEPS in capacity planning• Recognise the key FACTORS in managing

capacity

Lecture outline

• INTRODUCTION• An OVERVIEW of managing capacity• FACTORS affecting capacity management• PLANNING and MANAGING capacity• Critical REFLECTIONS• SUMMARY

© Alex Hill and Terry Hill

•RESOURCES needed to:- Serve customers- Process information or- Make products•MIX of people, systems and

equipment

CAPACITY

IntroductionWhat is capacity?

IntroductionPurpose of managing capacity

CAPACITY of resourcesMATCH

DEMAND for services and products

TO

> KEY IDEA

A key BUSINESS STRATEGY decision is whether capacity should LEAD or FOLLOW demand

> KEY IDEATOO LITTLE capacity leads to DELAYS and possible LOST SALESTOO MUCH incurs unnecessary COSTS

An overview of managing capacityDefining and measuring capacity

ReflectsSERVICE or PRODUCT

to be delivered

TYPE AMOUNT

Reflects volume of DEMAND

An overview of managing capacityDefining and measuring capacity

•TIME is the common denominator•Some businesses would express as

number of SERVICES or PRODUCTS- e.g. number of people served in a

restaurant

An overview of managing capacityDefining and measuring capacity

An overview of managing capacityDefining and measuring capacity

> KEY IDEAOperations expresses and measures its activities in TIMEThe rest of the business uses MONEY

An overview of managing capacityDefining and measuring capacity

STATEMENT and MEASUREMENT of overall

capacity will differ

•Overall size = ♯BEDS•Emergency unit = ♯STAFF•Consultant clinic =

♯APPOINTMENTS

HOSPITAL EXAMPLE

An overview of managing capacityDefining and measuring capacity

An overview of managing capacityDefining and measuring capacity

ACTUAL capacity

PLANNED capacity

> KEY IDEAUTILISATION comparesACTUAL hours worked withPLANNED hours worked

> KEY IDEAEFFICIENCY comparesACTUAL output withEXPECTED output for the hours worked

Factor affecting capacity managementImpact of delivery systems and processes on capacity

•Use of CUSTOMERS•PERISHABLE nature of service

capacity•BACK office vs FRONT office•Use of ADEQUATE CAPACITY at

each stage of the delivery system

> KEY IDEAService capacity is PERISHABLE and cannot be put into inventory for use or sale in the future

CASE 7.1

INCREASING RESTAURANT CAPACITY

1.What are its ORDER-WINNERS and QUALIFIERS?

2.How could it INCREASE capacity?

CASE 7.1

Question AnswerOrder-winners

Qualifiers

Increase capacity

• Increase PROFITS- Increase PRICES• Increase SPACE- REDESIGN existing interior- EXTEND existing premises- MOVE premises• Manage DEMAND- Introduce EARLY-BIRD menu

• PRODUCT DESIGN - food and wine• QUALITY CONFORMANCE

INCREASING RESTAURANT CAPACITY

• PRICE• SERVICE DESIGN - appropriate pace• ATMOSPHERE - table spacing and intimacy

Factor affecting capacity managementDetermining the level of capacity

•ANTICIPATING END of growth

•AVOIDING OVER capacity•LEAD or FOLLOW demand•What to do with

OVERCAPACITY- Divest or diversify?

> KEY IDEADeciding on the LEVEL of capacity involves:• ANTICIPATING END of growth• AVOIDING too much• Deciding to LEAD or FOLLOW demand• Deciding what to do with OVER-CAPACITY- Divest or diversify?

Factor affecting capacity managementDemand fluctuations

•Cyclical•Annual or

seasonal•Weekly or daily

PREDICTABLE UNPREDICTABLE

•Random•Unexpected

Factor affecting capacity managementCapacity fluctuations

•Planned increase

•Planned decrease

PREDICTABLE UNPREDICTABLE•Absenteeism•Machine

breakdown

> KEY IDEAOrganisations need to SEPARATE the PREDICTABLE variations from the UNPREDICTABLE variations indemand and capacity

Planning and managing capacityIssues to consider•UNCERTAINTY- Demand is UNCERTAIN•ANTICIPATING THE FUTURE- Forecasts are INACCURATE•TIMESCALES- From LONG-TERM plans to DAY-TO-DAY

schedules•ALTERNATIVES- Different WAYS to provide capacity•EXECUTION- FULFILLING the plan

Planning and managing capacityResource planning

•AMOUNT- How much is required?•TIMING- When is the capacity required?•LOCATION- Where should the capacity be

located?

Planning and managing capacityResource planning

•What ACTIVITIES should take place in the operationLayout

•WHEN they should take place

•What RESOURCES should be allocated to them

PLANNING CONTROL•Understand what is

actually HAPPENING in the operation

•Decide if there is any DEVIATION from what should be happening

•Change RESOURCES to affect the operation

Planning and managing capacityResource planning

Planning and managing capacityResource planning

• Forecasts• Investment

Long TermPlanning

Short Term Planning /

Control

• 1-year demand forecasts

• Capacity requirements

• Capacity plan

Medium Term Planning•Space

•Layout•Staff•Equipment•Stock•Process•Time•Outsourcing

RESOURCESCapacity

Management

CUSTOMERS

•Pricing•Advertising•Off-peak

offers•Reservations•Complementa

ry services•Alternative

attractions•Queuing

DemandManagement

> KEY IDEARESOURCE planning looksSEVERAL YEARS ahead to provide future capacity requirements

> KEY IDEAMEDIUM-TERM planning looks up toTWO YEARS ahead to resolve how to provide capacity to meet forecast demand

CASE 7.2

WAL-MART USES SCALE TO COMPETE IN THE US FOOD MARKET

1.How is it using SCALE to compete in the US food market?

2.Why is it pursuing its NEIGHBOURHOOD MARKET store strategy?

Question Answer

Using SCALE

Neighbourhood STRATEGY

• High SALES VOLUMES:- Increase purchasing power- Reduce material costs- Allow it to reduce prices

CASE 7.2

• Leverage LOW COST from volume generated through large stores

• Provide LOCAL and more CONVENIENT service

WAL-MART USES SCALE TO COMPETE IN THE US FOOD MARKET

Planning and managing capacityResource planning

•LEVEL capacity

•CHASE demand

•MIX plan

TYPES OF CAPACITY PLAN

Planning and managing capacityResource planning

Planning and managing capacityResource planning

Planning and managing capacityResource planning

Planning and managing capacityResource planning

Planning and managing capacityManaging demand

•Changing the PATTERN of demand- Alternate PRICING- ADVERTISING- Offering COUNTER seasonal services or

products•SCHEDULING- RESERVATIONS or APPOINTMENTS- Fixed SCHEDULES- ADVERTISING- EDUCATING customers•Managing UNCERTAINTY- FORECASTS vs known orders

Planning and managing capacityManaging capacity•Short-term capacity ADJUSTMENTS- OVERTIME- TEMPORARY staff•FLEXIBLE capacity- FLEXIBLE staff- PART-TIME or TEMPORARY staff- SHIFT patterns- STAGGERED working hours•Changing capacity FORM and NATURE- ANNUALISED hours- SUBSTITUTING capacity by

technology/customers- SUBCONTRACTING

> KEY IDEATaking actions to change DEMAND patterns and change the shape of CAPACITY are key tasks when managing these resources

CASE 7.3

FLEXIBLE WORKING AT BMW

1.Explain how these ARRANGEMENTS helped BMW become more competitive

2.When should a company use FLEXIBLE working?

CASE 7.3

Question Answer

Become more competitive

Use flexible working

FLEXIBLE WORKING AT BMW

• Reduced COSTS- Less staff- Lower overtime• Reduced CASH holding- Lower finished goods inventory

• PREDICTABLE demand variation- E.g. seasonal or cyclical• LOW SKILLED staff- High volume- Standard services and products

KitchenRestaurantAir traffic Factory

Planning and managing capacityManaging capacity and demand

Pushing Tin

(1999)

Dinner Rush

(2000)

Modern Times(1936)

Dinner Rush

(2000)

Film clip Air traffic

FilmTitleDirector (year)

Pushing TinNewell (1999)

Clip StartFinish

00:00:4700:06:00

What clip shows An air traffic controller managing the landing of planes within an airport

Key learning objective

For a repeat low-volume service delivery system, the:•Type of capacity and demand that has to managed•The approaches used to manage capacity and demand

Planning and managing capacityManaging capacity and demand

Film clip Restaurant

FilmTitleDirector (year)

Dinner RushBob Giraldi (2000)

Clip StartFinish

00:23:3600:24:25

What clip shows Customers being served in a restaurant

Key learning objective

For a repeat high-volume service delivery system, the:•Type of capacity and demand that has to managed•The approaches used to manage capacity and demand

Planning and managing capacityManaging capacity and demand

Film clip Kitchen

FilmTitleDirector (year)

Dinner RushBob Giraldi (2000)

Clip StartFinish

00:16:1400:18:14

What clip shows Food being made in a restaurant

Key learning objective

For a repeat low-volume service delivery system, the:•Type of capacity and demand that has to managed•The approaches used to manage capacity and demand

Planning and managing capacityManaging capacity and demand

Film clip Factory

FilmTitleDirector (year)

Modern TimesCharles Chaplin (1936)

Clip StartFinish

00:01:5300:06:03

What clip shows Charlie Chaplin working on a production line within a factory

Key learning objective

For a high-volume batch manufacturing or line process, the:•Type of capacity and demand that has to managed•The approaches used to manage capacity and demand

Planning and managing capacityManaging capacity and demand

Low VOLUME High

High

VARI

ETY

Low

Unit of measurementPlanning and managing capacity

Question Air traffic Restaurant Kitchen Factory

Capacity

Demand

Planning and managing capacityType of capacity and demand

Question Air traffic Restaurant Kitchen Factory

Managing capacity

Managing demand

Planning and managing capacityManaging capacity and demand

Unit of measurementPlanning and managing capacity

Question Air traffic Restaura

nt Kitchen Factory

Capacity

Demand

Planning and managing capacityType of capacity and demand

•Chairs•Tables•Waiting staff

•Equipment•Food•Chefs

•Air space•Air traffic

controllers

•Equipment

•Assembly workers

•Number of planes

•Number of customers

•Number of orders

•Number of widgets

Question Air traffic Restaura

nt Kitchen Factory

Managing capacity

Managing demand

Planning and managing capacityManaging capacity and demand

•Part-time / Temp staff

•Staggered working

•Overtime / Shifts

•Flexible staff

•Overtime•Shift patterns

•High automation

•Shift patterns

•Alternate pricing

•Reservations

•Fixed schedules

•Alternate pricing

•Reservations

•Fixed schedules

Critical reflections• Managing capacity is COMPLEX and

CHALLENGING• DECISIONS on capacity and location impact

future- Market POSITIONS- Market OPPORTUNITIES• Increasing or decreasing capacity is a MAJOR

DECISION• TOO LITTLE capacity leads to- DELAYS and possible LOST SALES• TOO MUCH capacity incurs- Unnecessary COSTS

Summary• Capacity and demand MEASUREMENT

varies by- Delivery system and process type• Capacity and demand FLUCTUATIONS- Predicable and unpredictable• Resource PLANNING and CONTROL- Long-term, medium-term, short-term- Methods vary by delivery system and process

type• Managing DEMAND- Change pattern, schedule, manage uncertainty• Managing CAPACITY- Short-term adjustments, flexibility, form and

nature

© Alex Hill and Terry Hill

Revision questions

1 The two common denominators used in business to express, calculate and measure activities are:a) Time and moneyb) People and moneyc) People and equipment

Revision questions

1 The two common denominators used in business to express, calculate and measure activities are:a) Time and moneyb) People and moneyc) People and equipment

Revision questions

2 In a business using a non-repeat, project or jobbing process, capacity is measured by the:a) Number of staff hoursb) Number of equipment hoursc) Both a) and b)

Revision questions

2 In a business using a non-repeat, project or jobbing process, capacity is measured by the:a) Number of staff hoursb) Number of equipment hoursc) Both a) and b)

Revision questions

3 Efficiency is measured as:a) Actual output compared to the level of

output expected in the number of hours worked

b) Expected level of output in the number of hours worked

c) Actual number of hours worked compared with those planned to be worked

Revision questions

3 Efficiency is measured as:a) Actual output compared to the level of

output expected in the number of hours worked

b) Expected level of output in the number of hours worked

c) Actual number of hours worked compared with those planned to be worked

Revision questions

4 Which of the following is NOT a factor effecting the definition of capacity:a) The make or buy decisionb) The service or product range and

specificationc) The level of market demand

Revision questions

4 Which of the following is NOT a factor effecting the definition of capacity:a) The make or buy decisionb) The service or product range and

specificationc) The level of market demand

Revision questions

5 Example(s) of unpredictable aspect(s) of capacity are: a) Absenteeismb) Short-term demand changesc) Both a) and b)

Revision questions

5 Example(s) of unpredictable aspect(s) of capacity are: a) Absenteeismb) Short-term demand changesc) Both a) and b)

Revision questions

6 Which of the following is a method(s) used to manage demand:a) Annualised hoursb) Fixed service schedulesc) Both a) and b)

Revision questions

6 Which of the following is a method(s) used to manage demand:a) Annualised hoursb) Fixed service schedulesc) Both a) and b)

Revision questions

7 Which of the following is a method(s) used to manage capacity:a) Overtimeb) Annualised hoursc) Both a) and b)

Revision questions

7 Which of the following is a method(s) used to manage capacity:a) Overtimeb) Annualised hoursc) Both a) and b)

CASE FOR TUTORIAL

MINKIES DELI