Alex Hill and Terry Hill
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