chapter 11

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Chapter 11

Capacity planning and control

Source: Arup



Operations strategy

Improvement

Planning and control

Operations management


The operation supplies ... the capacity to deliver products and services

The market requires … the availability of products

and servicesDesign


Objective

To provide an ‘appropriate’ amount of capacity at any point in time

The ‘appropriateness’ of capacity planning in any part of the operation can be judged by its effect on …

Costs

Revenue

Working capital

Service levelSource: British Airways London Eye


Objectives of capacity planning and control

Forecast demand

Time

Agg

rega

ted

outp

ut

Estimate of current capacity

Measure aggregate capacity and demand

Identify the alternative capacity plans

Choose the most appropriate capacity plan


The nature of aggregate capacity

– rooms per night

– ignores the numbers of guests in each room

– tonnes per month

– ignores types of alloy, gauge and batch variations

Aggregate capacity of a hotel:

Aggregate capacity of an aluminium producer:


Climatic Festive Behavioural Political Financial Social

Causes of seasonality

Construction materials

Beverages (beer, cola)

Foods (ice-cream, Christmas cake)

Clothing (swimwear, shoes)

Gardening items (seeds, fertilizer)

Fireworks

Travel services

Holidays

Tax processing

Doctors (influenza epidemic)

Sports services

Education services

Source: Alamy/Medical-on-line


Demand fluctuations in four operations


Good forecasts are essential for effective capacity planning …

… but so is an understanding of demand uncertainty, because it allows you to judge the risks to service level

When demand uncertainty is high, the risks to service level of under-provision of capacity are high

DE

MA

ND

TIME

Only 5% chance of demand being lower than this

DE

MA

ND

TIME

Distribution of demandOnly 5% chance of demand being higher than this


Loading time

Performance rate = p= net operating time/

total operating time

Quality losses

Valuable operating

time

Quality losses

Slow-running equipment

Equipment ‘idling’Net operating time

Speed losses

Not worked (unplanned)

Breakdown failure

Set-up and changeovers

Total operating timeAvailability

losses

Quality rate = q =valuable operating time/

net operating time

Availability rate = a = total operating time/

loading time

Operating equipment effectiveness (OEE)


How capacity and demand are measured

Design capacity

168 hours per week

Effective capacity

109 hours per week

Planned loss of 59 hours

Actual output – 51 hours per

week

Avoidable loss – 58 hours per

week

Efficiency

Actual output

Effective capacity=

Utilization Actual output

Design capacity=


Ways of reconciling capacity and demand

Level capacity

Demand

Capacity

Chase demand Demand management

CapacityCapacity

Demand Demand


How do you cope with fluctuations in demand?

Absorb demand

Change demand

Adjust output to match demand

Level capacity

Chase demand

Demand management

Ways of reconciling capacity and demand


Absorb demand

Part finishedFinished goods, orCustomer inventory

QueuesBacklogs

Have excess

capacity

Make to stock

Keep output level

Make customer

wait

Source: Madam Tussaud’s


Adjust output to match demand

Hire Fire

Temporary labour Lay-off

Overtime

Subcontract

Short time

Third-party work

Source: Corbis/Photocuisine


Change demand

Change pattern of demand

Develop alternative products and/or services

Source: Empics


Moving a peak in demand can make capacity planning easier


ShortagesQueues

InventoryActual demand

and actual capacity

Period t – 1

Outcome

How much capacity

next period?

Current capacity

estimates

Updated forecasts

Period t

Decision

How much capacity

next period?

Current capacity

estimatesUpdated forecasts

Period t + 1

DecisionCapacity level

ShortagesQueues

Inventory

CostsRevenues

Working capitalCustomer satisfaction

etc.

Actual demand

and actual capacity

CostsRevenues

Working capitalCustomer satisfaction

etc.

Outcome

Capacity planning and control as a dynamic sequence of decisions


Demand for manufacturing operation’s output8000

For

ecas

t in

aggr

egat

ed u

nits

of

outp

ut p

er m

onth

7000

6000

5000

4000

3000

2000

1000

0J F M A M J J A S O N D

Months


For capacity planning purposes, demand is best considered on a cumulative basis. This allows alternative capacity and

output plans to be evaluated for feasibility

For

ecas

t cum

ulat

ive

aggr

egat

ed

outp

ut (

thou

sand

s)

60

50

40

30

20

10

00 40 80 120 160 200 240

Cumulative operating days


Cumulative representations

Cumulative demand

Time

Building stock

Unable to meet orders

Cap

acity

and

dem

and

Cumulative capacity


Rejecting

Source of customers

Boundary of system

Queue or ‘waiting line’

Served customers

Balking Reneging

Server 1

Server 2

Server m

Distribution of arrival times

Distribution of processing times

Simple queuing system


Time

Time

Low variability – narrow distribution of process times

High variability – wide distribution of

process times

Simple queuing system


Key Terms TestCapacityThe maximum level of value-added activity that an

operation, or process, or facility, is capable of over a period of time.

Aggregated planning and controlA term used to indicate medium-term capacity planning that

aggregates different products and services together in order to get a broad view of demand and capacity.

Design capacityThe capacity of a process or facility as it is designed to be;

often greater than effective capacity.


Key Terms Test

Effective capacityThe useful capacity of a process or operation after

maintenance, changeover and other stoppages and loading have been accounted for.

UtilizationThe ratio of the actual output from a process or facility to its

design capacity.

Overall equipment effectiveness (OEE)A method of judging the effectiveness of how operations

equipment is used.


Key Terms TestLevel capacity planAn approach to medium-term capacity management that

attempts to keep output from an operation or its capacity constant, irrespective of demand.

Chase demand planAn approach to medium-term capacity management that

attempts to adjust output and/or capacity to reflect fluctuations in demand.

Demand managementAn approach to medium-term capacity management that

attempts to change or influence demand to fit available capacity.


Key Terms TestHire and fireA (usually pejorative) term used in medium-term capacity

management to indicate varying the size of the workforce through employment policy.

SubcontractingWhen used in medium-term capacity management, a term that

indicates the temporary use of other operations to perform some tasks, or even produce whole products or services, during times of high demand.

Demand managementAn approach to medium-term capacity management that

attempts to change or influence demand to fit available capacity.


Key Terms Test

Yield managementA collection of methods that can be used to ensure that an

operation (usually with a fixed capacity) maximizes its potential to generate profit.

Queuing theoryA mathematical approach that models random arrival and

processing activities in order to predict the behaviour of queuing systems (also called waiting line theory).

chapter 11

Documents

operations slack

stuart chambers

robert johnston

edition nigel slack

control slack

high slack

empics slack

arup slack