Lecture 12 - Capacity Management and Planning (continued). The contents of this chapter include all of the following: Managing demand, tactics for managing demand, approaches to capacity expansion, breakeven analysis, decision tree and capacity expansion, net present value, capacity planning issues.
Lecture 12 Capacity Management and Planning (continued) Books • Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M. Clive, P.E., CFPIM, Fleming College • Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005, N.Y.: McGrawHill/Irwin • Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of Business, Rollins College, Prentice Hall Objectives • • • • • • ã ManagingDemand Tacticsformanagingdemand Approachestocapacityexpansion Breakevenanalysis Decisiontreeandcapacityexpansion Netpresentvalue Capacityplanningissues ManagingDemand ỵ Demand exceeds capacity Curtail demand by raising prices, scheduling longer lead time ỵ Long term solution is to increase capacity þ þ Capacity exceeds demand Stimulate market þ Product changes þ þ Adjusting to seasonal demands þ Produce products with complementary demand patterns Tactics for Matching Capacity to Demand Making staffing changes Adjusting equipment ỵ ỵ Purchasing additional machinery Selling or leasing out existing equipment Improving processes to increase throughput Redesigning products to facilitate more throughput Adding process flexibility to meet changing product preferences Closing facilities DemandandCapacityManagementintheServiceSector ỵ ỵ Demandmanagement ỵ Appointment,reservations,FCFSrule Capacity management ỵ Fulltime, temporary, partưtime staff Approaches to Capacity Expansion Demand (c) Leading demand with incremental expansion New capacity Leading demand with onestep New expansion Capacity lags demand with incremental expansion Expected demand Demand capacity Expected demand New capacity (b) (d) Expected demand Attempts to have an average capacity with incremental expansion New capacity Demand Demand (a) Expected demand Approaches to Capacity Expansion (a) Leading demand with incremental expansion Demand New capacity Expected demand Time (years) Approaches to Capacity Expansion (b) Leading demand with one-step expansion New capacity Demand Expected demand Time (years) Approaches to Capacity Expansion Capacity lags demand with incremental expansion New capacity Expected demand Demand (c) Time (years) Approaches to Capacity Expansion Attempts to have an average capacity with incremental expansion New capacity Expected demand Demand (d) Time (years) Finite Capacity Planning Example (Continued) Key resource type Machine Number Drill 1 Drill 2 Drill 3 Percent capacity by line Shifts A B C Total Remarks 22 13 24 59 36 48 36 120 52 24 21 97 Filer 1 Filer 2 3 12 20 14 16 40 Dryer 1 Dryer 2 Dryer 3 2 2 28 72 84 36 51 27 51 43 24 116 116 135 a b What actions would you recommend? (Assume each machine type is equivalent in terms of capacity.) What other observations would you have for management, based on the preceding report? Finite Capacity Planning Example: Single Square Company Key Resource Type Machine Number Shifts Drill 1 1 3 3 22 Drill 2 2 3 6 36 Drill 3 1 1 1 52 10 % Capacity by Line Total A B C Tot Equiv 13 24 59 1.77 Req'd 48 36 120 7.20 Move 24 21 97 .97 from 9.94 2 to 1 Filer 1 Filer 2 2 3 3 3 0 20 Dryer 1 Dryer 2 Dryer 3 2 2 4 28 36 52 116 4.64 2 2 4 72 51 43 166 6.64 2 1 2 84 27 24 135 2.70 10 13.98 6 2 9 12 15 14 8 16 .96 Excess 40 3.60 _ capacity 4.56 Increase to three shifts Remarks Finite Capacity Planning Example: Single Square Company (continued) a b There is enough capacity now in the Drill and Filer areas. To correct the imbalance in the Drills, it is necessary to move some of the load from Drill 2 to Drill 1. In the case of the Dryers, it is necessary to increase capacity. Adding shifts will provide enough for the current load Why is there so much capacity for the Filers? They can be brought back to one shift and are okay. Secondly, if there is any upward trend in the loads for the Dryers, it behooves management to begin to worry about where they can get additional dryer capacity Twin Disc Capacity Bill Report 41 Twin Disc Capacity Bill Example Suppose, in the Twin Disc example, it was decided to move all production for product lines F and I from the Maag grinder (CEA) to the Reishauer grinder (CAB). What's the resulting total percentage of capacity for each machine and the amount for product lines F and I? (Note the Reishauer is three times faster than the Maag grinder so the Maag takes three times as many hours to complete a job.) Assume setup time is negligible Twin Disc Capacity Bill Example For Line I On Maag Grinding Hours = 3044 x .08 = 243.52 On Reishauer = 243.52/3 = 81.17 % of Reishauer = 81.17/950 = 9 New % of Line I on Reishauer = 9 + 1 = 10% New % of Line I on Maag = 0% For Line F: On Maag Grinding Hours = 3044 x .05 = 152.20 On Reishauer = 152.20/3 = 50.73 % of Reishauer = 50.73/950 = 5 New % of Line F on Reishauer = 5 + 2 = 7% New % of Line F on Maag = 0% New Totals: Applicon Capacity Status Report 44 Applicon Capacity Bill Example Applicon has the following capacity bills for items 207 and 208: 207 208 Work center Hours/unit Work center ALFA 0.5 ALFT 0.3 HLTA 1.0 HLTT 0.8 MISA 0.8 MIST 0.6 MVXA 0.8 MVXT 0.5 PCBA 0.5 PCBP 0.9 PCBP 1.0 PCBT 1.4 Hours/unit Applicon Capacity Bill Example a b A customer wants to know if Applicon can deliver 100 units each of items 207 and 208 during the next month (20 working days). Assume there are adequate materials, work center MVXT'S crew has been increased to one full person (making standard capacity = 160), the increase has come by reducing MVXA to 6.5 persons. and no other orders have been booked. Use the standard capacity data and conditions in the previous slides as the basis for your analysis Suppose the customer (in part a. above) decided to delay the order for several months. How many units of item 207 alone could be added to the MPS in the next month? How about item 208? Applicon Analysis:For Item 207 Work Center ALFA HLTA MISA MVXA PCBA PCBP Units Possible (480 70)/0.5 = 820 units (800 438)/1.0 = 362 units (800 270)/0.8 = 662 units (1120 80 399)/0.8 = 801 units (160 52)/0.5 = 216 units (960 408)/1.0 = 552 units BUT this is if only item 207 is made Applicon If BOTH items are made in equal quantities, PCBP is a shared work center so: PCBP (960 408)/(1.0 + 0.9) = 291 of each For Item 208 Work Center Units Possible ALFT (80 5)/0.3 = 250 units HLTT (160 85)/0.8 = 94 units MIST (80 14)/0.6 = 110 units MVXT (160 79)/0.5 = 162 units PCBP (960 408)/(1.0 + 0.9) = 291 units PCBT (1680 918)/1.4 = 544 units Applicon a b The analysis says that 100 units of each cannot be added to the MPS without something else being done. The problem is with item 208 in work center HLTT. To make 100 units of item 208, work center HLTT will have to work overtimeunless capacity can be provided from a less highly utilized work center or perhaps greater productivity can be gained in some other way The analysis shows that 216 units of item 207 or a total of 94 units of item 208 can be made Concluding Principles • • • • • Capacity plans must be developed concurrently with material plans if the material plans are to be realized The capacity measure should reflect realizable output from the key resources. It's not always capacity that should change when capacity availability doesn't equal need. Capacity not only must be planned, but use of that capacity must also be monitored and controlled Capacity planning techniques can be applied to selected key resources (which need not correspond to production work centers) Concluding Principles • • • • • The particular capacity planning technique(s) chosen must match the level of detail and actual company circumstances to permit making effective management decisions The more detail in the capacity planning system, the more data and data base maintenance are required The better the resource and production planning process, the less difficult the capacity planning process The better the shopfloor system, the less shortterm capacity planning is required. Capacity planning can be simplified in a JIT environment End of Lecture 12 ... P P-V F = (P - V)/P F = - V/P x = number of units produced TR = total revenue = Px F = fixed costs V = variable cost per unit TC = total costs = F + Vx Profit = TR - TC = Px - (F + Vx) = Px -. .. demand with incremental expansion Demand New capacity Expected demand Time (years) Approaches to Capacity Expansion (b) Leading demand with one-step expansion New capacity Demand Expected demand... product preferences Closing facilities DemandandCapacityManagementintheServiceSector ỵ ỵ Demandmanagement ỵ Appointment,reservations,FCFSrule Capacity management ỵ Fulltime, temporary, partưtime