Lecture 19 - Capacity Management and Planning (Revision). The contents of this chapter include all of the following: Capacity, capacity management, matching capacity and demand, capacity planning process, resource planning, inputs to capacity planning, managing demand, tactics for managing demand, approaches to capacity expansion, breakeven analysis, decision tree and capacity expansion, net present value, capacity planning issues.
Lecture 19 Capacity Management and Planning (Revision) 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 • • • • • • • • • • • • • Capacity Capacity Management Matching Capacity and Demand Capacity Planning process Resource Planning Inputs to capacity planning Managing Demand Tactics for managing demand Approaches to capacity expansion Breakeven analysis Decision tree and capacity expansion Net present value Capacity planning issues Capacity • • • • The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time Determines fixed costs Determines if demand will be satisfied Three time horizons Capacity Management • Capacity management is planning and controlling resources needed to meet production objectives – Planning determining resources needed to meet the priority plan; selecting methods to make that capacity available – Controlling monitoring output, comparing it with the plan, and taking corrective action Matching Capacity and Demand • Demand Management – – – • vary prices change lead times encourage/discourage business Capacity Management – – – – adjust staffing adjust equipment and processes change methods to facilitate production redesign the product to facilitate production Capacity Planning Process • • • • Determine the capacity available at each work center Translate the released and planned orders into the capacity required at each work center in each time period Sum up the capacities required for each work center to determine the load on each work center in each time period Resolve differences between available capacity and required capacity Planning Over a Time Horizon Long-range planning Intermediaterange planning Add facilities Add long lead time equipment * Subcontract Add equipment Add shifts Short-range planning * Modify capacity * Limited options exist Add personnel Build or use inventory Schedule jobs Schedule personnel Allocate machinery Use capacity Resource Planning • • • RP involves longrange capacity resource requirements and is directly linked to production planning RP involves changes in manpower, capital equipment, product design, or other facilities that take a long time to acquire and eliminate The production plan and RP set the limits and levels for production RoughCut Capacity Planning RCCP is the process to check the feasibility of the master production schedule (MPS) (end items), provide warnings of any bottlenecks, ensure utilization of work centers, and advise vendors of capacity requirements Capacity Requirements Planning • • CRP is directly linked to the material requirements plan (MRP) (component items) CRP is the most detailed, complete, and accurate of the capacity planning techniques and is highly important in the immediate time periods Capacity Planning Issues • • • • • To determine the capacity required to achieve the MPS relative to the capacity available To make necessary capacity adjustments before creating crises To determine an the appropriate level of safety capacity To determine the required level of detail and the critical machines and work centers To use an appropriate technique given the tradeoff between accuracy and computational effort Finite Capacity Planning Example The Single Square Company summarizes the capacity requirements for three of its key resources from each of its three product lines. A typical report (before any action is taken) is shown on the next slide 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 73 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 76 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 End of Lecture 19 ... roadside motel 50 - room roadside motel Economies of scale 25 75 - room roadside motel Diseconomies of scale 50 Number of Rooms 75 Managing Demand þ Demand exceeds capacity Curtail demand by raising... 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 -. .. output compared with the standard expected output Standard hours of work Efficiency = x 100% Hours actually worked What is the efficiency if a work center is used 100 hours per week? ?and? ?produces 120 standard hours? ?of? ?work?