In this chapter, the following content will be discussed: Design and effective capacity, capacity and strategy, capacity considerations, managing demand, demand and capacity management in the service sector, bottleneck analysis and theory of constraints.
LECTURE 29 LSM733-PRODUCTION OPERATIONS MANAGEMENT By: OSMAN BIN SAIF Summary of last Session ỵ Characteristics of a Waiting-Line System þ þ þ þ þ Arrival Characteristics Waiting-Line Characteristics Service Characteristics Measuring a Queue’s Performance Queuing Costs Summary of last Session (Contd.) ỵ The Variety of Queuing Models ỵ þ þ þ Model A(M/M/1): Single-Channel Queuing Model with Poisson Arrivals and Exponential Service Times Model B(M/M/S): Multiple-Channel Queuing Model Model C(M/D/1): Constant-Service-Time Model Model D: Limited-Population Model Summary of last Session (Contd.) ỵ Other Queuing Approaches Agenda for this Session u Capacity u u u u u Design and Effective Capacity Capacity and Strategy Capacity Considerations Managing Demand Demand and Capacity Management in the Service Sector u Agenda for this Session Bottleneck(Contd.) Analysis and Theory of Constraints u u u u Process Times for Stations, Systems, and Cycles Theory of Constraints Bottleneck Management Break-Even Analysis u Single-Product Case u Agenda for this Session (Contd.)Monetary Applying Expected Value to Capacity Decisions ADDITIONAL CHAPTER: CAPACITY AND CONSTRAINT MANAGEMENT Capacity u u u u 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 If facilities remain idle Planning Over a Time Horizon Options for Adjusting Capacity Long-range planning Add facilities Add long lead time equipment Intermediaterange planning Subcontract Add equipment Add shifts Short-range planning * Add personnel Build or use inventory * Schedule jobs Schedule personnel Allocate machinery Modify capacity Use capacity * Difficult to adjust capacity as limited options exist Figure S7.1 10 Break-Even Analysis Assumptions u Costs and revenue are linear functions u u We actually know these costs u u Generally not the case in the real world Very difficult to verify Time value of money is often ignored 40 Break-Even Analysis – Total revenue line 900 – Cost in dollars 800 – Break-even point cost = Total revenue 700Total – P or d i r or c fit ro Total cost line 600 – 500 – 400 – 300 – ss or o 200L– rid r co 100 – Variable cost Fixed cost | Figure S7.5 | | | | | | | | | | – | 100 200 300 400 500 600 700 800 900 1000 1100 Volume (units per period) 41 Break-Even Analysis BEPx = breakeven point in units BEP$ = breakeven point in dollars P = price per unit (after all discounts) Break-even point occurs when TR = TC or Px = F + Vx x = number of units produced TR = total revenue = Px F = fixed costs V = variable cost per unit TC = total costs = F + Vx F BEPx = P-V 42 Break-Even Analysis BEPx = breakeven point in units BEP$ = breakeven point in dollars P = price per unit (after all discounts) BEP$ = = = x = number of units produced TR = total revenue = Px F = fixed costs V = variable cost per unit TC = total costs = F + Vx = BEPx P F Profit = TR - TC P P-V = Px - (F + Vx) F = Px - F - Vx (P - V)/P = (P - V)x - F F - V/P 43 Break-Even Example Fixed costs = $10,000 Direct labor = $1.50/unit BEP$ = F - (V/P) Material = $.75/unit Selling price = $4.00 per unit = $10,000 - [(1.50 + 75)/(4.00)] 44 Break-Even Example Fixed costs = $10,000 Direct labor = $1.50/unit F - (V/P) BEP$ = = BEPx = Material = $.75/unit Selling price = $4.00 per unit $10,000 4375 F P-V = = $10,000 - [(1.50 + 75)/(4.00)] = $22,857.14 $10,000 4.00 - (1.50 + 75) = 5,714 45 Break-Even Example 50,000 – Revenue 40,000 – Break-even point Dollars 30,000 – Total costs 20,000 – 10,000 – Fixed costs – | | | 2,000 4,000 | 6,000 Units | | 8,000 10,000 46 Expected Monetary Value (EMV) and Capacity Decisions u u Determine states of nature u Future demand u Market favorability Analyzed using decision trees u Hospital supply company u Four alternatives for capacity expansion 47 Expected Monetary Value (EMV) and Capacity Decisions Market favorable (.4) rg La e nt a l p Market unfavorable (.6) Market favorable (.4) Medium plant Sm all pla nt Do no th in g Market unfavorable (.6) Market favorable (.4) Market unfavorable (.6) $100,000 -$90,000 $60,000 -$10,000 $40,000 -$5,000 $0 48 Expected Monetary Value (EMV) and Capacity Decisions Market favorable (.4) rg La e nt a l p Market unfavorable (.6) Market favorable (.4) Medium plant Sm Large Plant all pla nt EMV = D (.4)($100,000) o+ (.6)(-$90,000) no th in g EMV = -$14,000 Market unfavorable (.6) Market favorable (.4) Market unfavorable (.6) $100,000 -$90,000 $60,000 -$10,000 $40,000 -$5,000 $0 49 Expected Monetary Value (EMV) and Capacity Decisions -$14,000 Market favorable (.4) rg La e nt a l p Market unfavorable (.6) -$90,000 $18,000 Market favorable (.4) Medium plant Sm all pla nt Do no th in g $100,000 Market unfavorable (.6) $60,000 -$10,000 $13,000 Market favorable (.4) Market unfavorable (.6) $40,000 -$5,000 $0 50 Summary of the Session u Capacity u u u u u Design and Effective Capacity Capacity and Strategy Capacity Considerations Managing Demand Demand and Capacity Management in the Service Sector 51 u Summary of the Session(Contd.) Bottleneck Analysis and Theory of Constraints u u u u Process Times for Stations, Systems, and Cycles Theory of Constraints Bottleneck Management Break-Even Analysis u Single-Product Case 52 u Summary of the Session (Contd.)Monetary Applying Expected Value to Capacity Decisions 53 THANK YOU 54 ... BEPx P F Profit = TR - TC P P-V = Px - (F + Vx) F = Px - F - Vx (P - V)/P = (P - V)x - F F - V/P 43 Break-Even Example Fixed costs = $10,000 Direct labor = $1.50/unit BEP$ = F - (V/P) Material =... Single-Channel Queuing Model with Poisson Arrivals and Exponential Service Times Model B(M/M/S): Multiple-Channel Queuing Model Model C(M/D/1): Constant-Service-Time Model Model D: Limited-Population... (.4)($100,000) o+ (.6) (-$ 90,000) no th in g EMV = -$ 14,000 Market unfavorable (.6) Market favorable (.4) Market unfavorable (.6) $100,000 -$ 90,000 $60,000 -$ 10,000 $40,000 -$ 5,000 $0 49 Expected