In this chapter we will discuss: Facilities decisions, facilities strategy, sales & operations planning definition, cross-functional nature of S&OP, planning options, basic aggregate planning strategies, aggregate planning costs, aggregate planning example.
Operations Management Contemporary Concepts and Cases Chapter Twelve Capacity Planning McGrawHill/Irwin Copyright © 2011 by The McGrawHill Companies, Inc. All rights reserved Chapter 12 Outline Facilities Decisions Facilities Strategy Sales & Operations Planning Definition CrossFunctional Nature of S&OP Planning Options Basic Aggregate Planning Strategies Aggregate Planning Costs Aggregate Planning Example 122 Hierarchy of Capacity Decisions (Fig 12.1) Facilities decisions Facilities decisions Aggregate Planning Aggregate planning Scheduling Scheduling 12 18 Months Planning Horizon 24 123 Definition of “Capacity” Capacity is defined as the maximum output that can be produced over a given period of time Theoretical capacity primarily determined by – Physical assets – Labor availability Actual output (effective capacity) – Accounts for downtime, shift breaks, etc – Is the capacity that should be used in planning 124 Capacity Utilization Capacity utilization is defined relative to actual output and capacity: Utilization = actual output/capacity X 100% Capacity is seldom at 100% utilization 125 Facilities Decisions How much total capacity is needed? How large should each facility be? When is the capacity needed? Where should the facilities be located? What type of facilities/capacity are needed? 126 Facilities Strategy Facilities strategy typically considers: Amount of capacity Size of the facilities Timing of capacity changes Facility locations Types of facilities needed for the long run 127 Factors Affecting Facilities Strategy Predicted demand Cost of facilities Likely behavior of competitors Business strategy International considerations 128 How Much?: Strategies for “Capacity Cushion” Capacity cushion = 100% – Utilization Three strategies – Large cushion (e.g., maketoorder) – Moderate cushion (cost of running out balanced with cost of excess capacity) – Small cushion (e.g., maketostock) 129 How Large? What is “Optimum” Unit Size? Economies of scale – Production costs are not linear – Overhead spread over more units Diseconomies of scale – Increased transportation costs – Cost of more bureaucracy – Increased organizational complexity 1210 Where? Location of Facilities Quantitative Factors – – – – – ROI NPV Transportation Taxes Lead times Qualitative Factors – – – Language and norms Attitudes among workers & customers Proximity to customers, suppliers & competitors 1212 What Type? Types of Facilities Productfocused (55%) computers, chain saws, dishwashers Marketfocused (30%) electricity, bakeries Processfocused (10%) computer chips General purpose (5%) – furniture, banking 1213 Sales & Operations Planning Definition Matching supply & demand over a medium time frame Time horizon of about 12 months An aggregated level of demand for one or a few categories of product. Demand fluctuates or is uncertain Possibility of changing both supply and demand Variety of management objectives Facilities that are considered fixed (cannot be expanded or reduced) 1214 Cross-Functional Nature of S&OP Engineering: product definition HR: workforce availability Operations: capacity, inventory, forecast Management: business plan Finance: capital Marketing: product demand Sales: forecast 1215 Iterative Nature of S&OP (made possible by concurrent planning) Develop production plan Check implications for inventory/backlog plan If necessary, adjust production plan Check against resource plan and availability If necessary, adjust production plan Recheck against inventory/backlog and resources Continue (go to 5) until you meet all constraints 1216 Planning Options Options for managing demand – influencing demand from customers – delivering orders as promised Options for managing supply – delivering what is promised – managing capacity & other resources 1217 Options for Influencing (Managing) Demand Pricing Advertising and promotion Backlog or reservations (shifting demand) Development of complementary offerings 1218 Options for Influencing (managing) Supply Hiring and layoff of employees Using overtime and undertime Using parttime or temporary labor Carrying inventory Outsourcing or subcontracting Cooperative arrangements 1219 Basic Production Strategies “Level” strategy (constant work force, use inventory as buffer) “Chase” strategy (produce to demand, vary workforce) 1220 Level Load Strategy Produce products and services at a constant rate Avoid making changes to operations 1221 Chase Strategy Produce only what you sell Produce products or services justintime If there are no sales—do not produce Typical for services 1222 Table 12.1: Comparison of Chase versus Level Strategy Level of labor skill required J ob discretion Compensation rate Training required per employee Labor turnover Hire-layoff cost per employee Amount of supervision required Type of budgeting and forecasting required Chas e S trate gy Low Low Low Low High Low High Short-run Le v e l S trate gy High High High High Low High Low Long-run 1223 Aggregate Planning Costs Hiring and firing costs (Chase) Overtime and undertime costs (Chase) Subcontracting costs (Chase) Parttime labor costs (Chase) Inventorycarrying costs (Level) Cost of stockout or back order (Level) 1224 Summary Facilities Decisions Facilities Strategy Sales & Operations Planning Definition CrossFunctional Nature of S&OP Planning Options Basic Aggregate Planning Strategies Aggregate Planning Costs Aggregate Planning Example 1225 End of Chapter Twelve 1226 ... Actual output (effective? ?capacity) – Accounts for downtime, shift breaks, etc – Is the? ?capacity? ?that should be used in? ?planning 124 Capacity Utilization Capacity? ?utilization is defined relative? ?to? ?actual ... Basic Aggregate? ?Planning? ?Strategies Aggregate? ?Planning? ?Costs Aggregate? ?Planning? ?Example 122 Hierarchy of Capacity Decisions (Fig 12.1) Facilities decisions Facilities decisions Aggregate Planning Aggregate planning Scheduling.. .Chapter 12 Outline Facilities Decisions Facilities Strategy Sales &? ?Operations? ?Planning? ?Definition CrossFunctional Nature of S&OP Planning? ?Options Basic Aggregate? ?Planning? ?Strategies