Simply, to reduce the time between making the sandwich and it being put on display in the shop or supermarket. This means that the ‘shelf life’ in the shop or supermarket is maximized, albeit at the expense of higher labour costs for the night shift.
Routing and scheduling help milk processor gain an extra collection trip a day.
What do you see as the main planning and control tasks of the TruckStops system?
How would you evaluate the effectiveness of the planning and control activity at Robert Wiseman Dairies?
83
© Nigel Slack, Stuart Chambers & Robert Johnston 2007
C H A P T E R 1 1
Capacity planning and control Teaching guide
Introduction
This topic is one of the easier topics in operations management to teach. First, it is an issue, which quite clearly is important to all the different types of operation. This means that it is relatively easy to find examples with which to inspire the class. Second, it is not difficult to persuade the class that it is a very important issue. They have all had the experience of queuing because capacity cannot meet demand at banks, restaurants and so on. They can also usually appreciate the problems of excess capacity where machines are lying idle and people underutilized. Third, there are a number of very clear approaches to managing capacity in the medium-term, which have easily articulated advantages and disadvantages. Because of this, it is not difficult to promote a debate. Fourth, the issue has an interesting ethical dimension in terms of whether the use of temporary labour and part-time contracts is ethically acceptable. All of which makes it a joy to teach!
Key teaching objectives
• To convince students of the ubiquitous nature of medium-term capacity planning and control
• To point out the importance of aggregating capacity and demand while at the same time illustrating the inaccuracies that brings into the process
• To clearly identify the alternative approaches to capacity management together with their advantages and disadvantages
• To try and give a sense of the dynamic nature of capacity planning and control
There are several cases in the companion volume to this book (Johnston, R. et al, 3rd edition, ISBN 0273 65531-0), which can be used to support this lesson. Cadbury World: ten years of improvement, is ideal for service design, The Mandexor Memory case is also useful for this topic.
Exercises/discussion points
• Teaching tip – For classes where the students are (or have been) in employment, start by asking any student, ‘What is your capacity?’ First there will be a discussion of what measures to use to best represent capacity. Then there will be a discussion about the ‘it depends’ issue, that is, the assumptions regarding capacity (For how long do I have to maintain this capacity? What mix of products/services am I expected to produce? Do you
expect me not to reduce the quality of service I give? And so on). By writing all these points on the board, one can often identify all the major problems of measuring capacity.
• Teaching tip – Employ the common approach of identifying three or four operations with which students will be familiar (fast food restaurants, libraries, bookshops, etc.) and ask them to identify the following:
• The nature of demand fluctuation and what influences it
• The way in which they can measure their capacity
• The alternative ways they could cope with fluctuating demand
Then lead a discussion on the implications of the various ways of coping with the fluctuating demand (cost implications, customer service implications, attitudes of staff, etc.).
• Teaching tip – Examples in the food industry are usually useful. This is because demand is often both seasonal and uncertain (the sales of cottage cheese at supermarkets are very much dependent on the weather, whereas the sales of cottage cheese with pineapple chunks are far less weather dependent!). Also, the effective supply of some foodstuffs is both seasonal and uncertain. To add to this many food products are perishable.
• Teaching tip – One can start off the discussion of the general issue of capacity planning and control by picking an example, which is highly seasonal. In Europe, Christmas products or Easter products are usually good examples. For example, draw a (approximate) demand curve for Christmas crackers. Very few are sold in January, though millions are sold just before Christmas. Ask the class how it would cope with such a demand fluctuation and categorize their suggestions under the headings of the three pure plans outlined in the chapter.
• Teaching tip – The outlook matrix – A useful discussion can be based on the ‘outlook matrix’. One of the main influences on operations managers, when they are making period- by-period capacity decisions, is their confidence in future demand matching future capacity.
If they are confident that, in the long term, the demand is likely to exceed current capacity then, irrespective of the current level of demand, they will be more likely to be tolerant of policies that could lead to short-term over-capacity. Conversely, if long-term demand looks poor, it will be necessary to start implementing policies that will reduce long-term capacity.
Overlying this are the needs of current demand. Even if the long-term demand looks poor, it might be necessary to increase capacity if there is a short-term requirement. The next figure shows an outlook matrix, and gives examples of the types of methods, which might be adopted for different combinations of long-term and short-term outlook. Here outlook is defined as:
• Outlook = forecast demand forecast capacity
• Three broad states of outlook are identified for both the long and short term: ‘poor’ is when the ratio of forecast demand to forecast capacity is less than 1; ‘normal’ is when the ratio is approximately equal to 1; ‘good’ is when the ratio is greater than 1.
Nigel Slack, Stuart Chambers & Robert Johnston, Operations Management, fifth edition, Instructor’s Manual
85
© Nigel Slack, Stuart Chambers & Robert Johnston 2007
The dynamics of capacity planning are governed partly by the combination of long-term and short-term outlook
• When both long-term outlook and short-term outlook are poor, there is relatively little choice but to reduce the capacity of the operation; capacity is not needed now, nor is it likely to be needed in the future. Staff lay-offs might be the only method of achieving this.
When short-term outlook is normal, but long-term outlook is poor, current capacity needs to be maintained, though certainly not increased. Under these circumstances the operation is most likely to delay any decisions. Certainly it would not commit investments in capacity, which is unlikely to be needed in the future. When short-term outlook is good in spite of long-term outlook being poor, the operation faces a dilemma. It does not want to make any permanent commitments to increase capacity because the extra capacity will not be needed in the future. However, it does need to meet current levels of demand. Under these circumstances the use of overtime or the recruitment of temporary staff might be the least of the permanent methods of achieving short-term capacity requirements.
• When long-term outlook is normal and short-term outlook is poor, capacity needs to be temporarily reduced but not in such a way as to compromise the longer-term requirements.
The operation here is likely to tolerate a certain amount of unproductive or idle time, or might perhaps reduce the working hours of its staff temporarily. When both long-term outlook and short-term outlook are normal, no action is required. However, when short-term outlook is good, capacity will need to be increased but not in any permanent manner. Again, overtime and the use of temporary staff are likely to be appropriate methods.
• When long-term outlook is good, there will be a requirement to build up capacity in some way, irrespective of the short-term circumstances. So, when short-term outlook is poor, the operation will not want to do anything that compromises the long-term capacity. It may even, if possible, use any short-term surplus capacity to build up inventory. It is also likely to do this when long-term outlook is good and short-term outlook is normal. Here, though, it will need to start recruiting extra staff or working overtime if it wants to make products for the inventory. Finally, when both long-term outlook and short-term outlook are good, capacity will need to be increased relatively quickly and probably in a permanent manner through hiring extra staff.
• Exercise – Try instructing the groups to select an industry (preferably one where at least one of the group has some experience). Ask each group to explore how companies in that industry learn to cope with seasonal fluctuations, and how might they adopt other approaches.
• Alternatively, suggest a company. A food company is a good example. We often use Nestlé, the Swiss-based multinational, the largest food company in the world. Either the supply of materials is seasonal (frozen vegetables) or demand is seasonal (ice cream), or both (dried milk). The manufacturer of chocolate products is another typical example. Demand is driven partly by the weather – chocolate is less popular in summer – and partly by cultural factors, whereas chocolate is a popular gift at Christmas and Easter in many countries.
Nestlé plants use a combination of strategies to cope with these demand fluctuations. Some products can be stored in anticipation of seasonal peaks. However, there is a ‘shelf life’
limit on storage time if Nestlé’s high-quality standards are to be maintained. Off-peak sales volumes can also be influenced through the use of ‘special offers’ and product promotions.
Within Nestlé’s plant themselves, output rates can be fluctuated, although different ways of doing this may be appropriate at different stages in the process. The manufacture of the chocolate itself is constrained by the capacity limits of the process technology, whereas in the packing of assortments, for example, extra staff can be hired at peak times. All this makes for a sensitive decision-making environment. If Nestlé managers get it wrong, either we run out of our favourite products or the company is left with surplus stock.
Questions that students could be asked include these two.