Operations Management: Capacity Planning

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    Operations Management: Capacity Planning - Presentation Transcript

    1. Capacity Planning – Outline
      • Estimate capacity required
      • Capacity and scale
      • Make-or-buy analysis
      • Sizing and timing
    2. Fundamentals of Capacity Planning
      • Capacity (or capacity rate): the maximum rate of output of a resource (a process or a system)
      • Capacity decisions
        • Make or buy
        • Sizing and timing of capacity expansion
    3. A Systematic Approach
      • Estimate future capacity requirements
      • Identify gaps by comparing requirements with available capacity
      • Develop alternative plans for reducing the gaps
      • Evaluate each alternative, and make a final choice
    4. Determine Capacity Required
      • To meet future demand over an appropriate planning horizon
      • Utilization =
      • Capacity cushions are the amount of reserved capacity a process uses to handle sudden changes
        • Capacity cushion = 100% – Utilization rate (%)
      Average output rate Capacity rate  100%
      • Requirement for a resource over a period of one year, M
        • D = demand forecast for the year
        • p = processing time (in hours) per unit of demand
        • N = total # operation hours per year
        • C = capacity cushion (expressed as a percent)
      Capacity Required – Single Product/Service Capacity requirement = M = D p N [1 – ( C /100)] Total hours required for a year’s demand Total hours available from a resource per year, excluding capacity cushion
      • Setup times may be required between production lots
      Multiple Products/Services where Q = number of units in each lot s = setup time (in hours) per lot M = [ D p + ( D / Q )* s ] product 1 + [ D p + ( D / Q )* s ] product 2 + … + [ D p + ( D / Q )* s ] product n N [1 – ( C /100)] Capacity requirement = Processing and setup hours required for year’s demand, summed over all services or products Hours available from a single resource per year, excluding capacity cushion
    5. Example: Estimating Capacity Required
      • A copy center in an office building prepares bound reports for two clients. The center makes multiple copies (the lot size) of each report. The processing time to run, collate, and bind each copy depends on, among other factors, the number of pages. The center operates 250 days per year, with one 8-hour shift. Management believes that a capacity cushion of 15 percent (beyond the allowance built into time standards) is best. It currently has three copy machines. Based on the following table of information, determine how many machines are needed at the copy center.
      Item Client X Client Y Annual demand forecast ( D ) 2,000 6,000 Standard processing time ( p ) 0.5 0.7 Average lot size ( Q ) 20 30 Standard setup time ( s , in hours) 0.25 0.40
    6. Make or Buy
      • If a given increment of capacity must be added
        • “ make” – add in-house production capacity
        • “ buy” – outsource production
      • Factors that affect make-buy decision
        • Costs
        • Quality
        • Intellectual property, core competencies, strategic direction
        • Uncertainty in financial markets,
        • Supply chain (risk of disruption, coordination effort, etc.)
        • Flexibility (quantity, technology)
        • Market perception (labeling v. production)
        • Union considerations
    7. Break-even Analysis
      • To find the break-even quantity, Q , at which the total “make” cost equals the total “buy” cost
        • c b = variable cost (per unit) of the buy option
        • c m = variable cost (per unit) of the make option
        • F = fixed cost of capacity expansion
      Cost Number of units, x F 0 Cost to make = F + c m x Cost to buy = c b x Q
    8. (cont’d)
      • The break-even quantity is
      • If capacity required < Q , then “buy”
      • If capacity require > Q , then “make”
    9. Exercise: Laptop Computer Production
      • A manufacturer is planning to introduce a new laptop computer. The manufacturer has two options: (i) upgrading an existing capacity and produce in-house (MAKE), and (ii) outsourcing to a supplier (BUY). The costs of the two options are
        • MAKE: $1.2M for upgrading the capacity; $400 per unit for production
        • BUY: the cost per computer (including shipping) will be $500.
      • What is the minimum demand, Q 1 , that will justify production in-house at unit price $500?
      • Now, suppose the manufacturer negotiates a price of $450 per unit supplied by the supplier, but with a promise of buying 25,000 or more
      • What’s the manufacturer’s break-even Q 2 if the manufacturer were not constrained by this promise? Under this promise, will the manufacturer make or buy if the estimate of the demand is 23,000?
    10. Capacity and Scale
      • Economies of scale
        • Spreading fixed costs
        • Reducing construction costs
        • Cutting costs of purchased materials
        • Finding process advantages
      • Diseconomies of scale
        • Complexity
        • Loss of focus
        • Inefficiencies
    11. Example: Hospital Capacity Alternatives 250-bed hospital 500-bed hospital 750-bed hospital Output rate (patients per week) Average unit cost (dollars per patient) Economies of scale Diseconomies of scale
    12. Capacity Timing and Sizing
      • Wait-and-see Strategy
      Planned use of short-term options Time Capacity Time between increments Capacity increment Forecast of capacity required
    13. (cont’d) Timing and Sizing
      • Expansionist Strategies
      Planned unused capacity Time Capacity Forecast of capacity required Time between increments Capacity increment

    + Ben AcklesBen Ackles, 1 month ago

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