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7 -managing_capacity
- 1. Alex Hill andTerry Hill
- 2. Managing capacity AlexHill and Terry Hill
- 3. Learning objectives •Understand NATURE of capacity and the mix of RESOURCES involved • Appreciate the PURPOSE of managing capacity and the IMPACT of having too little or too much capacity • Explain how to DEFINE and MEASURE capacity in different organisations • Understand the FACTORS involved in determining the level of capacity required • Explain the key STEPS in capacity planning • Recognise the key FACTORS in managing capacity
- 4. Lecture outline •INTRODUCTION • An OVERVIEW of managing capacity • FACTORS affecting capacity management • PLANNING and MANAGING capacity • Critical REFLECTIONS • SUMMARY
- 5. © Alex Hilland Terry Hill
- 6. CAPACITY Introductio nWhatis capacity? • RESOURCES needed to: - Serve customers - Process information or - Make products • MIX of people, systems and equipment
- 7. Introductio nPurpose ofmanaging capacity MATCH CAPACITY of resources TO DEMAND for services and products
- 8. > KEY IDEA A key BUSINESS STRATEGY decision is whether capacity should LEAD or FOLLOW demand
- 9. > KEY IDEA TOO LITTLE capacity leads to DELAYS and possible LOST SALES TOO MUCH incurs unnecessary COSTS
- 10. An overview ofmanaging cDaepfinaincgit yand measuring capacity TYPE AMOUNT Reflects SERVICE or PRODUCT to be delivered Reflects volume of DEMAND
- 11. An overview ofmanaging cDaepfinaincgit yand measuring capacity • TIME is the common denominator • Some businesses would express as number of SERVICES or PRODUCTS - e.g. number of people served in a restaurant
- 12. An overview ofmanaging cDaepfinaincgit yand measuring capacity
- 13. An overview ofmanaging cDaepfinaincgit yand measuring capacity
- 14. > KEY IDEA Operations expresses and measures its activities in TIME The rest of the business uses MONEY
- 15. An overview ofmanaging cDaepfinaincgit yand measuring capacity STATEMENT and MEASUREMENT of overall capacity will differ HOSPITAL EXAMPLE • Overall size = ♯BEDS • Emergency unit = ♯STAFF • Consultant clinic = ♯APPOINTMENTS
- 16. An overview ofmanaging cDaepfinaincgit yand measuring capacity
- 19. An overview ofmanaging cDaepfinaincgit yand measuring capacity PLANNED capacity ACTUAL capacity
- 20. > KEY IDEA UTILISATION compares ACTUAL hours worked with PLANNED hours worked
- 21. > KEY IDEA EFFICIENCY compares ACTUAL output with EXPECTED output for the hours worked
- 22. Factor affecting capacity mImapnaactg oefm deelnivtery systems and processes on capacity • Use of CUSTOMERS • PERISHABLE nature of service capacity • BACK office vs FRONT office • Use of ADEQUATE CAPACITY at each stage of the delivery system
- 23. > KEY IDEA Service capacity is PERISHABLE and cannot be put into inventory for use or sale in the future
- 24. CASE 7.1 INCREASING RESTAURANT CAPACITY 1.What are its ORDER-WINNERS and QUALIFIERS? 2.How could it INCREASE capacity?
- 25. CASE 7.1 INCREASING RESTAURANT CAPACITY Question Answer Order-winners Qualifiers Increase capacity • PRODUCT DESIGN - food and wine • QUALITY CONFORMANCE • PRICE • SERVICE DESIGN - appropriate pace • ATMOSPHERE - table spacing and intimacy • Increase PROFITS - Increase PRICES • Increase SPACE - REDESIGN existing interior - EXTEND existing premises - MOVE premises • Manage DEMAND - Introduce EARLY-BIRD menu
- 26. Factor affecting capacity mDeatneramgienimnge tnhte level of capacity • ANTICIPATING END of growth • AVOIDING OVER capacity • LEAD or FOLLOW demand •What to do with OVERCAPACITY - Divest or diversify?
- 27. > KEY IDEA Deciding on the LEVEL of capacity involves: • ANTICIPATING END of growth • AVOIDING too much • Deciding to LEAD or FOLLOW demand • Deciding what to do with OVER-CAPACITY - Divest or diversify?
- 28. Factor affecting capacity mDeamnaangde fmlucetnutations PREDICTABLE UNPREDICTABLE • Cyclical • Annual or seasonal •Weekly or daily • Random • Unexpected
- 29. Factor affecting capacity mCaapnaacgitye mfluectnutations PREDICTABLE UNPREDICTABLE • Planned increase • Planned decrease • Absenteeism • Machine breakdown
- 30. > KEY IDEA Organisations need to SEPARATE the PREDICTABLE variations from the UNPREDICTABLE variations in demand and capacity
- 31. Planning and managing cIsasupeasc tioty consider • UNCERTAINTY - Demand is UNCERTAIN • ANTICIPATING THE FUTURE - Forecasts are INACCURATE • TIMESCALES - From LONG-TERM plans to DAY-TO-DAY schedules • ALTERNATIVES - Different WAYS to provide capacity • EXECUTION - FULFILLING the plan
- 32. Planning and managing cRaepsoaucrictey planning • AMOUNT - How much is required? • TIMING - When is the capacity required? • LOCATION - Where should the capacity be located?
- 33. Planning and managing cRaepsoaucrictey planning PLANNING CONTROL •What ACTIVITIES should take place in the operationLayout •WHEN they should take place •What RESOURCES should be allocated to them •Understand what is actually HAPPENING in the operation •Decide if there is any DEVIATION from what should be happening •Change RESOURCES to affect the operation
- 34. Planning and managing cRaepsoaucrictey planning
- 35. Planning and managing cRaepsoaucrictey planning Long Term Planning • Forecasts • Investment Medium Term • Space Planning • Layout • Staff • Equipment • Stock • Process • Time • Outsourcin g • 1-year demand forecasts • Capacity requirements • Capacity plan Short Term Planning / Control RESOURCES Capacity Management CUSTOMERS Demand Management • Pricing • Advertising • Off-peak offers • Reservations • Complementa ry services • Alternative attractions • Queuing
- 36. > KEY IDEA RESOURCE planning looks SEVERAL YEARS ahead to provide future capacity requirements
- 37. > KEY IDEA MEDIUM-TERM planning looks up to TWO YEARS ahead to resolve how to provide capacity to meet forecast demand
- 38. CASE 7.2 WAL-MARTUSES SCALE TO COMPETE IN THE US FOOD MARKET 1.How is it using SCALE to compete in the US food market? 2.Why is it pursuing its NEIGHBOURHOOD MARKET store strategy?
- 39. WAL-MART USES SCALETO COMPETE IN THE US FOOD MARKET Question Answer Using SCALE Neighbourho od STRATEGY • High SALES VOLUMES: - Increase purchasing power - Reduce material costs - Allow it to reduce prices CASE 7.2 • Leverage LOW COST from volume generated through large stores • Provide LOCAL and more CONVENIENT service
- 40. Planning and managing cRaepsoaucrictey planning TYPES OF CAPACITY PLAN • LEVEL capacity • CHASE demand • MIX plan
- 41. Planning and managing cRaepsoaucrictey planning
- 42. Planning and managing cRaepsoaucrictey planning
- 43. Planning and managing cRaepsoaucrictey planning
- 44. Planning and managing cRaepsoaucrictey planning
- 45. Planning and managing cMaapnaacgiintyg demand • Changing the PATTERN of demand - Alternate PRICING - ADVERTISING - Offering COUNTER seasonal services or products • SCHEDULING - RESERVATIONS or APPOINTMENTS - Fixed SCHEDULES - ADVERTISING - EDUCATING customers • Managing UNCERTAINTY - FORECASTS vs known orders
- 46. Planning and managing cMaapnaacgiintyg capacity • Short-term capacity ADJUSTMENTS - OVERTIME - TEMPORARY staff • FLEXIBLE capacity - FLEXIBLE staff - PART-TIME or TEMPORARY staff - SHIFT patterns - STAGGERED working hours • Changing capacity FORM and NATURE - ANNUALISED hours - SUBSTITUTING capacity by technology/customers - SUBCONTRACTING
- 47. > KEY IDEA Taking actions to change DEMAND patterns and change the shape of CAPACITY are key tasks when managing these resources
- 48. CASE 7.3 FLEXIBLEWORKING AT BMW 1. Explain how these ARRANGEMENTS helped BMW become more competitive 2.When should a company use FLEXIBLE working?
- 49. CASE 7.3 QuestionAnswer Become more competitiv e Use flexible working FLEXIBLE WORKING AT BMW • Reduced COSTS - Less staff - Lower overtime • Reduced CASH holding - Lower finished goods inventory • PREDICTABLE demand variation - E.g. seasonal or cyclical • LOW SKILLED staff - High volume - Standard services and products
- 50. Planning and managing cMaapnaacgiintyg capacity and demand Pushing Tin (1999) Dinner Rush (2000) Modern Times (1936) Dinner Rush (2000) Air traffic Restaurant Kitchen Factory
- 51. Planning and managing cMaapnaacgiintyg capacity and demand Film clip Air traffic Film Title Director (year) Pushing Tin Newell (1999) Clip Start Finish 00:00:47 00:06:00 What clip shows An air traffic controller managing the landing of planes within an airport Key learning objective For a repeat low-volume service delivery system, the: •Type of capacity and demand that has to managed •The approaches used to manage capacity and demand
- 52. Planning and managing cMaapnaacgiintyg capacity and demand Film clip Restaurant Film Title Director (year) Dinner Rush Bob Giraldi (2000) Clip Start Finish 00:23:36 00:24:25 What clip shows Customers being served in a restaurant Key learning objective For a repeat high-volume service delivery system, the: •Type of capacity and demand that has to managed •The approaches used to manage capacity and demand
- 53. Planning and managing cMaapnaacgiintyg capacity and demand Film clip Kitchen Film Title Director (year) Dinner Rush Bob Giraldi (2000) Clip Start Finish 00:16:14 00:18:14 What clip shows Food being made in a restaurant Key learning objective For a repeat low-volume service delivery system, the: •Type of capacity and demand that has to managed •The approaches used to manage capacity and demand
- 54. Planning and managing cMaapnaacgiintyg capacity and demand Film clip Factory Film Title Director (year) Modern Times Charles Chaplin (1936) Clip Start Finish 00:01:53 00:06:03 What clip shows Charlie Chaplin working on a production line within a factory Key learning objective For a high-volume batch manufacturing or line process, the: •Type of capacity and demand that has to managed •The approaches used to manage capacity and demand
- 55. Planning and managing capacity Unit of measurement Low VARIETY High Low VOLUME High
- 56. Planning and managing cTayppea ocfi tcyapacity and demand Question Air traffic Restaurant Kitchen Factory Capacity Demand
- 57. Planning and managing cMaapnaacgiintyg capacity and demand Question Air traffic Restaurant Kitchen Factory Managing capacity Managing demand
- 58. Planning and managing capacity Unit of measurement
- 59. Planning and managing cTayppea ocfi tcyapacity and demand Questi on Air traffic Restaura nt Kitchen Factory Capacity Demand •Chairs •Tables •Waiting staff •Equipment •Food •Chefs •Air space •Air traffic controller s •Equipmen t •Assembly workers •Number of planes •Number of customer s •Number of orders •Number of widgets
- 60. Planning and managing cMaapnaacgiintyg capacity and demand Questi on Air traffic Restaura nt Kitchen Factory Managing capacity Managing demand •Part-time / Temp staff •Staggered working •Overtime / Shifts •Flexible staff •Overtime •Shift patterns •High automation •Shift patterns •Alternate pricing •Reservation s •Fixed schedule s •Alternate pricing •Reservation s •Fixed schedules
- 61. Critical r•eMflaencatigoinngs capacityis COMPLEX and CHALLENGING • DECISIONS on capacity and location impact future - Market POSITIONS - Market OPPORTUNITIES • Increasing or decreasing capacity is a MAJOR DECISION • TOO LITTLE capacity leads to - DELAYS and possible LOST SALES • TOO MUCH capacity incurs - Unnecessary COSTS
- 62. Summar y •Capacity and demand MEASUREMENT varies by - Delivery system and process type • Capacity and demand FLUCTUATIONS - Predicable and unpredictable • Resource PLANNING and CONTROL - Long-term, medium-term, short-term - Methods vary by delivery system and process type • Managing DEMAND - Change pattern, schedule, manage uncertainty • Managing CAPACITY - Short-term adjustments, flexibility, form and nature
- 63. © Alex Hilland Terry Hill
- 64. Revision questions 1The two common denominators used in business to express, calculate and measure activities are: a) Time and money b) People and money c) People and equipment
- 65. Revision questions 1The two common denominators used in business to express, calculate and measure activities are: a) Time and money b) People and money c) People and equipment
- 66. Revision questions 2In a business using a non-repeat, project or jobbing process, capacity is measured by the: a) Number of staff hours b) Number of equipment hours c) Both a) and b)
- 67. Revision questions 2In a business using a non-repeat, project or jobbing process, capacity is measured by the: a) Number of staff hours b) Number of equipment hours c) Both a) and b)
- 68. Revision questions 3Efficiency is measured as: a) Actual output compared to the level of output expected in the number of hours worked b) Expected level of output in the number of hours worked c) Actual number of hours worked compared with those planned to be worked
- 69. Revision questions 3Efficiency is measured as: a) Actual output compared to the level of output expected in the number of hours worked b) Expected level of output in the number of hours worked c) Actual number of hours worked compared with those planned to be worked
- 70. Revision questions 4Which of the following is NOT a factor effecting the definition of capacity: a) The make or buy decision b) The service or product range and specification c) The level of market demand
- 71. Revision questions 4Which of the following is NOT a factor effecting the definition of capacity: a) The make or buy decision b) The service or product range and specification c) The level of market demand
- 72. Revision questions 5Example(s) of unpredictable aspect(s) of capacity are: a) Absenteeism b) Short-term demand changes c) Both a) and b)
- 73. Revision questions 5Example(s) of unpredictable aspect(s) of capacity are: a) Absenteeism b) Short-term demand changes c) Both a) and b)
- 74. Revision questions 6Which of the following is a method(s) used to manage demand: a) Annualised hours b) Fixed service schedules c) Both a) and b)
- 75. Revision questions 6Which of the following is a method(s) used to manage demand: a) Annualised hours b) Fixed service schedules c) Both a) and b)
- 76. Revision questions 7Which of the following is a method(s) used to manage capacity: a) Overtime b) Annualised hours c) Both a) and b)
- 77. Revision questions 7Which of the following is a method(s) used to manage capacity: a) Overtime b) Annualised hours c) Both a) and b)
- 78. CASE FOR TUTORIAL MINKIES DELI
Editor's Notes
- #51 At this point you could use clips from three classic films to demonstrate approaches to managing capacity and demand: Pushing Tin, Newell (1999) – an air traffic controller managing the landing planes. Dinner Rush, Bob Giraldi (2000) – serving customers in a restaurant, and food being made in a restaurant Modern Times, Charles Chaplin (1936) – a production line
- #52 Show students the clip and ask them to fill in the handouts provided on the website.
- #53 Show students the clip and ask them to fill in the handout provided on the website.
- #54 Show students the clip and ask them to fill in the handout provided on the website.
- #55 Show students the clip and ask them to fill in the handout provided on the website.
- #79 See the lecturer zone for teaching notes and methods to accompany this case.