Chapter 3 - Manufacturing & Service Processes

Front 1

Capacity

Back 1

the ability to hold, receive, or accommodate


in a business sense is the amount of OUTPUT that a system is capable of achieving over a specified period of time

Front 2

When looking at capacity Operations Managers need to look at BOTH...

Back 2

Resource INPUTS

AND

PRODUCT output

Front 3

Operations Management View also emphasizes the TIME dimension of capacity

Back 3

Capacity must also be stated relative to SOME PERIOD OF TIME.

This is evidenced in the common distinction drawn between:

long-range,

intermediate range,

and short-range capacity planning

Front 4

Capacity Planning is generally viewed in 3 TIME durations:

Back 4

<b>Long-Range--Greater than one year</b>:
Where Productive resources (buildings,equipment, facilities) take a long time to acquire or dispose of, long-range capacity planning requires top management participation and approval

<b>Intermediate Range--Monthly or Quarterly (6-18 mo.)</b>:
Here capacity may be varied by such alternatives as hiring, layoffs, new tools, minor equipment purchases, and subcontracting

<b>Short Range--less than 1 mo.</b>
This is tied into the daily or weekly scheduling process and involves making adjustments to eliminate the variance between planned and actual output. This includes alternatives such as overtime, personnel transfers, and alternative production routings.

Front 5

Objective of STRATEGIC CAPACITY PLANNING

Back 5

provide an approach for determining the overall capacity level of capital-intensive resources--facilities, equipment, and overall labor force size--<b>that BEST supports the company's LONG-RUN competitive strategy

Front 6

Capacity

Back 6

term implies an attainable rate of output but says nothing about HOW LONG the rate can be sustained.

For this reason the concept of "BEST OPERATING LEVEL" is used.

Front 7

Best Operating Level

Back 7

Level of capacity for which the process was designed and thus is <b><i>the volume of output at which <u>average unit cost is minimized.</b></i></u>

Determining this minimum is difficult because it involves a complex tradeoff between the allocation of fixed overhead costs and the cost of overtime, equipment wear, defect rates, and other costs.

Front 8

Capacity Utilization Rate

Back 8

An important measure which reveals HOW close a firm is to its best operating level:

<b>Capacity Utilization Rate = Capacity Used<b>/</b>Best Operating Level</b>

(<b>*NOTE:</b> Cap Utilization Rate is expressed AS A % and requires that the numerator and denominator be measured in the same units and time periods (i.e. machine hours/day, barrels of oil/day, dollars of output/day etc.)

Front 9

Economies of Scale

Back 9

Basic notion is that as a plant gets larger <i>and volume increases,</i> <u>the AVERAGE cost per unit of output drops.</u>

This is partially due to LOWER operating and capital costs, because a piece of equipment with twice the capacity of another piece typically <i>does not</i> cost twice as much to purchase or operate.

Plants also gain efficiencies when they become large enough to FULLY utilize dedicated resources (like people and equipment) for IT, material handling, and administrative support

Front 10

Diseconomies of Scale

Back 10

At some point the size of a plant becomes TOO large and diseconomies of scale become a problem. Diseconomies may surface a number of different ways:


Maintaining demand required to keep the large facility busy may require significant discounting of the product (auto industry)

Using a few large-capacity pieces of equipment. Minimizing equipment downtime is essential in this kind of operation. (m&ms)

Front 11

In many cases the size of a plant may be influenced by factors OTHER than the internal equipment, labor, and other capital expenditures.

Back 11

True

Other Major Factors:

cost to transport raw materials and finished product to and from the plant.

The anticipated size of intended markets will largely dictate the size and capacity of the plants.

Front 12

Capacity Focus

Focused Factory

Back 12

Focused factory means that a production facility works best when it focuses on a fairly LIMITED set o production objectives.

<b>A firm should NOT expect to excel in every aspect of manufacturing performance:</b>> cost, quality, delivery speed and reliability, changes in demand, and flexibility to adapt to new products.

Rather it should select a limited set of tasks that contribute the most to corporate objectives.

Front 13

Plant within a Plant (PWP)

Back 13

e.g. machining done in one part of the plant, on the other side of the plant the machined pieces are assembled

the capacity focus concept can be operationalized using PWPs.

A focused factory may have several PWPs, each of which may have separate sub-organizations, equipment and process policies, workforce management, production control methods, etc.

This in effect permits finding the best operating level for each department of the organization and thereby carries the focus concept down to the operating level.

Front 14

Economies of SCOPE

Back 14

Economies of scope exist when <b>multiple products can be combined and produced at one facility</b>, at a lower cost than they can be produced separately

Front 15

Capacity Flexibility (3 respective areas)

Back 15

Flexible Plants

Flexible Processes

Flexible Workers (people)

Front 16

Capacity Planning

Considerations in Changing Capacity

Back 16

Maintaining System Balance

Frequency of Capacity Additions or Reductions

Use of External Capacity

Front 17

Maintaining System Balance

Back 17

in practice achieving/perfect balance is usually impossible and undesirable.

<b>3 ways to deal with imbalance:</b>

Temporary production measures (overtime, leasing equipment, purchasing additional capacity via subcontracting, to areas with bottlenecks)--helps reduce imbalances for supplier partners and customers.

Utilize buffer inventories so next stage always has something to work on.

Duplicate or increase the facilities of one department on which another is dependent.

Front 18

Frequency of Capacity Additions

Back 18

<b>2 types of costs to consider when adding capacity:</b>

1. Cost of upgrading TOO frequently

2. Cost of upgrading too INFREQUENTLY
-expensive usually have to do it in large chunks then

Front 19

External Sources of Operation/Supply Capacity

Back 19

1. Outsourcing

2. Sharing Capacity

*Interesting example of airlines sharing planes due to seasonal demands (repainting aircraft each season) or using the same flight number even though the airline may change through the route

Front 20

Decreasing Capacity

Back 20

Shedding capacity in response to decreased demand can create significant problems for a firm--super expensive.

<b>Temporary Fixes:</b>

schedule fewer hours

extended shutdown periods

Front 21

Determining Capacity Requirements

Back 21

<b>Use the Following Steps:</b>

1. Use <b>forecasting</b> techniques to predict sales for individual products within each product line.

2. <b>Calculate equipment and labor requirements</b> to meet product line forecasts

3. <b>Project labor and equipment availabilities</b> over the planning horizon

Front 22

Capacity Cushion--Review pg 49

now!

Back 22

The amount of capacity IN EXCESS of expected demand

Capacity that will be maintained between the projected requirements and the actual capacity.

If <i>demand</i> EXCEEDS capacity it IS possible to then have a NEGATIVE capacity cushion

Front 23

Review Step by Step Forecasting/Capacity Example in book

Back 23

pg 49-51

Front 24

Decision Tree

Back 24

a schematic model of the sequence of steps in a problem and the conditions and consequences of each step.

Front 25

Planning Service Capacity

Back 25

-

Front 26

<b><i>Service Capacity</b></i> planning is

more TIME and LOCATION dependent, it is subject to more volatile demand fluctuations, and utilization directly impacts service quality

Back 26

true

<b>Time:</b>
Can't be stored for later use--it must be considered by managers as one of their supplies

<b>Location:</b>
The capacity to deliver the service must first be distributed to the customer (either physically or through some communications like telephone/web)

Front 27

Volatility of SERVICE Demand

Back 27

can't use "inventory" to smooth demand like in mfg.

Customers interact directly with the "productions system" (personnel) customers often have different needs and varies the processing time for each transaction

Directly affected by consumer behavior


service capacity is often planned in increments as small as 10-30mins

Front 28

Factors to be taken into account in selecting capacity additions for both mfg. and services include

Back 28

The likely effects of economies of Scale

The impact of changing facility <B>focus and balance</B> among production stages

The degree of flexibility of facilities and the workforce int he operation and its supply system

Front 29

Lecture

Back 29

-

Front 30

Capacity

Back 30

the ability to hold receive store or accommodate

<B>hold inventory to produce inventory</B>

Front 31

Capacity Planning time Durations

Back 31

Long Range (> 1 year)
-Plants/Locations

Intermediate Range (Monthly/quarterly)

Short Range (< 1 month)
-labor
-delivery

Front 32

Team Activity

Back 32

Capacity Planning Timeline Questions

<b>LR:</b>
-Adding or removing Capacity
-Upgrading factories
-Supplier Relationships/Contracts
-Distributor Contracts

<b>IR:</b>
-Demand volatility
-Labor
-Exchange Rates/Currencies
-Minor equipment purchases
-subcontracting of manufacturing

<b>SR:</b>
-Labor/hiring/over-time
-Exchange Rates/Currencies
-Alternate production routing (suppliers/distributors)
-Factory/Personnel Maintenance

Front 33

Capacity

Back 33

an attainable rate of output

Front 34

Best Operating Level

Back 34

Capacity for which the process was designed--RESULTING IN MINIMIZED AVERAGE COST/UNIT

Front 35

Capacity Utilization rate reveals HOW CLOSE a firm is to its BEST operating level

Back 35

true

<b>Cap utilization rate</b> = Capacity Used/Best Operating Level

Front 36

you DON'T always want to operate at 100% capacity level

Back 36

true

-maintenance
-HR issues
-stages in the mfg. process
-demand variability (if you're running at 100% capacity how much can you ramp up to meet additional demand...? you can't.)

Front 37

Focused Factory

Back 37

holds that procution facilities work best when the focus on a fairly limited set of production objectives

most productive.

Front 38

Plants within a plants (PWP)

Back 38

extend focus concept to operating level

Can have multiple lines/operations under one roof

Front 39

Coverstar

Back 39

They custom mfg. the brackets that the motors fit into

why build it in house?
-super expensive to outsource as every single bracket is unique

Front 40

Capacity Flexibility

Back 40

The ability to rapidly increase or decrease production levels or to shift production capacity quickly from one product or service to another

<b>flexible Plants:</b>
Low Changeover Times

<b>Flexible Processes</b>:
Easily set up adjust/equipment

<b>Flexible Workers:</b> Workers have multiple skills

Front 41

Considerations in changing capacity

Back 41

<b>Maintaining System Balance</b>
-Want similar capacities at each operation
-Deal with bottlenecks

<b>Frequency of Capacity Additions</b>
Cost of upgrading too frequently
Cost of upgrading too infrequently

<b>External Sources of Capacity</b>:
-Outsourcing
-Sharing Capacity

Front 42

build ahead of time

outsourced

doubled out and shift

Back 42

-

Front 43

**Know the difference between..

Back 43

planning service capacity vs. manufacturing capacity