Capacity and Aggregate Planning. Capacity Outputs: Examples.
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Transcript of Capacity and Aggregate Planning. Capacity Outputs: Examples.
Capacity and Capacity and Aggregate Aggregate Planning Planning
Capacity Outputs: Capacity Outputs: ExamplesExamples
Type of BusinessInput Measures of
CapacityOutput Measures
of Capacity
Car manufacturer Labor hours Cars per shift
Hospital Available beds Patients per month
Pizza parlor Labor hours Pizzas per day
Retail storeFloor space in square feet
Revenue per foot
The goal of capacity planning The goal of capacity planning decisionsdecisions
The goal of capacity planning The goal of capacity planning decisionsdecisions
(1) The capacity of the firm to produce the service or good
(2) The processes for providing the service or making the good
(3) The layout or arrangement of the work space
(4) The design of work processes to enhance productivity
CapacityCapacity• The max output that an organization be
capable of producing• Measure a single facility:
– Design vs. Effective capacity– Capacity Utilization: design vs. efficient utilization
• For systems have more than one facility and flows of product– System capacity and bottleneck– Improve system capacity
Determinants of Effective CapacityDeterminants of Effective Capacity
• Facilities• Human considerations
– Adding people– Increasing employee motivation
• Operations– Improving operating rate of a machine– Improving quality of raw materials and
components
• External forces– Safety regulations
Capacity UtilizationCapacity Utilization
Measures how much of the available capacity is actually being used:
– Always <=1(percentage of usage)– Higher the better– Denominator:
• If effective capacity used: efficient utilization• If design capacity used: design utilization
actual output rateUtilization 100%
available capacity
Aggregate PlanningAggregate Planning• The process of planning the quantity and
timing of output over the intermediate range (3-18 months) by adjusting production rate, employment, inventory
• Master Production Schedule: formalizes the production plan and translates it into specific end item requirements over the short to intermediate horizon
Capacity PlanningCapacity Planning
• The process of determining the amount of capacity required to produce in the future. May be at the aggregate or product line level
• Master Production Schedule - anticipated build schedule
• Time horizon must exceed lead times for materials
Capacity PlanningCapacity Planning• Look at lead times, queue times, set up times, run
times, wait times, move times• Resource availability• Material and capacity - should be in synch• driven by dispatch list - listing of manufacturing
orders in priority sequence - ties to layout planning
• load profiles - capacity of each section
the capacity decisions:the capacity decisions:
• When to add capacity
• How much capacity to add
• Where to add capacity
• What type of capacity to add
• When to reduce capacity
Capacity PlanningCapacity Planning• Rough Cut Capacity Planning -
process of converting the master production schedule into requirements for key resources
• capacity requirements plan - time-phased display of present and future capacity required on all resources based on planned and released orders
Capacity PlanningCapacity Planning• Capacity Requirements Planning (CRP)
- process of determining in detail the amount of labor and machine resources required to meet production plan
• RCCP may indicate sufficient capacity but the CRP may indicate insufficient capacity during specific time periods
Theory of ConstraintsTheory of Constraints• Every system has a bottle neck
• capacity of the system is constrained by the capacity of the bottle neck
• increasing capacity at other than bottle neck operations does not increase the overall capacity of the system
Theory of ConstraintsTheory of Constraints
• What needs to be changed
• What to change to
• How to make the change happen
Theory of ConstraintsTheory of Constraints
• Identify the constraint
• Subordinate
• Inertia
• Walk the process again
• inertia of change can create new bottle necks
Capacity PlanningCapacity Planning
Establishes overall level of Establishes overall level of productive resourcesproductive resources
Affects lead time Affects lead time responsiveness, cost & responsiveness, cost & competitivenesscompetitiveness
Determines when and how Determines when and how much to increase capacitymuch to increase capacity
Capacity ExpansionCapacity Expansion
Volume & certainty of anticipated Volume & certainty of anticipated demanddemand
Strategic objectives for growthStrategic objectives for growthCosts of expansion & operationCosts of expansion & operation Incremental or one-step Incremental or one-step
expansionexpansion
Sales and Operations Sales and Operations Planning (S&OP)Planning (S&OP)
• Brings together all plans for business
• performed at least once a month
• Internal and external
Adjusting Capacity to Adjusting Capacity to Meet DemandMeet Demand
1.1. Producing at a constant rate and using inventory Producing at a constant rate and using inventory to absorb fluctuations in demand (level to absorb fluctuations in demand (level production)production)
2.2. Hiring and firing workers to match demand (chase Hiring and firing workers to match demand (chase demand)demand)
3.3. Maintaining resources for high demand levelsMaintaining resources for high demand levels4.4. Increase or decrease working hours (overtime Increase or decrease working hours (overtime
and undertime)and undertime)5.5. Subcontracting work to other firmsSubcontracting work to other firms6.6. Using part-time workersUsing part-time workers7.7. Providing the service or product at a later time Providing the service or product at a later time
period (backordering)period (backordering)
Demand ManagementDemand ManagementShift demand into other periodsShift demand into other periods
Incentives, sales promotions, Incentives, sales promotions, advertising campaignsadvertising campaigns
Offer product or services with Offer product or services with countercyclical demand patternscountercyclical demand patterns
Partnering with suppliers to reduce Partnering with suppliers to reduce information distortion along the information distortion along the supply chainsupply chain
Remedies for UnderloadsRemedies for Underloads
1. Acquire more work
2. Pull work ahead that is scheduled for later time periods
3. Reduce normal capacity
Remedies for OverloadsRemedies for Overloads
1. Eliminate unnecessary requirements
2. Reroute jobs to alternative machines or work centers
3. Split lots between two or more machines
4. Increase normal capacity
5. Subcontract
6. Increase the efficiency of the operation
7. Push work back to later time periods
8. Revise master schedule
Scheduling as part of the Scheduling as part of the Planning ProcessPlanning Process
• Scheduling is the last step in the planning process?
• It is one of the most challenging areas of operations management.
• Scheduling presents many day-to-day problems for operations managers because of – Changes in customer orders
– Equipment breakdowns
– Late deliveries from suppliers
– A myriad of other disruptions
SchedulingScheduling
Objectives in SchedulingObjectives in Scheduling
Meet customer due dates Minimize job lateness Minimize response time Minimize completion time Minimize time in the system Minimize overtime Maximize machine or labor utilization Minimize idle time Minimize work-in-process inventory Efficiency
Sequencing RulesSequencing Rules
FCFS - first-come, first-served LCFS - last come, first served DDATE - earliest due date CUSTPR - highest customer priority SETUP - similar required setups SLACK - smallest slack CR - critical ratio SPT - shortest processing time LPT - longest processing time
Critical Ratio RuleCritical Ratio Rule
CR considers both time and work remaining
If CR > 1, job ahead of scheduleIf CR < 1, job behind schedule
If CR = 1, job on schedule
time remaining due date - today’s date
work remaining remaining processing time
Ties scheduling to Gantt Chart or PERT/CPM
Inventory Inventory ManagementManagement
Why is Inventory Important to Why is Inventory Important to Operations Management?Operations Management?
• The average manufacturing organization spends 53.2% of every sales dollar on raw materials, components, and maintenance repair parts
• Inventory Control – how many parts, pieces, components, raw materials and finished goods
Inventory ConflictInventory Conflict
• Accounting – zero inventory
• Production – surplus inventory or “just in case” safety stocks
• Marketing – full warehouses of finished product
• Purchasing – caught in the middle trying to please 3 masters
InventoryInventoryStock of items held to meet Stock of items held to meet
future demandfuture demand Insurance against stock outInsurance against stock outCoverage for inefficiencies in Coverage for inefficiencies in
systemssystems Inventory management answers Inventory management answers
two questionstwo questions How much to orderHow much to order When to orderWhen to order
Types of InventoryTypes of Inventory Raw materialsRaw materials Purchased parts and suppliesPurchased parts and supplies In-process (partially completed) products Component partsComponent parts Working capitalWorking capital Tools, machinery, and equipmentTools, machinery, and equipment Safety stockSafety stock Just-in-case
Transportation Problems
Poor Quality
InventoryAccuracy
Policies
Training
Inventory Hides ProblemsInventory Hides Problems
Aggregate Inventory Aggregate Inventory ManagementManagement
1. How much do we have now?
2. How much do we want?
3. What will be the output?
4. What input must we get?
• Correctly answering the question about when to order is far more important than determining how much to order.
Inventory CostsInventory Costs
Carrying CostCarrying Cost Cost of holding an item in inventoryCost of holding an item in inventory As high as 25-35% of valueAs high as 25-35% of value Insurance, maintenance, physical Insurance, maintenance, physical
inventory, pilferage, obsolete, damaged, inventory, pilferage, obsolete, damaged, lostlost
Ordering CostOrdering Cost Cost of replenishing inventoryCost of replenishing inventory
Shortage CostShortage Cost Temporary or permanent loss of sales Temporary or permanent loss of sales
when demand cannot be metwhen demand cannot be met
ABC Classification ABC Classification SystemSystem
Demand volume and value of items varyDemand volume and value of items vary Classify inventory into 3 categories, Classify inventory into 3 categories,
typically on the basis of the dollar value typically on the basis of the dollar value to the firmto the firm
PERCENTAGEPERCENTAGE PERCENTAGEPERCENTAGECLASSCLASS OF UNITSOF UNITS OF DOLLARSOF DOLLARS
AA 5 - 155 - 15 70 - 8070 - 80BB 3030 1515CC 50 - 6050 - 60 5 - 105 - 10
Why ABC?Why ABC?
• Inventory controls
• Security controls
• Monetary constraints
• Storage locations
Economic OrderEconomic OrderQuantityQuantity
Assumptions of Basic Assumptions of Basic EOQ ModelEOQ Model
Demand is known with certainty Demand is known with certainty and is constant over timeand is constant over time
No shortages are allowedNo shortages are allowedLead time for the receipt of orders Lead time for the receipt of orders
is constantis constantThe order quantity is received all The order quantity is received all
at onceat once
No reason to use EOQ if:No reason to use EOQ if:
• Customer specifies quantity
• Production run is not limited by equipment constraints
• Product shelf life is short
• Tool/die life limits production runs
• Raw material batches limit order quantity
EOQ FormulaEOQ Formula
EOQEOQ = =22CCooDD
CCcc
Co = Ordering costs
D= Annual Demand
Cc = Carrying Costs
Cost per order can increase if size of orders decreases
Most companies have no ideaof actual carrying costs
When to OrderWhen to OrderReorder Point is the level of inventory Reorder Point is the level of inventory at which a new order is placed at which a new order is placed
RR = = dLdL
wherewhere
dd = demand rate per period = demand rate per periodLL = lead time = lead time
Forms of Reorder PointsForms of Reorder Points
• Fixed
• Variable
• Two Bin
• Card
• Judgmental
• Projected shortfall
Why Safety StockWhy Safety Stock
• Accurate Demand Forecast
• Length of Lead Time
• Size of order quantities
• Service level
Inventory ControlInventory Control
• Cyclic Inventory
• Annual Inventory
• Periodic Inventory
• Sensitive Item Inventory
Vendor-Managed InventoryVendor-Managed Inventory Not a new concept – same process used by
bread deliveries to stores for decades Reduces need for warehousing Increased speed, reduced errors, and
improved service Onus is on the supplier to keep the shelves
full or assembly lines running variation of JIT Proctor&Gamble - Wal-Mart DLA – moving from a manager of supplies to
a manager of suppliers Direct Vendor Deliveries – loss of visibility
Inventory Management: Special ConcernsInventory Management: Special Concerns
• Defining stock-keeping units (SKUs)• Increase in number of SKUs – 15% over past 3 years• Dead inventory• Deals• Substitute items• Complementary items• Informal arrangements outside the distribution
channel• Repair/replacement parts• Reverse logistics
Project ManagementProject Managementand Operationsand Operations
Project Project ManagementManagement
First Essay on Project Management:1697 – “An Essay Upon Projects”
1959 HBR Article – “The Project Manager”
Air Force Manual 1964
Project ManagementProject ManagementA project is a temporary and one-time
endeavor undertaken to create a unique product or service, that brings about
beneficial change or added value.. (wikipedia)
Problem Areas of Problem Areas of Project ManagementProject Management
Project team - Individuals from different departments within company
Matrix organization - Team structure with members from different functional areas depending on skills needed
Project manager - Leader of project team Project Charter – high level description of
what is to be accomplished in a project and delegates authority to project manager to implement actions to complete project
Project PlanningProject PlanningStatement of work
Written description of goals, work & time frame of project
Activities require labor, resources & time
Precedence relationship shows sequential relationship of project activities
Project ControlProject ControlAll activities identified and includedCompleted in proper sequenceResource needs identifiedSchedule adjustedMaintain schedule and budgetComplete on time
Elements of Elements of Project PlanningProject Planning
Define project objective(s) Identify activitiesEstablish precedence relationshipsMake time estimatesDetermine project completion timeCompare project schedule objectivesDetermine resource requirements to
meet objective
Phases of a ProjectPhases of a Project
• Initiating
• Planning
• Execution
• Monitoring and Control
• Closing
A Gantt ChartA Gantt Chart
Popular tool for project schedulingGraph with bar for representing the
time for each taskProvides visual display of project
schedule
Around since 1914
A Gantt ChartA Gantt Chart| | | | |
Activity
Design house and obtain financing
Lay foundation
Order and receive materials
Build house
Select paint
Select carpet
Finish work
00 22 44 66 88 1010MonthMonth
MonthMonth11 33 55 77 99
CPM/PERTCPM/PERTCritical Path Method (CPM)
DuPont & Remington-Rand (1956) Deterministic task times
Project Eval. & Review Technique (PERT)
US Navy, Lockheed Multiple task time estimates
Project Network for a HouseProject Network for a House
Critical PathCritical Path
A path is a sequence of connected activities running from start to end node in network
The critical path is the path with the longest duration in the network
Project cannot be completed in less than the time of the critical path
Project CrashingProject Crashing Crashing is reducing project time by
expending additional resources Crash time is an amount of time an activity is
reduced Crash cost is the cost of reducing the activity
time Goal is to reduce project duration at minimum
cost
Life Cycle ManagementLife Cycle Management
• Long term view of projects to guide decision making – solutions that provide life time success vice short term
• Acquisition; development; production; introduction; sustainment; disposal
• Links system costs to big picture; better use of resources; minimize total cost of ownership