View
49
Download
1
Category
Tags:
Preview:
Citation preview
Course: MBASubject: Production & Operation
ManagementUnit:2.1
Capacity
Capacity
• Capacity is defined as the ability to achieve, store or produce.
• For an organization, capacity would be the ability of a given system to produce output within the specific time period.
• In operations, management capacity is referred as an amount of the input resources available to produce relative output over period of time.
• Capacity planning is essential to be determining optimum utilization of resource and plays an important role decision-making process, for example, extension of existing operations, modification to product lines, starting new products, etc.
• Strategic Capacity Planning:• A technique used to identify and measure overall capacity of
production is referred to as strategic capacity planning. Strategic capacity planning is utilized for capital intensive resource like plant, machinery, labor, etc.
• Strategic capacity planning is essential as it helps the organization in meeting the future requirements of the organization. Planning ensures that operating cost are maintained at a minimum possible level without affecting the quality. It ensures the organization remain competitive and can achieve the long-term growth plan.
Types of Capacity Planning
• Capacity planning based on the timeline is classified into three main categories:
• Long range
• Medium range
• Short range
Long term planning
• Long range capacity of an organization is dependent on various other capacities like design capacity, production capacity, sustainable capacity and effective capacity.
• Design capacity is the maximum output possible as indicated by equipment manufacturer under ideal working condition.
• Production capacity is the maximum output possible from equipment under normal working condition or day.
• Sustainable capacity is the maximum production level achievable in realistic work condition and considering normal machine breakdown, maintenance, etc.
• Effective capacity is the optimum production level under pre-defined job and work-schedules, normal machine breakdown, maintenance, etc.
• Medium Term Capacity: The strategic capacity planning undertaken by organization for 2 to 3 years of a time frame is referred to as medium term capacity planning.
• Short Term Capacity: The strategic planning undertaken by organization for a daily weekly or quarterly time frame is referred to as short term capacity planning.
Goal of Capacity Planning
• The ultimate goal of capacity planning is to meet the current and future level of the requirement at a minimal wastage.
• The three types of capacity planning based on goal are
• Lead capacity planning,
• Lag strategy planning
• Match strategy planning.
Factors Affecting Capacity Planning
• Effective capacity planning is dependent upon factors like
• production facility (layout, design, and location),
• product line or matrix,
• production technology,
• human capital (job design, compensation),
• operational structure (scheduling, quality assurance)
• external structure ( policy, safety regulations)
Forecasting v/s Capacity Planning
• There would be a scenario where capacity planning done on a basis of forecasting may not exactly match.
• For example, there could be a scenario where demand is more than production capacity;
• in this situation, a company needs to fulfill its requirement by buying from outside.
• If demand is equal to production capacity; • company is in a position to use its production capacity
to the fullest. • If the demand is less than the production capacity,
company can choose to reduce the production or share it output with other manufacturers.
Capacity Planning
• Capacity is the upper limit or ceiling on the load that an operating unit can handle.
• The basic questions in capacity handling are:
– What kind of capacity is needed?
– How much is needed?
– When is it needed?
• Impacts ability to meet future demands
• Affects operating costs
• Major determinant of initial costs
• Involves long-term commitment
• Affects competitiveness
• Affects ease of management
Importance of Capacity Decisions
Various Capacities
• Design capacity
– Maximum obtainable output
• Effective capacity, expected variations
– Maximum capacity subject to planned and expected variations such as maintenance, coffee breaks, scheduling conflicts.
• Actual output, unexpected variations and demand
– Rate of output actually achieved--cannot exceed effective capacity. It is subject to random disruptions: machine break down, absenteeism, material shortages and most importantly the demand.
Efficiency and Utilization
Actual outputEfficiency =
Effective capacity
Actual outputUtilization =
Design capacity
This definition of efficiency is not used very much. Utilization is more important.
Design capacity = 50 trucks/day availableEffective capacity = 40 trucks/day, because 20% of truck capacity
goes through planned maintenance Actual output = 36 trucks/day, 3 trucks delayed at maintenance, 1
had a flat tire
Efficiency/Utilization Examplefor a Trucking Company
%72/ 50
/ 36
%90/ 40
/ 36
dayunits
dayunits
CapacityDesign
OutputActualnUtilizatio
dayunits
dayunits
CapacityEffective
OutputActualEfficiency
Determinants of Effective Capacity/Output
• Facilities, layout
• Products or services, product mixes/setups
• Processes, quality
• Human considerations, motivation
• Operations, scheduling and synchronization problems
• Supply Chain factors, material shortages
• External forces, regulations
Caution: While discussing these the book considers effective capacity almost synonymous to output.
Some Possible Growth/Decline Patterns
Vo
lum
e
Vo
lum
e
Vo
lum
e
Vo
lum
e
0 0
0 0
Time Time
Time Time
Growth Decline
Cyclical Stable
Figure 5-1
Developing Capacity Alternatives
• Design flexibility into systems, – modular expansion
• Take a “big picture” approach to capacity changes,– hotel rooms, car parks, restaurant seats
• Differentiate new and mature products, – pay attention to the life cycle, demand variability vs.
discontinuation • Prepare to deal with capacity “chunks”,
– no machine comes in continuous capacities• Attempt to smooth out capacity requirements,
– complementary products, subcontracting• Identify the optimal operating level,
– facility size
Outsourcing: Make or Buy
• Outsourcing: Obtaining a good or service from an external provider
• Decide on outsourcing by considering
– Available capacity
– Expertise
– Quality considerations
– The nature of demand: Stability
– Cost
– Risk: Loss of control over operations with outsourcing; loss of know-how. Loss of revenue.
Evaluating Alternatives: Facility Size
Minimum
cost
Ave
rag
e c
os
t p
er
un
it
0Rate of output
Production units have an optimal rate of output for minimal cost.
Evaluating Alternatives: Facility Size
Minimum cost & optimal operating rate are
functions of size of production unit.A
ve
rag
e c
os
t p
er
un
it
0
Smallplant Medium
plant Large
plant
Output rate
• Need to be near customers– Capacity and location are closely tied
• Inability to store services– Capacity must me matched with timing of demand
• Degree of volatility of demand– Peak demand periods
Planning Service Capacity
Example: Calculating Processing Requirements
ProductAnnual
Demand
Standardprocessing time
per unit (hr.)Processing time
needed (hr.)
#1
#2
#3
400
300
700
5.0
8.0
2.0
2,000
2,400
1,400 5,800
Cost-Volume Relationships
Am
ou
nt
($)
0Q (volume in units)
Fixed cost (FC)
Cost-Volume Relationships
Am
ou
nt
($)
Q (volume in units)0
Cost-Volume Relationships: Break-even analysis
Am
ou
nt
($)
Q (volume in units)
0 BEP units
FCvRQP )(cost) Fixed()Margin Toon Contributi)(Quantity(
Break-Even Problem with Multiple Fixed Costs
Quantity
Fixed costs and variable costs.
Thick lines are fixed costs.
1 machine
2 machines
3 machines
Break-Even Problem with Step Fixed Costs
Quantity
Step fixed costs and variable costs.
Break even
points.
TR
No break even points in this range
Lean and Mean Manufacturing
Lean has been defined in many different ways.
“A systematic approach to identifying and eliminating waste(non-value-added activities) through continuous improvement by flowing the product at the pull of the customer in pursuit of perfection.”
By The MEP Lean Network
History Timeline for Lean Manufacturing
Lean manufacturing is a philosophy
• In 1990 James Womack, Daniel T. Jones, and Daniel Roos wrote a book called “The Machine That Changed the World: The Story of Lean Production-- Toyota's Secret Weapon in the Global Car Wars That Is Now Revolutionizing World Industry”
• In this book, Womack introduced the Toyota Production System to American.
• What was new was a phrase–• "Lean Manufacturing."
How to Increase Profit?
Profit
Cost
Profit
Cost
Profit
Cost
Muda (Waste)
Taiichi Ohno (1912-1990), the Toyota executive who was the most ferocious foe of waste human history has produced, identified the first seven types of muda in manufacturing system:
• Storage• Transportation• Waiting• Motion• Process• Defects• Over-production
Muda is everywhere.
Lean Overview
Lean Manufacturing Tools
5S Value Stream Mapping Standardized Work Load Leveling Kaizen Kanban Visual Workplace Quick Changeover Andon Poka-yoke One-piece flow Cellular Manufacturing
Production Planning System (Push System)
Push System
Pull System
References
• Society of Manufacturing Engineers, Lean Manufacturing 2007, Supplement to Manufacturing Engineering, 2007.
• Society of Manufacturing Engineers, Lean Manufacturing 2008, Supplement to Manufacturing Engineering, 2008.
• Garrett Brown and Dara O’Rourke, “Lean ManufacturingComes to China: A Case Study of its Impact on Workplace Health and Safety,” International Journal of Occupational and Environmental Health (IJOEH), 13(3), JUL/SEP 2007.
• Challenges in Applying Lean Manufacturing in China, McKinsey Quarterly, 2006 Special Edition available at Jackson Library. Friday, October 12, 2007 | Posted by Simone Yu in International
Recommended