Capacity Management Yashodeep k. More

The maximum output that a business can produce in a given period with the available resources

Capacity is usually measured in production units (e.g. 1,000 cars per month).

Capacity

Capacity is linked to workforce planning: e.g. by working more production shifts, capacity can be increased

Capacity needs to take account of seasonal or unexpected changes in demand

E.g. Ice-cream factories needed to quickly increase capacity during a heat wave

Capacity Management

The ability to meet a customer’s requirements with the available resources (machinery, factory, labour, raw materials etc.) at hand.

Capacity planning is done on the basis of projections for future product demand, labour and equipment requirements.

Time and Capacity are the two main constraints in capacity management.

Capacity Management

Three types of capacity are taken into consideration:

Potential Capacity: It is for the long term and indicates the available capacity at hand which can be utilized to influence the planning of senior management

Immediate Capacity:It is the maximum available capacity which can be utilized in the short term ( on a day-to-day basis)

Effective capacity:It is the part of the total available capacity which can actually be put into use

Capacity Management

Capacity is the ability to deliver in a defined time

It is a long-term strategic decision that establishes a firm's overall level of resources.

Capacity decisions affect:

product lead times, customer responsiveness,operating costsfirm's ability to compete.

Capacity Planning

Inadequate capacity can lose customers and limit growth.

Excess capacity can drain a company's resources and prevent investments in more lucrative ventures.

When to increase capacity and how much to increase capacity are critical decisions.

Capacity Planning

Product & Services factors: Type of product/ services to be provided

Process: The manufacturing process Availability of Facilities: State of technology &

communications Human factors: Skill & quality of workers Supply factor: Timely & assured supply of inputs External factors: Investors & government policies

Factors Affecting Capacity Planning

Impacts ability to meet future demands Affects operating costs Major determinant of initial costs Involves long-term commitment Affects competitiveness Affects ease of management Globalization adds complexity Impacts long range planning

Importance of Capacity Decisions

How much to increase capacity depends on:-

1. The volume and certainty of anticipated demand

2. Strategic objectives in terms ofgrowth, customer service,competition

3. The costs of expansion and operation.

Capacity Expansion Strategies

Capacity Expansion StrategiesUnits

Capacity

Time

Demand

Units

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Units

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Incrementalexpansion

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Capacity lead strategy Capacity lag strategy

Average capacity strategy Incremental vs. one-step expansion

One-step expansion

Capacity lead strategy:- Capacity is expanded in anticipation of demand

growth. This aggressive strategy is usedto lure customers from competitors who are capacity constrained or to gain a foothold in a rapidly expanding market.

Capacity Expansion Strategies

Units

Capacity

Time

Demand

Capacity lag strategy:-  Capacity is increased after an increase in demand

has been documented. This conservative strategy produces a higher

return on investment but may lose customers in the process.

It is used in industries withstandard products and cost-basedor weak competition. The strategy assumes thatlost customers will return fromcompetitors after capacity has expanded.

UnitsCapacity

Demand

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Average capacity strategy:- Capacity is expanded to coincide with average

expected demand. This is a moderate strategyin which managers are certainthat they will be able to sell at least some portion of theadditional output.

Capacity Expansion Strategies

Units

Capacity

Time

Demand

Incremental vs. one-step expansion:- Capacity can be increased incrementally or in one

large step. Incremental expansion is less risky but more

costly. An attractive alternativeto expanding capacity isoutsourcing, in whichsuppliers absorb therisk of demand uncertainty.

Capacity Expansion Strategies

Units

Incrementalexpansion

Time

Demand

One-step expansion

ForecastDemand

ComputeNeededCapacity

ComputeRated

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EvaluateCapacity

Plans

ImplementBest Plan

QualitativeFactors

(e.g., Skills)

Select BestCapacity

Plan

DevelopAlternative

Plans

QuantitativeFactors

(e.g., Cost)

Capacity Planning Process

Resource planning involves long rate capacity resource requirement and is directly linked to production planning.

Rough-cut capacity planning : Takes capacity planning to the next level of detail, check the feasibility of the MPS, provide warnings of any bottlenecks, ensure utilization of work centers and advise vendors of capacity requirement

Capacity Planning levels

Capacity requirements planning is directly linked to the material requirements plan.

It is concerned with individual orders at individual work centers and calculates work center loads and labor requirements for each time period at each work center. 

Capacity Planning levels

A manufacturing planning is concerned with planning and controlling all aspects of manufacturing, including materials, scheduling machines and people, and coordinating suppliers and customers.

Manufacturing planning level

There are 5 levels in the manufacturing planning

No single capacity measure is applicable to all types of situations.

Hospitals measure capacity as the number of patients that can be treated per day;

a retailer measures capacity as annual sales dollars generated per square foot;

In general, capacity can be expressed in one of two ways: 1. Output measures OR2. Input measures.

Capacity measurement

Output measures:- The usual choice for facilities that produce

standard products in high volumes, in a limited number of models using production processes with rigid flow patterns

Capacity measurement

Input measures:- The usual choice for facilities that produce custom

products in low volumes using processes with flexible flow patterns.

Capacity measurement

Rough Cut Capacity Planning

It calculates a rough estimate of the workload placed on critical resources by the proposed MPS.

Critical resources include bottleneck operations, labor and critical materials.

Basically there are three approaches to perform rough cut capacity planning:-1. Capacity planning using overall factors2. “Bill of labor” approach3. “Resource Profile” approach

Rough Cut Capacity Planning

Capacity planning using overall factors (CPOF) :

It is the least detailed approach.

Capacity requirement is quickly computed but is insensitive to shifts in product mix.

Rough Cut Capacity Planning

“Bill of labor” approach : It involves multiplying two matrices, “the bill of labor” and

the “master production schedule”.This approach picks up shifts in product mix, but does

not consider lead time offsets. It strictly assumes a lot-for-lot policy for setting lot sizes.When other techniques, such as economic order quantity

etc is used, then this approach gives a very rough estimate.

Rough Cut Capacity Planning

“Resource Profile” approach :

It is exactly same as “Bill of labor approach”, except that it takes lead-time offsets into account.

Again, it strictly assumes a lot-for-lot policy for setting lot sizes as in the case of “bill of labor approach”.

Rough Cut Capacity Planning

It is the process by which a company figures out how much it needs to produce, and determines if it is capable of meeting those production goals.

Small businesses must conduct capacity requirements planning regularly to keep up with changes in supply and demand.

Depending on the industry and type of businesses, capacity requirements planning can happen monthly, quarterly or annually. 

Capacity Requirement Planning (CRP)

It is necessary to set the capacity after considering the current situation, in order to make Capacity Requirements Planning more practical.

In this planning, the following three capacities are used:1. Standard Capacity2. Maximum Capacity3. Set Capacity

Capacity Requirement Planning (CRP)

Standard Capacity: The ability to produce items in a standard process. The standard capacity is usually set for each

process, and such time margin as morning meeting time and break time as well as attendance rate are also considered.

In addition, Capacity may be registered for each operation date.

Effects of Poor Capacity Requirements Planning

Maximum Capacity: the ability to produce the maximum

quantity/quality of items in a process. It can be set according to the actual performance

or as an overload tolerance.

Effects of Poor Capacity Requirements Planning

Set Capacity: The ability to be set based on the relationship

between the maximum capacity and load. When setting the capacity, such factors as

overtime work, shift, and the increase or decrease in staff transfer are considered.

Effects of Poor Capacity Requirements Planning

It ensures that a company can meet the changing demands for its products and services.

Discrepancies between capacity requirements and the actual production output can cause product or personnel shortages that leads to long delays in delivering products or services, or lead the company to leave some customer’s orders completely unfilled.

Effects of Poor Capacity Requirements Planning

Not being able to meet customer demand will often mean losing customers to competitors.

Poor capacity requirements planning can also lead to over-production of products that do not sell.

This unused inventory ties up the company’s revenue and depresses reported earnings.

Effects of Poor Capacity Requirements Planning

Is the number of working days available .

Shop calendar

Different companies plan and schedule manufacturing production using different strategies.

Some companies make goods only after receiving a customer order while others make goods and distribute them to retailers where customers buy at their discretion.

A company strategy has a direct impact on the amount of inventory it carries and that translates into cash available for other needs.

Scheduling strategies- Backward & Forward scheduling

Companies that use the chase strategy, or demand matching strategy, produce only enough goods to meet or exactly match the demand for goods.

Restaurant, which produces meals only when a customer orders, therefore matching the actual production with customer demand.

Chase strategy

chase strategy

The chase strategy has several advantages It keeps inventories low, which frees up cash that

otherwise can be used to buy raw materials or components.

Reduces inventory carrying costs that are associated with holding inventory in stock.Cost of capital, warehousing, depreciation, insurance, taxes, obsolescence and shrinkage are all inventory carrying costs.

chase strategy

In a manufacturing the company continuously produces goods equal to the average demand for the goods.

Level production

Scheduling consistently arranges the same quantity of goods for production based on the total demand for the goods.

So, if for three months a company wants to produce 20,000 units of a certain item and there are a total of 56 working days, it can level production to 358 units per day.

Level production

Goods are produced before customers place orders.

The retail environment is an example of make-to-stock as goods are produced and put into inventory at the retailer location.

Make-to-Stock

The make-to-stock strategy typically allows manufacturers to produce goods in long production runs, taking advantage of production efficiencies.

Because the make-to-stock environment produces goods on a consistent basis, a master production schedule determines the exact number of units to produce for each production run.

Make-to-Stock

Companies that use a make-to-order strategy produce goods after receiving an order from the customer.

Most often a company that uses the make-to-order strategy produces one-of-a-kind goods.

Examples include custom-tailored clothing, custom machinery and some fine jewelry.

Make-to-order

Certain fast-food restaurants use an assemble-to-order strategy.

A customer walks in, places an order for a hamburger and the hamburger gets assembled from a stock selection of ingredients.

This strategy forces the restaurant to carry enough ingredients to make every hamburger combination a customer might request.

Assemble-to-order

Automobile manufacturers also use the assemble-to-order strategy. A customer can pick and choose from many features including interior fabrics, exterior paints, and seat, engine, wheel or tire options. Once the dealer places the customer’s order, the manufacturing plant assembles the standard component parts to the customer’s exact specifications. In this environment the production scheduler uses a final assembly timetable.

Assemble-to-order

Capacity management occurs at all levels of the planning process.

It is directly related to the priority plan, need the level of detail and time spans will be similar to the related priority plan.

CP is concerned with translating the priority plan into the hours of capacity required in manufacturing to make the items in the priority plan and with methods of making that capacity available.  

Summary

Material requirements planning and capacity requirements planning should form part of a closed-loop system witch not only includes planning and control functions but also provide feedback so planning can always be current

Summary

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