Copyright 2013 John Wiley & Sons, Inc.

Chapter 8

Capacity Management through Location and Scheduling

8-2

Overview

8-3

Introduction

• Capacity represents the rate at which a transformation system can create outputs

• Capacity planning applies to both manufacturing and service organizations

• Capacity options can be categorized as short-term or long-term– Changing staffing level is short-term– Building new building is long-term

8-4

Introduction (Continued)

• Shorter product life cycles add further complications

• Volatile demand can further complicate capacity planning

• Capacity and location are important elements of a competitive strategy

• Capacity planning decisions are driven by projected demand estimates

8-5

Long-Term Capacity Planning

• Capacity and location decisions are highly strategic because they are very expensive investments

• Once made, capacity and location decisions are not easily changed or reversed

• These decisions must be carefully and thoroughly analyzed beforehand

8-6

Capacity Considerations

• Capacity measures must include a time dimension

• Capacity planning must consider the capacity to produce multiple outputs

• Having adequate capacity is clearly a generic problem– It is common to all types of organizations

• In pure service organizations capacity is a special problem because the output cannot normally be stored for later use

8-7

Capacity Considerations (Continued)

• A variety of restrictions can limit capacity– Fast-food restaurant may be limited by order-

takers, number of cooks, machinery, space in restaurant, and so on

– Limiting factors are bottlenecks

• Often there are natural loses (waste, scrape, defects) that limit capacity

• Demand (and therefore capacity needs) may be a function of where the facility is located

8-8

Capacity Planning Strategies

• Facility size planning

• Economies of scale and scope

• Capacity planning for multiple outputs

• Timing of capacity increments

Slides on each of these

8-9

Facility Size Planning

• When plants are operated at their lowest-cost production level, larger facilities will have lower costs

• Known as economies of scale

• If production is at lower level, the advantage of a larger facility may be lost

8-10

Envelope of Lowest Unit Output Costs with Facility Size

Figure 8.1

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Economies of Scale and Scope

• Obtaining lower costs through larger facilities is known as economies of scale– Spreads fixed costs over larger volumes

• There are limits to this benefit

• The use of advanced, flexible technologies is economies of scope– Spreads fixed costs over a wide variety of

outputs

8-12

Capacity Planning for Multiple Outputs

• May also need to contract capacity– Divesture, lay offs, outsourcing, selling equipment

• Try to contract only inefficient or inappropriate capacity

• May adopt anticyclic output– An output counter to the normal cycle of their

business

• Organizations add to their mix outputs that are anticyclic to existing output life cycles

8-13

Timing of Capacity Increments

Figure 8.4

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Location Planning Strategies

• Need to look at the most economical way to obtain the inputs need and deliver outputs

• Includes determining the location of the facility relative to suppliers and customers

• Capacity and location planning decisions are considered simultaneously

8-15

Location Planning Strategies

• Divided into three stages1. Regional2. Community3. Site

• For services, only the site selection stage may be relevant

• Tend to already be focused on a specific region and community

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Capabilities and the Location Decision

• Often driven too much by short-term considerations– Wage rates– Exchange rates

• Better approach is to consider how location impacts development of long-term capabilities

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Six Step Process to Leverage the Location Decision

1. Identify sources of value

2. Identify capabilities needed

3. Assess implications of location decision on development of capabilities

4. Identify potential locations

5. Evaluate locations

6. Develop strategy for building network of locations

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Stage 1: Regional-International

• Minimize transportation costs and provide acceptable service

• Proper supply of labor• Wage rates• Unions (right-to-work laws)• Regional taxes, regulations, trade

barriers• Political stability

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Stage 2: Community

• Availability of acceptable sites

• Local government attitudes

• Regulations, zoning, taxes, labor supply

• Tax Incentives

• Community’s attitude

• Amenities

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Breakeven Location Model

Figure 8.5

8-21

Stage 3: Site

• Size

• Adjoining land

• Zoning

• Drainage

• Soil

• Availability of water, sewers, utilities

• Development costs

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Weighted Score Model

8-23

Example Data

Table 8.2

8-24Table 8.3

Comparison of Site Factors by the Weighted Score Method

8-25

Locating Pure Services

• Recipient to facility1. Facility utilization

2. Travel distance per citizen

3. Travel distance per visit

• Facility to recipient1. High-density demand for services

2. Widely distributed demand for services

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Effectively Utilizing Capacity Through Schedule Management

• Capacity is closely tied to scheduling• Poor scheduling may result in a capacity

problem• Capacity is oriented primarily towards

the acquisition of productive resources• Scheduling concerns the timing of their

use• It is difficult to separate the two

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Sequential Operations Required for Two Jobs

Table 8.5

8-28

Gantt Charts for Capacity Planning and Scheduling

Figure 8.6

8-29

Schedule Management

• Result of managerial iteration and changes to aggregate plan

• Often disaggregated one level into major output groups– Aggregate Plan: number of automobiles to be

produced in each of the upcoming 12 months

– Production Plan: number of compacts, mid-size, full-size, light trucks, and minivans to produce in each of the upcoming 12 months

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The Master Schedule (MPS)

1. Point where actual orders incorporated into scheduling system

2. Aggregate outputs broken down into individual end items

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Check for the Following Problems

• Does schedule meet production plan?• Does schedule meet demand forecasts?• Are there priority or capacity conflicts?• Are other constraints violated?• Does schedule conform to policy?• Does schedule conform to laws and rules?• Does schedule provide flexibility?

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Rough-Cut Capacity Planning

• Feasibility check of master production schedule

• Historical ratios of loads placed on workcenters used

• Workloads assumed to fall in period end items demanded

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Priority Planning

• What materials are needed when• Feasibility check of master production

schedule to make sure all materials will be available when needed

• Determine when order is needed and schedule backwards from that date

• Material requirements planning (MRP) systems often used

8-34

Capacity Requirements Planning (CRP)

• Inventory control system and master schedule used to determine required capacity over planning horizon

• Load reports generated for each work center

• Inventory and lead times considered

8-35

Loading and Sequencing

• Loading– Deciding which jobs to assign to which work

centers– Often some equipment or workers better for certain

jobs• Sequencing

– After jobs assigned to work centers, order in which to process the jobs must be decided

– Sequencing can have impact on timeliness of job completions

– Priority rules often used

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Detailed (Short-Term) Scheduling

• Detailed schedules itemizing specific jobs, times, materials developed

• Typically done for only a few days in advance

8-37

Dispatching and Expediting

• Dispatching– All previous activities are planning

activities– Dispatching is the physical release of a

work order from production planning

• Expediting– Task of getting job done on time once it is

released to the shop floor– Special tags used to identify hot jobs

8-38

Scheduling Services

• Many operations where scheduling the job is inappropriate or impossible

• Must schedule inputs• Staff, material, or facilities are scheduled to

match demand• In scheduling jobs, wish to minimize late jobs• In scheduling resources, may be more criteria

of interest

8-39

Approaches to Resource Scheduling

• Primary approach is to schedule resources to match demand

• Methods of increasing resources for peak demand include overtime, part-time workers, and leasing equipment

• If different areas have different demand, may use floating workers

• May use technology to deliver parts of service• May use off-peak pricing

8-40

Yield/Revenue Management and Overbooking

• Attempt to allocate the fixed capacity of a service to match the revenue demand in the market place

• Also called revenue management

• Used in services that hold a fixed capacity for revenue-producing customers

8-41

When is Yield Management Appropriate?

1. Fixed capacity

2. Perishable capacity

3. Segmentable market

4. Capacity sold in advance

5. Uncertain demand

6. Low marginal sales cost, high marginal capacity addition cost

8-42

Overbooking

• An attempt to reduce costs through better schedule management

• Based on inventory solution for the “newsboy problem”

• Used to manage no-shows

8-43

Demand for Flights

Table 8.6

8-44

Demand Probabilities with Reservations

Table 8.7

8-45

Expected Profit with 31 and 32 Reservations

Tables 8.8 and 8.9

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Short Term Capacity Planning

• Primarily related to issues of…– Scheduling– Labor shifts– Balancing of resource capacities– Other such issues

• Not usually related to location decisions

8-47

Process-Flow Analysis

• Utilization is the actual output relative to some expected rate

• Efficiency is output divided by input• Bottlenecks are places where production

slows down– Fixing bottleneck usually only marginally

improves output– Floating bottlenecks

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King Sports Product Process

Figure 8.8

8-49

Return to King for using more Machines

Table 8.12

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Efficiency and Output Increase when Machines are Being Added

Figure 8.9

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Product and Service Flows

• Purpose of conducting a process-flow analysis is to identify bottlenecks, inventory buildup points, and time delays– Also known as mapping or blueprinting

• Crucially important in determining the capacity

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Process Flow Map for a Service

Figure 8.11

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Short-Term Capacity Alternatives

• Increase Resources

• Improve Resource Use

• Modify the Output

• Modify the Demand

• Do Not Meet Demand

8-54

Capacity Planning for Services

• Large fluctuations in demand

• Inventory often not an option

• Problem often is to match staff availability with customer demand

• May attempt to shift demand to off-peak periods

• Can measure capacity in terms of inputs

8-55

The Learning Curve

• Learning curve is an extremely important aspect of capacity planning

• Learning curve effect is the ability of humans to increase their productivity through learning

• Particularly important in new and unfamiliar processes

• Each time the output doubles, the labor hours decrease to a fixed percentage of their previous value

8-56

Learning Curve Function

8-57

80 Percent Learning Curve for Airplane Production

Figure 8.13

8-58

Queuing and the Psychology of Waiting

• An important element of capacity concerns waiting lines that build up in front of operations– Also known as queues

• Queuing theory provides a mechanism to determine several key performance measures of an operating system

• Wiley Web site has a discussion of the theory, equations, and some example calculations

8-59

Services and Queuing

• Variability is higher because of both the variable human input and variable requirements for services

• Additionally, items in queue are people• Customers are unhappy when they must

wait• Must provide adequate service to

prevent long queues

8-60

The Relevant Queuing Costs

Figure 8.15

8-61

Principles of Waiting

1. Unoccupied time feels longer than occupied time

2. Pre-service waiting feels longer than in-service waiting

3. Anxiety makes waiting seem longer

4. Uncertain waiting is longer than known, finite waiting

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Principles of Waiting (Continued)

5. Unexplained waiting is longer than explained waiting

6. Unfair waiting is longer than fair waiting

7. Solo waiting is longer than group waiting

8. The more valuable the service, the longer it is worth waiting for