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Lecture 6

MBF2213 |Operations ManagementPrepared by Dr Khairul Anuar

L6: Capacity management

Capacity management

Capacity management – Slack et al. identify the following

key questions…

What is capacity management?

How are demand and capacity measured?

How should the operation’s base capacity be set?

What are the ways of coping with mismatches between

demand and capacity?

How can operations understand the consequences of

their capacity decisions?

Key questions

Capacity in the static, physical sense means the scale of an

operation.

What is capacity?

But this may not reflect the operation’s processing capability.

So we must incorporate a time dimension appropriate to the use

of assets.

• For example 24,000 litres per day.

• 10,000 calls per day.

• 57 patients per session.

• Etc.

Forecast

demand

Time

Aggre

gate

d o

utp

ut

Estimate of current capacity

Measure aggregate demand and capacity

Understand changes to demand and capacity

Determine the operation’s base level of capacity

Identify and select methods of coping with mismatches between demand and capacity

Understand the consequences of different capacity decisions

Operation Input measure of capacity Output measure of capacity

Air-conditioner

plant

Machine hours available Number of units per week

Hospital Beds available Number of patients treated per

week

Theatre Number of seats Number of customers entertained

per week

University Number of students Students graduated per year

Retail store Sales floor area Number of items sold per day

Airline Number of seats available on

the sector

Number of passengers per week

Electricity

company

Generator size Megawatts of electricity

generated

Brewery Volume of fermentation

tanks

Litres per week

Note: The most commonly used measure is shown in bold.

Design capacity, effective capacity, and actual output

The nature of aggregate capacity

- rooms per night;

- ignores the numbers of guests in each room.

- tonnes per month;

- ignores types of alloy, gauge and batch variations.

Aggregate capacity of a hotel:

Aggregate capacity of an aluminium producer:

Climatic Festive Behavioural Political Financial Social

Causes of seasonality

Construction materials

Beverages (beer, cola)

Foods (ice-cream)

Clothing (swimwear, shoes)

Gardening items (seeds)

Fireworks

Travel services

Holidays

Tax processing

Doctors (influenza epidemic)

Sports services

Education services

Demand fluctuations in four operations

How capacity and demand are measured

Design

capacity

168 hours

per week

Effective

capacity

109 hours

per week

Planned loss

of 59 hours

Actual output –

51 hours per

week

Avoidable loss –

58 hours per

week

EfficiencyActual output

Effective capacity=

UtilizationActual output

Design capacity=

Ways of reconciling capacity and demand (1 of 2)

How do you cope with

fluctuations in demand?

Absorb

Demand

Change

demandAdjust output

to match

demandLevel

capacity Chase

demand

Demand

management

Ways of reconciling capacity and demand (2 of 2)

Absorb

demand

Part finished

Finished goods, or

Customer inventory

Queues

Backlogs

Have

excess

capacity

Make to

stock

Keep output

level

Make

customer

wait

Absorb demand

Adjust output to

match demand

Hire Fire

Temporary labour Lay-off

Overtime

Subcontract

Short time

Third-party

work

Adjust output to match demand

Change

demand

Change pattern of demand.

Develop alternative products and/or services.

Change demand

Simple queuing system

Table 11.3

Examples of operations which have parallel

processors

Blackberry Hill Farm

Capacity management - long and short-term outlook

Blackberry Hill Farm (1 of 6)

Blackberry Hill Farm (2 of 6)

Blackberry Hill Farm (3 of 6)

Blackberry Hill Farm (4 of 6)

Blackberry Hill Farm (5 of 6)

Blackberry Hill Farm (6 of 6)

*Technical problems reduced production level.