Capacity Management

Demand fluctuations in four operations
Most operations are subjected to a mixture of predictable and unpredictable demand.
Measuring Capacity
Like demand capacity is also complex. Most firms use either of the two measures:
Control is
understanding what is actually happening in the operation
deciding whether there is a significant deviation from what should be happening (if there is deviation) changing resources in order to affect the operation’s activities.
Significance of planning and control
Months/years
Long-term planning and control
PLANNING
Uses aggregated demand forecasts Determines resources in aggregated form Objectives set in largely financial terms
Actual output Effective capacity
Design capacity
Planned loss
Effective capacity Avoidable loss Actual output
Utilization=
Actual output Design capacity
168 hours per week
■ Revenue capped
Steps in Capacity Planning and Control – Medium to Short Term Step 2
Step 1
Measuring the likely demand and available capacity. Identifying the plans for coping with demand fluctuation.
Capacity Management
Objectives
To:
• explain the nature of planning and control activities
• define capacity and capacity management activity • discuss the objectives and tasks of capacity planning • review long/medium/short term capacity planning and control strategies
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Planning and control
Planning is deciding what activities should take place in the operation when they should take place what resources should be allocated to them
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.
Capacity Planning and Control
To provide an ‘appropriate’ amount of capacity at any point in time. The ‘appropriateness’ of capacity planning in any part of the operation can be judged by its effect on… Costs Revenue Working capital Service level.
Avoid quality problems
Objectives of Capacity Planning & Control
Increase speed
Improve dependability
Enhance flexibility
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The tasks of capacity planning
Forecast Demand or Revenue Potential
Long term capacity planning
Opening up or closing down new facilities.
Environmental Factors
Long term Capacity Planning
Increase
Decrease
Single Large Step
Short-term planning and control
Hours/days
CONTROL
Uses totally disaggregated forecasts or actual demand Makes interventions to resources to correct deviations from plans Ad hoc consideration of operations objectives.
Generally, capacity is the maximum level of value-added activity over a period of time that a process can achieve under normal operating conditions
Slack,N., Chambers,S. and Johnston,R.(2010)Operations Management. Harlow:FT Prentice Hall
Input to the Operation
Examples: Beds available in a hospital Number of rooms in a hotel
Output from the Operation
Examples: Cars produced per month Electricity generated by a power plant
Do you have realistic work standards? Do you understand the capacity constraints of all the necessary resources?
What are the options for capacity allocation? What are their cost, revenue, working capital and service level implications? What are their flexibility implications?
Optional measures less reliable because the output units are variable
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The objectives of capacity planning and control
Maximise revenue
Minimise costs
Minimise working capital
Steps in Capacity Planning & Control
Step 3 Choosing the most appropriate plan.
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Causes of seasonality
Climatic
Festive
Behavioural
Political
Financial
Social
Strategies Capacity Leading Demand ■ Customer satisfaction Advantages ■ Revenue maximised ■ High costs Disadvantages ■ High risks - forecast may be optimistic ■ Low risk re Optimistic forecasting ■ Customer Dissatisfaction ■ Low flexibility Capacity Following Demand ■ Unit cost minimised
Not worked (planned) Slow running Equipment equipment ‘idling’ ‘Breakdown’ failure Set-up and changeovers
Not worked (unplanned)
Losses of Capacity
Efficiency =
Design “Capacity Control” Mechanisms
Do you monitor actual demand against forecast? Do you adapt forecasts accordingly? Do you replan capacity accordingly?
Several Small Steps
Close Centres
Consolidate Centres
■ When should capacity be changed; before or after demand changes?11
Long-Term Capacity Planning Strategies - Advantages and Disadvantages
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Estimating Capacity for Loading – The reduction of time available for ‘valuable’ operating time
Maximum available time
Valuable operating time
Quality losses
Some key questions
Can you predict the most likely demand at any point in time? Can you predict the uncertainty in demand at any point in time?
Calculate Capability of Operations Resources Allocate Resources Over Time
Usual Measure Hospital No. of beds Theatre No. of seats University No. of students Retail Sales floor Store area
Optional measure Patients treated Customers Students graduating No. of items sold
Time horizon
Days/weeks/months
Medium-term planning and control
Uses partially disaggregated demand forecasts Determines resources and contingencies Objectives set in both financial and operations terms