Strategic Capacity Management - PowerPoint Presentation

Slide1

Strategic Capacity Management

Dr. Ron Lembke

Operations ManagementSlide2

Maximum Throughput of a Process

What is the capacity of the system?

Should we add any capacity?

How should we run the system?Where should we keep inventory?

50/hr

20/hr

10/hr

40/hrSlide3

Maximum Throughput of a Process

What is the capacity of the system?

Convert to units / hr

6 min

5 min

4 min

5 min

10/hr

12/hr

15/hr

12/hrSlide4

Productivity measurementsSlide5

Productivity

Productivity = Outputs / Inputs

Partial: Output/Labor or Output/Capital

Multifactor:Output / (Labor + Capital + Energy )Total Measure:Output / InputsSlide6

Automotive Productivity

Book Data:

Jaguar: 14 cars/employee

Volvo: 29 cars/employeeMini: 39 cars/employeeSlide7

US Productivity Growth

Source: Bureau of Labor Statistics Slide8

Total Factor Productivity

Increases

Take labor and capital into account

“percentage increase in output that is not accounted for by changes in the volume of inputs of capital and labour.”

Source: Economist, 2009Slide9

Growth of Service Economy

% of Labor ForceSlide10

U.S. Productivity Gains

Services harder to make more productive

Product Development team structure (

Eg: Chrysler Prowler, Boeing 787)Facilities improvements (less WIP, better quality, flexibility)Keiretsu-like supplier cooperation -- tight cooperationSlide11

How much do we have?Slide12

Loss of capacitySlide13

How much do we have?

We can only sustain so much effort.

“Best Operating Level”

Output level process designed forLowest cost per unitCapacity utilization = capacity used best operating level

Hard to run > 1.0 for long Slide14

Hours Worked by Country

Source: OECD, 2012

AvgSlide15

Hours Worked and Productivity

Source

:

Eurofund

, European Working Conditions Observatory, 2012Slide16

Marginal Output of Time

Value of working

n

hrs is OndaAs you work more hours, your productivity per hour goes down

Eventually, it goes negative.Better to work b instead of e hrs

S.J. Chapman

,

1909, “Hours of

Labour

,” The Economic Journal 19(75) 353-373Slide17

A little too close to home?Slide18

What Would Henry Say?

Ford introduced the $5 (per day) wage in 1914

He introduced the 40 hour work week

“so people would have more time to buy”It also meant more output: 3*8 > 2*10

“Now we know from our experience in changing from six to five days and back again that we can get at least as great production in five days as we can in six, and we shall probably get a greater, for the pressure will bring better methods. Crowther, World’s Work, 1926Slide19

Toyota Capacity

1997: Cars

and

vans?

That’s crazy talkFirst time in North America292,000 Camrys89,000

Siennas89,000 AvalonsSlide20

Learning Curves

time/unit goes down consistently

Down by 10% as output doubles

We can use Logarithms to approximate thisWhat will our cost per unit be when we’ve made 10,000 units?If you ever need this, email me, and we can talk as much as you want

Also, see Appendix, Ch 4.Slide21

Economies of Scale

Cost per unit cheaper, the more you make

Fixed costs spread over more unitsSlide22

Dis-

economies of scale

Congestion, confusion, supervision

Running at 100 mph means more maintenance neededOvertime, burnout, mistakesSlide23

Example 1

Paul’s 1 2 3 4 5

Bottles 60 100 150 200 250

Bags 100 200 300 400 500

Newman’s

Bottles 75 85 95 97 98

Bags 200 400 600 650 680

Demand for each product,

by year.Slide24

Example 1

Totals 1 2 3 4 5

Bottles 135 185 245 297 348

Bags 300 600 900 1,050 1,180

bottle machines 150k/yr

Three currently = 150 * 3 = 450kbag machines 250k/

yr Five currently = 250 * 5 = 1,250kSlide25

Example 1

Bottles 135 185 245 297 348

Machines 1 2 2 2 3

Mach. usage 0.9 1.23 1.63 1.98 2.32

Workers 1.8 2.46 3.27 3.96 4.64

(2 workers per machine)

Bags 300 600 900 1,050 1,180

Machines 2 3 4 5 5Mach Usage 1.2 2.4 3.6 4.2 4.7

Workers 3.6 7.2 10.8 12.6 14.1

(3 workers per machine)Slide26

Service Differences

Can’t store the products - yesterday’s flight?

Serve me “Right Now!”

Arrival Rate very variableRates change quickly

Service times variableSchedule capacity in 10 minute intervals, not monthsHow much capacity do we need?Slide27

Capacity Levels in Service

Zone of non-service

<

Zone of service

Critical Zone

Mean service rate,



Mean

arrival

rate,



=100%

=70%

150

100

100

50Slide28

Time Horizons

Long-Range: over a year – acquiring, disposing of production resources

Intermediate Range: Monthly or quarterly plans, hiring, firing, layoffs

Short Range – less than a month, daily or weekly scheduling process, overtime, worker scheduling, etc.Slide29

Adding Capacity

Expensive to add capacity

A few large expansions are cheaper (per unit) than many small additions

Large expansions allow of “clean sheet of paper” thinking, re-design of processesCarry unused overhead for a long timeMay never be neededSlide30

Capacity Planning

How much capacity should we add?

Conservative Optimistic

Forecast possible demand scenarios (Chapter

3

)Determine capacity needed for likely levelsDetermine “capacity cushion” desiredSlide31

Capacity Sources

In addition to expanding facilities:

Two or three shifts

Outsourcing non-core activitiesTraining or acquisition of faster equipmentSlide32

Decision Trees

Consider different possible decisions, and different possible outcomes

Compute expected profits of each decision

Choose decision with highest expected profits, work your way back up the tree.Slide33

Summary

Having enough capacity is crucial

Measured productivity (single and multi-factor)

Increasing productivity key to economic growth and profitsComputed number of machines and employees neededMaking employees more productive is often cheaper than adding machines