Transcript Document

MGSM890 Operations Management
Facilitator:
Dr. Jonathan Farrell
1
This Evening’s Program
• Capacity Planning & Control
–
–
–
–
Aggregate Planning
Capacity versus Demand
The Planning Process
Managing Capacity & Demand
• Case Study – British Airways London Eye (pp 393,394)
• Exercises – Capacity Management (refer to the Folder of
Readings)
2
Some Definitions
• Capacity is the available time for production and / or
the maximum number of items that can be
manufactured or delivered within a given time.
• A Bottleneck occurs when capacity is less than the
demand placed on it.
• A capacity-constrained resource (CCR) is a resource
where the capacity is close to demand placed it.
3
Capacity planning
and control
Supply
The operation
Operations resources
Demand
Availability of capacity
to deliver products and
services
Required availability
of products and
services
The market
Customer requirements
4
Capacity Planning Horizons
Long range plans
Facilities – major capital expenditures
Locations
Aggregate (Intermediate) plans
Minor equipment purchasing
Materials requirements
Work force size
Production rates
Detailed (short-term) schedules
Daily, weekly schedules
People - machine assignments
5
The Planning Process
Market Demand
Forecast
Starting Inventory
Aggregate Plans
Ending inventory
Overtime Hiring
and layoffs
Subcontracting
Actual Demand
Material
Procurement
People-Machine
Assignment
6
Causes of seasonality
Climatic
Festive
Behavioural
Political
Financial
Social
Construction materials
Travel services
Beverages (beer, cola)
Holidays
Foods (ice-cream, Christmas cake)
Tax processing
Clothing (swimwear, shoes)
Doctors (influenza epidemic)
Gardening items (seeds, fertilizer)
Sports services
Fireworks
Education services
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Not worked
(unplanned)
Loading time
Total operating time
Availability
losses
Net operating time Speed
losses
Quality
Valuable
operating time losses
Availability rate = a =
total operating time / loading time
Set-up and
changeovers
Breakdown
failure
Performance rate = p =
net operating time/total
operating time
Equipment
“idling”
Slow
running
equipment
Quality
losses
Quality rate = q =
valuable operating time / net
operating time
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Simple queuing system
Server 1
Distribution of
processing times
Distribution of
arrival times
Rejecting
Balking
Reneging
Server 2
Source of
customers
Boundary
of system
Queue or
“waiting
line”
Served
customers
Server m
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Simple queuing system
Low variability narrow
distribution of
process times
Time
High variability wide distribution
of process times
Time
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Period t
Period t - 1
Period t + 1
Current
capacity Updated
estimates forecasts
Outcome
Actual
demand
and actual
capacity
Shortages
Queues
Inventory
Costs
Revenues
Working capital
Customer satisfaction
etc
Decision
How much
capacity
next
period?
Current
capacity Updated
estimates forecasts
Capacity
level
Outcome
Actual
demand
and actual
capacity?
Shortages
Queues
Inventory
Decision
How much
capacity
next
period?
Costs
Revenues
Working capital
Customer satisfaction
etc
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Short-term
outlook
POOR
POOR
NORMAL
GOOD
Outlook < 1
Outlook = 1
Outlook > 1
Lay off staff
Delay any
action
Hire temporary
staff
Outlook < 1
Long-term
outlook
NORMAL
Short-time
Idle time
Do nothing
Outlook > 1
Outlook =
Overtime
Hire temporary
staff
Outlook = 1
GOOD
Overtime
Make for
inventory
Hire and make
for inventory
Short-time
Start to recruit
Hire staff
Forecast demand
Forecast capacity
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The nature of aggregate capacity
Aggregate capacity of a hotel:
- rooms per night;
- ignores the numbers of guests in each room.
Aggregate capacity of an aluminium producer:
- tonnes per month;
- ignores types of alloy, gauge and batch variations.
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Long-, medium- and short-term
capacity planning
6 tables
Macro
operation with
a given set of
resources
or
might produce
12 chairs
or
some
combination
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Aggregated output
Objectives of capacity planning
and control
Step 1 -
Measure aggregate
capacity and demand.
Step 2 -
Identify the alternative
capacity plans.
Forecast demand
Step 3 -
Choose the most
appropriate capacity
plan.
Estimate of current capacity
Time
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How capacity and demand are measured
Efficiency =
Planned
loss of 59
hours
Design
capacity
168 hours
per week
Effective
capacity
109 hours
per week
Utilisation =
Actual output
Effective capacity
Avoidable
loss - 58
hours per
week
Actual
output 51 hours
per week
Actual output
Design capacity
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Ways of reconciling capacity
and demand
Demand
Capacity
Level capacity
Demand
Demand
Capacity
Capacity
Chase demand
Demand
management
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Cumulative representations
Capacity and
demand
Cumulative capacity
Cumulative demand
Building
stock
Unable to
meet orders
Time
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The dynamics of controlling planning
Long-term outlook
Short-term outlook
Poor
Normal
Good
Poor
Lay off
staff
Delay
any
action
Overtime
Normal
Shorttime
working
Do
nothing
Overtime
Good
Make for
inventory
Hire and
make for
inventory
Hire staff
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The effect of utilisation on
customer service
50.0
40.0
30.0
20.0
10.0
0
0.5
0.6
0.7
0.8
0.9
1.0
Capacity Utilisation
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Alternative investments to improve
customer service
50.0
40.0
Increase capacity
30.0
20.0
10.0 Service target
0
0.5
Reduce variance
Add inventory
0.6
0.7
0.8
0.9
1.0
Capacity Utilisation
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OBJECTIVE
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
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Good forecasts are essential for effective capacity
planning.
But so is an understanding of demand uncertainty
because it allows you to judge the risks to service
level.
Only 5% chance of demand
being higher than this
DEMAND
DEMAND
Distribution of demand
Only 5% chance of demand
being lower than this
TIME
TIME
When demand uncertainty is high the risks to service level
or underprovision of capacity are high.
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It is useful to know not only the average capability of
resources but also their variation in capability
FREQUENCY
Average processing time
TIME TO PROCESS ONE UNIT OF DEMAND
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How do you cope with
fluctuations in demand?
Absorb
demand
Adjust
output to
match
demand
Change
demand
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Absorb
demand
Have
excess
capacity
Keep output
level
Make
to
stock
Part finished,
Finished Goods, or
Customer Inventory
Make
customer
wait
Queues
Backlogs
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Adjust output
to match
demand
Hire
Temporary
Labour
Overtime
Subcontract
Fire
Lay off
Short time
3rd party work
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Managing Capacity
Change Demand

Pricing

Change pattern of demand

Develop non-peak demand

Develop alternative / complementary
products and/or services

Reservation systems
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Alternative Demand Management Strategies
Approach Used
To Manage
Demand
Capacity Relative To Demand
Excess Demand
Sufficient Capacity
Take no action
Unorganised
queuing
OK
Reduce demand
Higher prices
-
Increase demand
-
-
- Reservation system
Priority for
most desirable
segments
Aim for most
profitable mix
of business
- Queuing
Override for
most desirable
segments
Try to avoid
bottleneck
delays
Excess Capacity
Capacity wasted
-
Lower prices
Inventory Demand
-
-
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Managing Capacity
Control Supply

Schedule downtime during periods of low demand

Maximise efficiency during peaks

Use part time employees

Cross-train employees

Increase consumer participation

Rent or share extra capacity

Invest in ability for future expansion
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Forecast
Demand
Actual
Demand
Replan
Capacity
Allocate
Capacity
Actual
Capacity
Refine
Forecast
Key question - “How often do you change capacity in response to
deviations from demand forecasts?”
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The tasks of capacity planning
Some key questions
Forecast Demand or
Revenue Potential
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
Do you have realistic work standards?
Do you understand the capacity
constraints of all the necessary
resources?
Allocate Resources
Over Time
What are the options for capacity
allocation?
What are their cost, revenue, work capital
and service level implications?
What are their flexibility implications?
Design “Capacity
Control” Mechanisms
Do you monitor actual demand against
forecast?
Do you adapt forecasts accordingly?
Do you replan capacity accordingly?
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Demand for manufacturing operation’s output
Forecast in aggregated units of
output per month
8000
7000
6000
5000
4000
3000
2000
1000
0
J
F
M
A
M
J
J
Months
A
S
O
N
D
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For capacity planning purposes demand is best
considered on a cumulative basis. This allows
alternative capacity and output plans to be
evaluated for feasibility.
Forecast cumulative aggregated
output (thousands)
60
50
40
30
20
10
0
0
40
80
120
160
Cumulative operating days
200
240
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Managing demand
response
POOR
SHORT
TERM
OUTLOOK
NORMAL
GOOD
P
O
O
R
LONG
TERM
OUTLOOK
N
O
R
M
A
L
G
O
O
D
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A European domestic
appliances manufacturer’s
forecast
and demand
JAN
2003
JAN
2004
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Actual demand
A European domestic
appliances manufacturer’s
forecast
and demand
JAN
2003
JAN
2004
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Capacity Utilisation &
Service Quality
•
Best operating point is around 70% of capacity for
most service delivery environments
•
The 70% factor varies varies inversely with the
degree of uncertainty and risk of delivery failure,
e.g. emergency services should aim for a lower
operating point
•
In the critical zone, what do you think happens to
service quality?
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In Summary . . .
• Manage Capacity or Manage Demand?
• What does the organisation want to achieve?
• Most organisations have a mix of both
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Exercise – Capacity Management
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Case Study –
British Airways London Eye
• What are the main design issues?
• Calculate the capacity of the London Eye
• What is the anticipated capacity utilisation? Why is it
less than 100%?
• What is the estimated revenue in the first year?
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The London Eye
•
See www.londoneye.com for extensive information about the
London Eye
•
Capacity Analysis:
–
–
–
–
The wheel rotates on full revolution / 30 minutes
32 capsules at 25 passengers / capsule
> 1,600 passengers per hour
Available hours – Summer: 10:00 to 22:00 (12 hours) x 7 days
Winter: 10:00 to 18:00 (6 hours) x 7 days
– Summer is 24 weeks, Winter is 28 weeks, closed Christmas Day
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Possible Performance Objectives
Performance objective
Design of the product /
service
Design of the process
Quality
• Exceptional aesthetics
• Strong, durable
• Good, uninterrupted views
• Unquestionably safe
• Comfortable ride (no sway)
• Resembles air travel
• Professional, smart staff
• Informative
• Capsules regularly cleaned
• Clear reservation system
Speed
• Short lead time for the design
and construction
• No long queues
• Clear, fast and fair flows
boarding / disembarking
Dependability
• Available as advertised
• Completed by target date
• Boarding as per timed ticket
• No unscheduled downtime
Flexibility
• No product flexibility reqd.
• Volume flexibility to cope with
seasonal demand
• Caters for all ages / abilities
• Individual questions answered
Cost
• Affordable, good value
• Low operating costs
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