Capacity Management

Trade offs

• The Fresh Connection is full of trade offs– Over multiple roles and within roles– Sometimes conflicting with role incentives

Supplier mgt

Capacity mgt

Inventory mgt

Demandmgt

Capacity managementVolatility manaagment

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Production Strategies

• Four basic production strategies:– Chase (demand matching)– Level – Subcontracting– Hybrid (combination)

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Chase Strategy

J F M A M J J A S O N D

Un

its

Demand

Production

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Chase Strategy

• Advantages:– Stable inventory– Varied production to meet sales requirements

• Disadvantages:– Costs of hiring, training, overtime, and extra

shifts– Costs of layoffs and impact on employee morale– Possible unavailability of needed work skills– Capacity must match maximum demand

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Level Strategy

J F M A M J J A S O N D

Un

its

DemandProduction

Source: Arnold et al., Introduction to Materials Management, 6th ed.Reprinted by Permission of Pearson Education

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Level Strategy

• Advantages:– Avoids labor and capacity costs of demand

matching– Avoids changeover costs and lowers the average

production cost per item

• Disadvantages:– Buildup of inventory– Requires a very accurate forecast

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Meet demand by subcontracting

Subcontracting

• Advantages:– No excess capacity– Level production

• Disadvantages:– Costs of

subcontracting– Proprietary

production technology

J F M A M J J A S O N D

Unit

s

Demand

Production

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Hybrid Strategy

J F M A M J J A S O N D

Uni

ts

Demand

Production

Source: Arnold et al., Introduction to Materials Management, 6th ed.Reprinted by Permission of Pearson Education

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Hybrid Strategy: Characteristics

• Produces at or close to full capacity for part of the cycle

• Produces at a lower rate during the other part of the cycle

• Production is level in both parts of the cycle

• Inventory and workforce adjustment costs are lower than in the chase strategy

• Requires an accurate forecast as in the level strategy

Capacity management in TFC

• Subcontracting in not an option TFC• Levelling of capacity is impossible for a fresh

product• Two choices by varying the frozen period

– Chasing– Hybrid

What is the % runtime, breakdowntime, changeover time and unused for the filling line?

How can you influence breakdown and change over time?

Explore TFC

Capacity Planning Issuesin the game

Finished productComponents

Supply Production Distribution

PalletlocationsFTE

PalletlocationsFTEShifts

Improvements

What is the utilization rate per resource?

What is the overtime/overflow per resource?

What can you conclude from this?

Explore TFC

Capacity in time

Capacity required

Time

OvertimeOverflow

Idle timeUnused capacity

Resulting in• Overtime/Overflow%• Utilization rate

What is the optimal utilization rate?

Volatility of capacity required is important

Costs

Utilization rate

High volatilitycapacity required

Average volatilitycapacity required

Low volatilitycapacity required

How can you influence the volatility of capacity required?• Inbound warehousing• Production• Outbound warehousing

90%80%70%

Capacity volatility reduction

• Small batches for high volume products (orange)• Steady flow of incoming goods• Decrease demand volatility caused by production• (Increase intake time)

Raw materials warehouse

Capacity volatility reduction

• Short fixed period (bullwhip effect)• Decrease volatility caused by customer demand• Short production intervals

Production

Capacity volatility reduction

• Early order deadlines• Pallet shipments• Decrease customer demand volatility• Stable production rate

Finished goods warehouse

Utilization finished goods warehouse

Influence of overtime in TFC

• Overtime in production and warehousing will influence your costs.

• What is the other important effect of overtime?

Production reliability in the game

Production reliability

Terms of delivery

Overtime% bottling lines Availability components

Fixed period

Component stock

Overtime % bottling lines in the game

# shifts per bottling line

Overtime % bottling lines

Improve-ment projects

Past shelf lifeBottling line

Raw materials inspection

Decrease peaks