8/21/2019 Coursework PCP
2/12
Introduction and Assumptions
This report presents the analysis of an industrial scenario and
the proposal of five different
medium term capacity plans that ensure sufficient capacity to
meet the projected customer
requirements, comparing them and selecting the one that better
fits the situation. In this
section will be presented the assumptions for the performed
study. These assumptions are:
Analysing the actual orders for the first two months (in table
1) indicates that theforecast is a little conservative. Comparing
these two months actual orders with their
forecasts a correction factor was calculated and applied for the
rest of the forecast.
The new forecast is presented in the Appendix 1.
It is assumed that there is no variation in the production
process, and that the unitsproduced by the workers meet the quality
standards.
It is assumed that the hired employees will have the same
production rate as the olderones.
It is assumed that when the overtime is required the operator
will perform it all theworking days of the month.
It is assumed that when used the agency labor, the temporary
worker will be hired forthe whole month.
The appendix 2 shows the production rates and costs of each type
of working force. The cost of keeping finished products in
inventory is 1,00 per unit per month.
Capacity Plans
There are three main types of capacity plans: level capacity,
chase demand and demand
management. The level capacity plan consists in keeping the
processing capacity constant
through the planning period while the inventory levels are
allowed to fluctuate to absorb thevariations in market demand. In
the chase demand plan the inventory levels are kept to a
minimum and the capacity is constantly adjusted in line with the
variation of the demand.
These are called pure strategies, however they are only suited
to very specific situations,
and usually the best approach is a mixed strategy, using
elements of both of them. In this
report are presented one pure level capacity plan, two pure
chase demand plans and two
mixed plans. The plan considered being the most suited for the
scenario was the plan 5, using
mixed strategy. The data of the plans and the table comparing
them is in the appendix 3 until
appendix 8.
Plan 1Level Capacity
8/21/2019 Coursework PCP
3/12
This strategy has some advantages compared to the others, like
minimizing the changes to
working force, that is kept constant, and simpler production
scheduling and ordering system.
However the inventory levels and costs are higher than in the
other plans and it is unable to
respond to sudden changes in the demand above the inventory
level. In the plan tested for the
scenario using this strategy the total cost of the plan was the
higher among the five plans,
316,710, being 51,750 just the inventory holding costs. The
average inventory level was of2156 units with a maximum of 3090 in
one month.
Plan 2 and 3Chase demand
The chase demand strategy has the advantage of keeping the
inventory levels to a minimum,
maintaining only the safety stock, and being more responsive to
demand changes. This is
particularly used in industries with high stock costs. However
the utilization of the resources
in this strategy is lower than in the level capacity one, since
the maximum production is
almost never achieved, in order to avoid creating stock. Also
the effort to schedule and recruit
are higher and the moral is lower, due to the job insecurity and
stress due overtime. The Plan
2 adopted the chase demand strategy manly by changing the
production rates, while in the
Plan 3 the tactic to chase demand was achieved by changing the
workforce size.
The Plan 2 had a considerable reduced total cost 301,206, since
the inventory costs were
only related to the 200 units in the safety stock. The direct
labor costs were higher than the
other plans, since three new employees were hired, however the
costs of changing the
workforce were not very high, since the capacity was adjusted by
changing the production
rate.
The Plan 3 had the most changes in the workforce size, in 14 of
the 24 months there was at
least one change in the workforce, costing 42,500 for all of
them. However this strategy was
more efficient in chasing the demand and had the best cost of
the pure strategies, 287,300.
Plan 4 and 5 Mix Strategies
These strategies used elements of both of the pure strategies.
In the Plan 4 instead of
leveling the capacity for the whole period of 24 months, this
period was divided into two
smaller periods, and the capacity was leveled for each of them
independently. This resulted in
smaller inventory costs by the end of the period than the pure
level capacity strategy and a
total cost of 298,466.
The Plan 5 had some advantages comparing to the other plans,
beginning with the total cost
that was the lowest of the five, 280,147. This strategy was more
similar to the chase demandstrategies, however while in the pure
chase demand strategies the actual production was
almost never equal the capacity of the period (to avoid stock)
in this plan it was allowed to
form stock at the end of each period. This way the utilization
of the workforce was always
kept to a maximum. And although the stock costs were higher than
in the chase demand
strategies, the extra stock produced each period could be used
in the next one, requiring less
changes in the workforce than in the Plan 3. In the end only 4
months required changes in the
working force and still the inventory levels were not as high as
in the level capacity strategy,
with an average of 851 units per period and a total of 20,427 of
inventory costs.
Conclusion
8/21/2019 Coursework PCP
4/12
It was observed that the best-suited plan for this scenario was
the mixed strategy plan 5. It
had the lowest cost and some advantages compared to the others
like higher utilization of the
resources, low workforce changes and not so high inventory
levels to deal with sudden
changes in the demand. It is important to notice that if the
demand continues to grow in the
way presented in this scenario in the long term it must be
necessary to make changes in the
equipment in order to have extra capacity. The machinery was
already with a utilization ofmore than 60% with 2000 units a month,
and with a demand of 2900 units a month it is
getting closer to its maximum capacity. Also since the demand is
clearly seasonal, lower in
the first months and higher in the last months of the year, some
marketing strategies might be
used to try to smooth the demand.
Appendix 1 - Forecast
Forcasting
Month
Orders
Received
Forecast
Requests Correction
1 1850 1800 1850
2 1430 1400 1430
3 1425 1400 1435
4 1875 1900 1947
5 1950 1998
6 1950 1998
7 2000 2050
8 2000 20509 2500 2562
10 2500 2562
11 2500 2562
12 2500 2562
13 1900 1947
14 1500 1537
15 1500 1537
16 2040 2091
17 2100 2152
18 2100 2152
19 2200 2255
20 2200 2255
21 2800 2869
22 2800 2869
23 2800 2869
24 2800 2869
Table 1: Forecast Correction
