operation management ch4

7/28/2019 operation management ch4

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Capacity refers to an upper limit or ceiling on the loadthat an operating unit can handle.

Short- to medium-term decisions taken to ensuresufficient capacity of the right type is available at theright time to meet demand It involves:

Measuring demand

Measuring capacity

Reconciling capacity and demand

Not long-term decisions requiring major capitalinvestment, e.g., opening new factory or new callcentre.

What is Capacity Planning &Control?


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The goal of strategic capacity planning is to achieve a

match between the long term supply capabilities of an

organization and the predicted level of long term

demand.

The reasons for capacity planning may be:

1. Changes in demand

2. Changes in technology

3. Changes in the environment, and

4. Perceived threats or opportunities.


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1. What kind of capacity is needed?2. How much is needed to match demand?

3. When it is needed?

The frequency in changes in the capacitydepends upon:

Stability of demand

The rate of technological change in the

equipment and product design


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1. Capacity decisions have a real impact on the abilityof the organization to meet future demands for

products and services.

2. Capacity decisions affect operating costs.

3. Capacity is usually a major determinant of initialcost.

4. Capacity decisions often involve long-termcommitment of resources.

5. Capacity decisions can affect competitiveness.6. Capacity affects the ease of management; having

appropriate capacity makes management easier thanwhen capacity is mismatched.


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7. Globalization has increased the importance and the

complexity of capacity decisions.

8. Become capacity decisions often involve substantial

financial and other resources.


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The purpose of planning and control is to reconcile the

supply with demand.

Supply ofproductsandservices

PlanningandcontrolDemandforproductsandservices

Theoperationsresources

Activities whichreconcilesupply &demand

Theoperationscustomers

Operations Planning & Control


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Scheduling Loading

Sequencing Monitoringand control

When todo

things?

In whatorder to

dothings?

Howmuch to

do?

Are activitiesgoing to plan?

Planning & Control Activities


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Understanding Capacity?


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Capacity management is easiest forstandardised products/services, where personal

contact is minimised! Examples?

Examples of when is it more difficult???

Capacity Management Challenges.


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Short-term/medium term operationaldecisions to ensure that the service process has sufficient resources to

deal with the anticipated levels of customer

demand in such a way that quality meets pre-settargets in the most cost-effective manner.(Johnson & Clark, 2008:275)

What happens when resources areover-stretched?

What happens when resources areunder-stretched?

Service Capacity Managementinvolves.


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Functionally capacity can be refined into twouseful definitions of capacity:

1. Design capacity: The maximum output rateor service capacity an operation, process, orfacility is designed for.

2. Effective capacity: Design capacity minusallowance such as personal time, and

maintenance.


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Effective capacity is usually less than design capacity

owing to realities of changing product mix, the need for

a periodic maintenance of equipment, and similar

circumstances. Actual output cannot exceed effective

capacity and is often less because of machine

breakdowns, absenteeism, shortages of materials, and

quality problems.

These measures are useful in defining two measures ofsystem effectiveness: Efficiency and Utilization


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Efficiency = Actual output 100%

Effective capacity

Utilization = Actual output 100%

Design capacity


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Capacity often refers to an upper limit on the rate of

input.

However, in selecting a measure of capacity, it is

important to choose one that does not require updating.

Where only one product or service is involved the

capacity of the productive unit may be expressed in

terms of that item. However, when multiple products or

services are involved as often is the case, using asimple measure of capacity based on units of output

can be misleading.


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Capacity can be refined into two usefuldefinitions:

1. Design Capacity: The maximum output rateor service capacity an operation, process, orfacility is designed for.

2. Effective Capacity: Design capacity minusallowances such as personal time, and

maintenance.


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Business Inputs Outputs

Auto ManufacturingLabour hours, machine

hoursNo. of cars per shift

Steel Mill Furnace Size Tons of steel per day

Oil Refinery Refinery Size Gallons of fuel per day

Farming No. of acres, no. of cows

Bushels of grain per acre

per year, gallons of milk

per day

RestaurantNo. of tables, seating

capacity

No. of meals served per

day

Theater No. of seatsNo. of tickets sold per

performance

Retail Sales Square feet of floor space Revenue generated per day


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the capacity of an operation that represents the

theoretical output of a process as it was designed

Utilisation Efficiency =% of time a resource orprocess is in actual use compared with its design

capacity

Actual capacity = capacity remaining after planned

outages (e.g., maintenance, training, etc) + unplanned

factors(e.g., equipment breakdown, absenteeism)capacity leakage!

Design Capacity


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What is total capacity under normal operating

conditions ? e.g. overall capacity of a call centre = No. of calls each

employee can handle per shift x no. of employees What are the operating constraints?

capacity range capacity flexibility

Is there capacity leakage?

Absenteeism High staff turnover new, less experienced staff

Understanding Resource Capacity


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What is the impact of operating at under-capacity?? Loss of revenue+

Impact on service quality SOCIAL AMBIENCE

What is the impact of operating at or near fullcapacity?? Impact on service quality?

Capacity Level & Service Quality


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Capacity Utilisation & PerceivedQuality

(Kandampully, 2000:12)


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The Coping Zone

So what is the ideal operating point?

When does the system reach Breaking Point? 70%?? 80%? 90% ..95% capacity utilisation?

Who suffers when the organisation enters the coping

zone?

Do you have any examples of positive and/or

negative coping strategies??? see Johnson &Clark, 2008, p295


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Low

High

C

ustomerperceived

q

uality

Resource utilisation100%80%

Break

pointCopin

gzone

Johnston & Clark, Service Operations Management, 2nd edition Pearson Education Limited2005Figure 8.5 The coping zone in a high-quality restaurant


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The Chase Strategy

AIM To match supply to demand as much as possible by building

flexibility into the operating system

AND

To maintain fast response times/avoid Qs

OPERATIONAL STRATEGIES: Staff scheduling to achieve flexible staffing levels

part-time working, split shifts, compulsory over-time /extent shiftlengths (see figure 8.2 in J&C)

use of subcontractors/temporary staff

How can design ofresource resilience help??[SEE Johnson & Clark, 2008:323-326 ]


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6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.0022.00

Number ofcustomers

Daily demand profile

Core shift team1 Core shift team 2

Splitshift

Splitshiftart-time

Staff scheduling

Johnston & Clark, Service Operations Management, 2nd edition Pearson Education Limited2005

Figure 8.2 Chase capacity strategy for a fast-food restaurant

Time

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operation management ch4