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Strategic Capacity Management. Dr. Ron Lembke Operations Management. 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/hr. - PowerPoint PPT Presentation
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Strategic Capacity Management
Dr. Ron LembkeOperations Management
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/hr
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/hr
PRODUCTIVITY MEASUREMENTS
Productivity
Productivity = Outputs / Inputs Partial: Output/Labor or Output/Capital Multifactor:
Output / (Labor + Capital + Energy ) Total Measure:
Output / Inputs
Automotive Productivity
Book Data:Jaguar: 14 cars/employeeVolvo: 29 cars/employeeMini: 39 cars/employee
US Productivity Growth
Source: Bureau of Labor Statistics
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, 2009
Growth of Service Economy
01020304050607080
ServicesIndustryFarming
% of Labor Force
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
cooperation
U. S. Productivity Gains
Increased 1.37% per year 1990-95 Increased 2.37% per year 1995-98 Potential sources of productivity gains:
Capital investment (1.13%)Labor Quality (0.25%)Technological progress(0.99%)
Computers really are making us more productive.Source: WSJ, 8/1/00, “Further Gains in Productivity are Predicted,” A2
Improving Productivity
Develop productivity measurements– you can’t improve what you can’t measure
Identify and Improve bottleneck operations first
Establish goals, document and publicize improvements
HOURS WORKED
Hours Worked by Country
Netherl
ands
Norway
Belgium
Denmark
Luxe
mbourg
Switzerl
and
Spain
Austra
lia
Icelan
d
Portug
al
New Zela
nd
United
Stat
es
Mexico
Estonia
Poland
Hunga
ryChil
eKore
a0
500
1000
1500
2000
2500
Source: OECD, 2012
Average
Hours Worked and Productivity
Source: Eurofund, European Working Conditions Observatory, 2012
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, 1926
Forty Hour Week
Ernst Abbe, Karl Zeiss optics
1896: as much done in 9 as in 8.
Marginal Output of Time Value of working n
hrs is Onda As 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) 353-373
“Crunch Mode”
Ea_spouse: 12/04 “Pre-crunch”SO was working 7 * 13: 91 per week!Maybe time off at 6pm Saturday$5k signing bonus, couldn’t quitClass action: April ‘06 $14.9m
Igda.org “Why Crunch Mode Doesn’t Work: 6 Lessons”
Learning Curves
time/unit goes down consistently Down by 10% as output doubles We can use Logarithms to approximate this
What 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 wantAlso, see Appendix B
Example 1
Paul’s 1 2 3 4 5Bottles 60 100 150 200 250Bags 100 200 300 400 500
Newman’sBottles 75 85 95 97 98Bags 200 400 600 650 680
0
100
200
300
400
500
600
1 2 3 4 5
BottlesBags
Demand for each product,by year.
Example 1
Totals 1 2 3 4 5Bottles 135 185 245 297 348Bags 300 600 900 1,050 1,180 bottle machines 150k/yr
Three currently = 150 * 3 = 450k bag machines 250k/yr
Five currently = 250 * 5 = 1,250k
Example 1 Bottles 135 185 245 297 348Machines 1 2 2 2 3Mach. usage 0.9 1.23 1.63 1.98 2.32Workers 1.8 2.46 3.27 3.96 4.64(2 workers per machine)
Bags 300 600 900 1,050 1,180Machines 2 3 4 5 5Mach Usage 1.2 2.4 3.6 4.2 4.7Workers 3.6 7.2 10.8 12.6 14.1(3 workers per machine)
Capacity Tradeoffs
Can we make combinations in between?
150,000Two-door cars
120,0004-doorcars
How much do we have?
We can only sustain so much effort. “Best Operating Level”
Output level process designed forLowest cost per unit
Capacity utilization = capacity used best operating level Hard to run > 1.0 for long
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.
Service Differences Arrival Rate very variable Can’t store the products - yesterday’s
flight? Service times variable Serve me “Right Now!” Rates change quickly Schedule capacity in 10 minute intervals,
not months How much capacity do we need?
Capacity Levels in Service
Zone of non-service<
Zone of service
Critical Zone
Mean service rate,
Mean arrival rate,
=100%
=70%
150
100
10050
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 needed
Reengineering “Business Process Reengineering”
(Hammer and Champy) Companies grow over time, adding plants,
lines, facilities, etc. Growth may not end in optimal form Re-design processes from ground up
Capacity Planning How much capacity should we add? Conservative Optimistic
Forecast possible demand scenarios (Chapter 11)
Determine capacity needed for likely levels Determine “capacity cushion” desired
Toyota Capacity1997: Cars and vans? That’s crazy talkFirst time in North America
292,000 Camrys89,000 Siennas89,000 Avalons
Capacity Sources
In addition to expanding facilities:Two or three shiftsOutsourcing non-core activitiesTraining or acquisition of faster equipment
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.
Summary
Having enough capacity is crucial Measured productivity (single and multi-
factor) Increasing productivity key to economic
growth and profits Computed number of machines and
employees needed Making employees more productive is
often cheaper than adding machines