Chapter 8
Capacity Management through
Location and Scheduling
Copyright 2013 John Wiley & Sons, Inc.
Overview
8-2
Introduction
• Capacity represents the rate at which a
transformation system can create outputs
• Capacity planning applies to both
manufacturing and service organizations
• Capacity options can be categorized as
short-term or long-term
– Changing staffing level is short-term
– Building new building is long-term
8-3
Introduction (Continued)
• Shorter product life cycles add further
complications
• Volatile demand can further complicate
capacity planning
• Capacity and location are important
elements of a competitive strategy
• Capacity planning decisions are driven
by projected demand estimates
8-4
Long-Term Capacity Planning
• Capacity and location decisions are
highly strategic because they are very
expensive investments
• Once made, capacity and location
decisions are not easily changed or
reversed
• These decisions must be carefully and
thoroughly analyzed beforehand
8-5
Capacity Considerations
• Capacity measures must include a time
dimension
• Capacity planning must consider the capacity
to produce multiple outputs
• Having adequate capacity is clearly a generic
problem
– It is common to all types of organizations
• In pure service organizations capacity is a
special problem because the output cannot
normally be stored for later use
8-6
Capacity Considerations (Continued)
• A variety of restrictions can limit capacity
– Fast-food restaurant may be limited by ordertakers, number of cooks, machinery, space in
restaurant, and so on
– Limiting factors are bottlenecks
• Often there are natural loses (waste, scrape,
defects) that limit capacity
• Demand (and therefore capacity needs) may be
a function of where the facility is located
8-7
Capacity Planning Strategies
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•
•
•
Facility size planning
Economies of scale and scope
Capacity planning for multiple outputs
Timing of capacity increments
Slides on each of these
8-8
Facility Size Planning
• When plants are operated at their lowestcost production level, larger facilities
will have lower costs
• Known as economies of scale
• If production is at lower level, the
advantage of a larger facility may be lost
8-9
Envelope of Lowest Unit Output
Costs with Facility Size
Figure 8.1
8-10
Economies of Scale and Scope
• Obtaining lower costs through larger
facilities is known as economies of scale
– Spreads fixed costs over larger volumes
• There are limits to this benefit
• The use of advanced, flexible
technologies is economies of scope
– Spreads fixed costs over a wide variety of
outputs
8-11
Capacity Planning for Multiple
Outputs
• May also need to contract capacity
– Divesture, lay offs, outsourcing, selling equipment
• Try to contract only inefficient or
inappropriate capacity
• May adopt anticyclic output
– An output counter to the normal cycle of their
business
• Organizations add to their mix outputs that are
anticyclic to existing output life cycles
8-12
Timing of Capacity Increments
Figure 8.4
8-13
Location Planning Strategies
•
•
•
Need to look at the most economical way to
obtain the inputs need and deliver outputs
Includes determining the location of the
facility relative to suppliers and customers
Capacity and location planning decisions are
considered simultaneously
8-14
Location Planning Strategies
• Divided into three stages
1. Regional
2. Community
3. Site
• For services, only the site selection
stage may be relevant
• Tend to already be focused on a
specific region and community
8-15
Capabilities and the Location
Decision
• Often driven too much by short-term
considerations
– Wage rates
– Exchange rates
• Better approach is to consider how
location impacts development of longterm capabilities
8-16
Six Step Process to Leverage the
Location Decision
1. Identify sources of value
2. Identify capabilities needed
3. Assess implications of location decision on
development of capabilities
4. Identify potential locations
5. Evaluate locations
6. Develop strategy for building network of
locations
8-17
Stage 1: Regional-International
• Minimize transportation costs and
provide acceptable service
• Proper supply of labor
• Wage rates
• Unions (right-to-work laws)
• Regional taxes, regulations, trade
barriers
• Political stability
8-18
Stage 2: Community
•
•
•
•
•
•
Availability of acceptable sites
Local government attitudes
Regulations, zoning, taxes, labor supply
Tax Incentives
Community’s attitude
Amenities
8-19
Breakeven Location Model
Figure 8.5
8-20
Stage 3: Site
•
•
•
•
•
•
•
Size
Adjoining land
Zoning
Drainage
Soil
Availability of water, sewers, utilities
Development costs
8-21
Weighted Score Model
8-22
Example Data
Table 8.2
8-23
Comparison of Site Factors by the
Weighted Score Method
Table 8.3
8-24
Locating Pure Services
•
Recipient to facility
1. Facility utilization
2. Travel distance per citizen
3. Travel distance per visit
•
Facility to recipient
1. High-density demand for services
2. Widely distributed demand for services
8-25
Effectively Utilizing Capacity
Through Schedule Management
• Capacity is closely tied to scheduling
• Poor scheduling may result in a capacity
problem
• Capacity is oriented primarily towards
the acquisition of productive resources
• Scheduling concerns the timing of their
use
• It is difficult to separate the two
8-26
Sequential Operations Required
for Two Jobs
Table 8.5
8-27
Gantt Charts for Capacity
Planning and Scheduling
Figure 8.6
8-28
Schedule Management
• Result of managerial iteration and changes to
aggregate plan
• Often disaggregated one level into major
output groups
– Aggregate Plan: number of automobiles to be
produced in each of the upcoming 12 months
– Production Plan: number of compacts, mid-size,
full-size, light trucks, and minivans to produce in
each of the upcoming 12 months
8-29
The Master Schedule (MPS)
1. Point where actual orders incorporated
into scheduling system
2. Aggregate outputs broken down into
individual end items
8-30
Check for the Following Problems
•
•
•
•
•
•
•
Does schedule meet production plan?
Does schedule meet demand forecasts?
Are there priority or capacity conflicts?
Are other constraints violated?
Does schedule conform to policy?
Does schedule conform to laws and rules?
Does schedule provide flexibility?
8-31
Rough-Cut Capacity Planning
• Feasibility check of master production
schedule
• Historical ratios of loads placed on
workcenters used
• Workloads assumed to fall in period end
items demanded
8-32
Priority Planning
• What materials are needed when
• Feasibility check of master production
schedule to make sure all materials will
be available when needed
• Determine when order is needed and
schedule backwards from that date
• Material requirements planning (MRP)
systems often used
8-33
Capacity Requirements Planning
(CRP)
• Inventory control system and master
schedule used to determine required
capacity over planning horizon
• Load reports generated for each work
center
• Inventory and lead times considered
8-34
Loading and Sequencing
• Loading
– Deciding which jobs to assign to which work
centers
– Often some equipment or workers better for certain
jobs
• Sequencing
– After jobs assigned to work centers, order in which
to process the jobs must be decided
– Sequencing can have impact on timeliness of job
completions
– Priority rules often used
8-35
Detailed (Short-Term) Scheduling
• Detailed schedules itemizing specific
jobs, times, materials developed
• Typically done for only a few days in
advance
8-36
Dispatching and Expediting
• Dispatching
– All previous activities are planning
activities
– Dispatching is the physical release of a
work order from production planning
• Expediting
– Task of getting job done on time once it is
released to the shop floor
– Special tags used to identify hot jobs
8-37
Scheduling Services
• Many operations where scheduling the job is
inappropriate or impossible
• Must schedule inputs
• Staff, material, or facilities are scheduled to
match demand
• In scheduling jobs, wish to minimize late jobs
• In scheduling resources, may be more criteria
of interest
8-38
Approaches to Resource
Scheduling
• Primary approach is to schedule resources to
match demand
• Methods of increasing resources for peak
demand include overtime, part-time workers,
and leasing equipment
• If different areas have different demand, may
use floating workers
• May use technology to deliver parts of service
• May use off-peak pricing
8-39
Yield/Revenue Management
and Overbooking
• Attempt to allocate the fixed capacity of
a service to match the revenue demand
in the market place
• Also called revenue management
• Used in services that hold a fixed
capacity for revenue-producing
customers
8-40
When is Yield Management
Appropriate?
1.
2.
3.
4.
5.
6.
Fixed capacity
Perishable capacity
Segmentable market
Capacity sold in advance
Uncertain demand
Low marginal sales cost, high marginal
capacity addition cost
8-41
Overbooking
• An attempt to reduce costs through
better schedule management
• Based on inventory solution for the
“newsboy problem”
• Used to manage no-shows
8-42
Demand for Flights
Table 8.6
8-43
Demand Probabilities with
Reservations
Table 8.7
8-44
Expected Profit with 31 and 32
Reservations
Tables 8.8 and 8.9
8-45
Short Term Capacity Planning
• Primarily related to issues of…
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–
–
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Scheduling
Labor shifts
Balancing of resource capacities
Other such issues
• Not usually related to location decisions
8-46
Process-Flow Analysis
• Utilization is the actual output relative to
some expected rate
• Efficiency is output divided by input
• Bottlenecks are places where production
slows down
– Fixing bottleneck usually only marginally
improves output
– Floating bottlenecks
8-47
King Sports Product Process
Figure 8.8
8-48
Return to King for using
more Machines
Table 8.12
8-49
Efficiency and Output Increase
when Machines are Being Added
Figure 8.9
8-50
Product and Service Flows
• Purpose of conducting a process-flow
analysis is to identify bottlenecks,
inventory buildup points, and time
delays
– Also known as mapping or blueprinting
• Crucially important in determining the
capacity
8-51
Process Flow Map for a Service
Figure 8.11
8-52
Short-Term Capacity Alternatives
•
•
•
•
•
Increase Resources
Improve Resource Use
Modify the Output
Modify the Demand
Do Not Meet Demand
8-53
Capacity Planning for Services
• Large fluctuations in demand
• Inventory often not an option
• Problem often is to match staff
availability with customer demand
• May attempt to shift demand to off-peak
periods
• Can measure capacity in terms of inputs
8-54
The Learning Curve
• Learning curve is an extremely important
aspect of capacity planning
• Learning curve effect is the ability of humans
to increase their productivity through learning
• Particularly important in new and unfamiliar
processes
• Each time the output doubles, the labor hours
decrease to a fixed percentage of their
previous value
8-55
Learning Curve Function
8-56
80 Percent Learning Curve for
Airplane Production
Figure 8.13
8-57
Queuing and the Psychology
of Waiting
• An important element of capacity concerns
waiting lines that build up in front of
operations
– Also known as queues
• Queuing theory provides a mechanism to
determine several key performance measures
of an operating system
• Wiley Web site has a discussion of the theory,
equations, and some example calculations
8-58
Services and Queuing
• Variability is higher because of both the
variable human input and variable
requirements for services
• Additionally, items in queue are people
• Customers are unhappy when they must
wait
• Must provide adequate service to
prevent long queues
8-59
The Relevant Queuing Costs
Figure 8.15
8-60
Principles of Waiting
1. Unoccupied time feels longer than
occupied time
2. Pre-service waiting feels longer than
in-service waiting
3. Anxiety makes waiting seem longer
4. Uncertain waiting is longer than
known, finite waiting
8-61
Principles of Waiting (Continued)
5. Unexplained waiting is longer than
explained waiting
6. Unfair waiting is longer than fair
waiting
7. Solo waiting is longer than group
waiting
8. The more valuable the service, the
longer it is worth waiting for
8-62