Chapter 11
Capacity planning and control
Source: Arup
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Capacity planning and control
Capacity planning and
control
Operations
strategy
The market requires …
the availability of products
and services
Design
The operation supplies ...
the capacity to deliver
products and services
Operations
management
Improvement
Planning and
control
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Objective
To provide an ‘appropriate’ amount of capacity
at any point in time
The ‘appropriateness’ of capacity planning in any part
of the operation can be judged by its effect on …
Costs
Revenue
Working capital
Service level
Source: British Airways London Eye
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Objectives of capacity planning and control
Measure aggregate
capacity and demand
Aggregated output
Identify the alternative
capacity plans
Choose the most
appropriate capacity
plan
Forecast demand
Estimate of current capacity
Time
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The nature of aggregate capacity
Aggregate capacity of a hotel:
– rooms per night
– ignores the numbers of guests in each room
Aggregate capacity of an aluminium producer:
– tonnes per month
– ignores types of alloy, gauge and batch
variations
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Causes of seasonality
Climatic
Festive
Behavioural
Political
Financial
Social
Source: Alamy/Medical-on-line
Construction materials
Travel services
Beverages (beer, cola)
Holidays
Foods (ice-cream, Christmas cake)
Tax processing
Clothing (swimwear, shoes)
Doctors (influenza epidemic)
Gardening items (seeds, fertilizer)
Sports services
Fireworks
Education services
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Demand fluctuations in four operations
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Good forecasts are essential for effective capacity planning …
… but so is an understanding of demand uncertainty, because it allows
you to judge the risks to service level
Only 5% chance of demand
being higher than this
DEMAND
DEMAND
Distribution of demand
Only 5% chance of demand
being lower than this
TIME
TIME
When demand uncertainty is high, the risks to service level of underprovision of capacity are high
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operating equipment effectiveness (OEE)
Not worked
(unplanned)
Loading time
Total operating time
Net operating time
Valuable
operating
time
Quality
losses
Availability
losses
Speed
losses
Availability rate = a
= total operating time/
loading time
Set-up and
changeovers
Breakdown
failure
Equipment
‘idling’
Slow-running
equipment
Quality
losses
Performance rate = p
= net operating time/
total operating time
Quality rate = q
=valuable operating time/
net operating time
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
How capacity and demand are measured
Efficiency =
Design
capacity
Planned loss
of 59 hours
Effective
capacity
168 hours
per week
Actual output
Effective capacity
109 hours
per week
Utilization=
Avoidable loss –
58 hours per
week
Actual output –
51 hours per
week
Actual output
Design capacity
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Ways of reconciling capacity and demand
Demand
Capacity
Level capacity
Demand
Capacity
Chase demand
Demand
Capacity
Demand
management
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Ways of reconciling capacity and demand
How do you cope with
fluctuations in demand?
Absorb
demand
Adjust output
to match
demand
Level capacity
Chase demand
Change
demand
Demand
management
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Absorb
demand
Have
excess
capacity
Keep output
level
Make to
stock
Part finished
Finished goods, or
Customer inventory
Source: Madam Tussaud’s
Make
customer
wait
Queues
Backlogs
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Adjust output to
match demand
Hire
Temporary labour
Overtime
Subcontract
Fire
Source: Corbis/Photocuisine
Lay-off
Short time
Third-party work
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Change
demand
Change pattern of demand
Develop alternative products
and/or services
Source: Empics
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Moving a peak in demand can make capacity planning easier
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Capacity planning and control as a dynamic sequence
of decisions
Period t – 1
Period t
Period t + 1
Current
capacity Updated
estimates forecasts
Outcome Shortages Decision
Queues
Actual
Inventory How much
demand
capacity
and actual
next
capacity
period?
Costs
Revenues
Working capital
Customer satisfaction
etc.
Current
capacity Updated
estimates forecasts
Capacity
level
Outcome Shortages Decision
Queues How much
Actual
Inventory
demand
capacity
and actual
next
capacity
period?
Costs
Revenues
Working capital
Customer satisfaction
etc.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Demand for manufacturing operation’s output
8000
Forecast in aggregated units of
output per month
7000
6000
5000
4000
3000
2000
1000
0
J
F
M
A
M
J
J
Months
A
S
O
N
D
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
For capacity planning purposes, demand is best considered
on a cumulative basis. This allows alternative capacity and
output plans to be evaluated for feasibility
Forecast cumulative aggregated
output (thousands)
60
50
40
30
20
10
0
0
40
80
120
160
Cumulative operating days
200
240
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Cumulative representations
Capacity and
demand
Cumulative demand
Building
stock
Cumulative capacity
Unable to
meet orders
Time
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Simple queuing system
Server 1
Distribution of
processing times
Distribution of
arrival times
Rejecting
Balking Reneging
Server 2
Source of
customers
Boundary
of system
Served
customers
Queue or
‘waiting line’
Server m
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Simple queuing system
Low variability –
narrow distribution
of process times
Time
High variability –
wide distribution of
process times
Time
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Capacity
The maximum level of value-added activity that an
operation, or process, or facility, is capable of over a
period of time.
Aggregated planning and control
A term used to indicate medium-term capacity planning that
aggregates different products and services together in
order to get a broad view of demand and capacity.
Design capacity
The capacity of a process or facility as it is designed to be;
often greater than effective capacity.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Effective capacity
The useful capacity of a process or operation after
maintenance, changeover and other stoppages and
loading have been accounted for.
Utilization
The ratio of the actual output from a process or facility to its
design capacity.
Overall equipment effectiveness (OEE)
A method of judging the effectiveness of how operations
equipment is used.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Level capacity plan
An approach to medium-term capacity management that
attempts to keep output from an operation or its capacity
constant, irrespective of demand.
Chase demand plan
An approach to medium-term capacity management that
attempts to adjust output and/or capacity to reflect
fluctuations in demand.
Demand management
An approach to medium-term capacity management that
attempts to change or influence demand to fit available
capacity.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Hire and fire
A (usually pejorative) term used in medium-term capacity
management to indicate varying the size of the workforce
through employment policy.
Subcontracting
When used in medium-term capacity management, a term that
indicates the temporary use of other operations to perform
some tasks, or even produce whole products or services,
during times of high demand.
Demand management
An approach to medium-term capacity management that
attempts to change or influence demand to fit available
capacity.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key Terms Test
Yield management
A collection of methods that can be used to ensure that an
operation (usually with a fixed capacity) maximizes its
potential to generate profit.
Queuing theory
A mathematical approach that models random arrival and
processing activities in order to predict the behaviour of
queuing systems (also called waiting line theory).
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007