Operations management
Session 4: More on Capacity
Management
More on Capacity Management
 So far, we analyzed a process given the capacity.
 Question: How much capacity do we need to meet
demand?
Session 4
Operations Management
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Capacity Requirement Example
 Kristen expects higher demand and would like to
produce 26 dozen cookie (in one-dozen order
sizes) a night.
 How many ovens and mixers does Kristen need?
 What are the utilization rates of Kristen and her
roommate?
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Capacity Requirement Example
 Total throughput rate = 26 dozen/night
= 6.5 dozen/hour
Capacity of an oven = 6 dozen/hour
Capacity of a mixer = 10 dozen/hour
  Need two ovens and one mixer
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Capacity Requirement Example
 Utilization rate of Kristen = 26*8/240 = 86.7%
 Utilization rate of Roommate = 26*4/240 = 43.3%
 What if Kristen would like to produce 36 dozen
cookie (in one dozen order) a night? Is this
possible?

Session 4
Yes, by cross-training (both Kristen and her
roommate)
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Flexibility & Capacity
 What is the capacity of Kristen and Roommate if
they were cross-trained (to do the other person’s
asks in addition to their own)?
 Time taken per person per dozen cookies=
(8+4)/2=6 min/dozen
 240/6=40 dozen/night
 Flexible equipment and cross-training enable a
higher utilization rate.
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Utilization Rate & Flexibility
 Flexible equipment: equipment that can
produce several different products efficiently.
 In the past, car manufacturers generally produced
only one car type in a factory.
 Today that is not good enough
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Utilization Rate & Flexibility
 For decades, mainstream models such as the Ford
Taurus sold in such large volumes they could
keep a plant or two running at full capacity for
years.
 Not only was the plant limited, but so was its
costly equipment, much of which had to be
scrapped when the model was dropped.
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Variety and Customization
 Growth of variety

Number of automobile lines sold in U.S.:



1971: 41
1992: 65
Total sales per model


1950 Chevy Impala: 1.5M
1990 Honda Accord: 0.5M
 To be competitive, one needs to offer consumers
many choices. This means the assembly line must
be re-thought to allow for different car models.
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What Are the Advantages and
Disadvantages of Flexibility
 Advantages:
 Disadvantages:
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What Are the Advantages and
Disadvantages of Flexibility
 Advantages:

Increasing utilization rates

GM originally produced 4 small cars in 4 facilities
 It is possible to produce this number in one flexible facility
Equipment lasts longer

Better equipped to meet changing demands

 Disadvantages:

Learning curve

Training
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Flexibility of Car
Manufacturers
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Capacity Requirement Example
 Kristen did a detailed market study and would like
to have a capacity of 26 dozen cookies (in onedozen order sizes) on Monday, Tuesday,
Wednesday, Thursday nights, and a capacity of 16
dozen on Friday, Saturday and Sunday nights.
 How many ovens and mixers does Kristen need?
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Operations Management
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Capacity Requirement Example
 Maximum throughput rate = 26 dozen/night
= 6.5 dozen/hour
Capacity of an oven = 6 dozen/hour
Capacity of a mixer = 10 dozen/hour
 Two ovens and one mixer
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Utilization Rate
 What is the utilization rate of the oven on Friday
night?

Throughput rate = 16 dozen/night
= 4 dozen/hour

Capacity of an oven = 6 dozen/hour
 Utilization Rate=
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Capacity Requirement Example
 Mattel’s demand for dolls is:

5,000,000 dolls in November

5,000,000 dolls in December

200,000 every other month.
 Each Mattel’s plant is capable of producing
500,000 dolls per month, how many plants should
Mattel build?
 Does Mattel have other alternatives?
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Capacity Requirement Example
Solution
 The demand for dolls is:

5,000,000 dolls in November

5,000,000 dolls in December

200,000 every other month.
 Each Mattel’s plant is capable of producing 500,000 dolls
per month, how many plants should Mattel build?

Max demand/ month=5,000,000 per month

If no inventory is held, need 5,000,000/500,000 plants=10 plants

100% utilization in Nov, Dec

Only 4% utilization in other months Jan-Oct
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Alternatives
 Does Mattel have other alternatives?

Building inventory





Session 4
What are the advantages?
What are the disadvantages?
No. of Plants=
Utilization per year=
Outsourcing
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Alternatives
Solution
 Does Mattel have other alternatives?

Building inventory







Session 4
What are the advantages?
What are the disadvantages?
Total Demand per year=12 million
Total Plant capacity per year=6 million/plant
No. of Plants=12/6 = 2 plants
Utilization per year= 12 million/(2*6 million) = 1= 100%
Outsourcing
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What did we learn in this
class?
 Capacity planning

Capacity requirement calculation

Flexibility/variety

Impact of randomness/variability

Smooth production/inventory
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Reminder
 Wednesday, 1/29

HW #1 due

Team name due

Solver installed on your laptop
 Monday, 2/2 Quiz #1
 Wednesday 2/4 Timeshare Exchange Fair Case due
 Monday 2/9 HW #2 due
 Wednesday 2/11 Mid Term and Little Field code due