MGT 4700 - Operations Management
Georgia State University - Spring, 2004
Capacity and
Aggregate
Planning
Chapter 9
1
Objectives
Capacity Planning
n Aggregate Production
Planning
n Adjusting Capacity
n Demand Management
n Yield Management
n Linear Programming
n
2
Capacity Planning
n
n
n
Long-term strategic decision on
overall resources of the firm
Inadequate vs. excess capacity
How much to increase capacity
and when?
n
How much
n
n
n
When (timing)
n
Sec# 12213
Demand volume and uncertainty
Incremental vs. one-step expansion
Lead, lag, & average capacity
strategies
3
1
MGT 4700 - Operations Management
Georgia State University - Spring, 2004
Capacity Expansion
(a) Capacity lead strategy
(b) Capacity lag strategy
Capacity
Demand
Units
Units
Demand
Capacity
Time
(c) Average capacity strategy
Time
(d) Incremental vs. one-step expansion
One -step expansion
Capacity
Units
Units
Demand
Incremental
expansion
Demand
Time
Time
4
Aggregate Production
Planning (APP)
n
n
n
Determine resources required
to meet annual demand in
general terms
Establish company -wide game
plan for allocating resources
Develop economic strategy for
meeting demand
5
Inputs and Outputs
to APP
Capacity
Constraints
Aggregate
Production
Planning
Demand
Forecasts
Size of
Workforce
Strategic
Objectives
Production
per month
(in units or $)
Inventory
Levels
Company
Policies
Financial
Constraints
Units or dollars
subcontracted,
backordered, or lost
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Sec# 12213
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MGT 4700 - Operations Management
Georgia State University - Spring, 2004
Adjusting
Capacity
n
n
Demand
Units
Level
production
Chase demand
Maintaining
resources for
high demand
Production
Time
Demand
Production
Units
n
Time
7
Adjusting
Capacity
n
n
n
n
n
Overtime and undertime
Subcontracting
Part-time workers
Backordering
Mixed strategies
8
Demand Management
n
Shift demand into other
periods
n
n
n
Incentives, promotions,
advertising campaigns
Offer products or service with
counter-cyclical demand patterns
Partnering with suppliers to
reduce information distortion
along the supply chain
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Sec# 12213
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MGT 4700 - Operations Management
Georgia State University - Spring, 2004
Hierarchical Planning
Production
Planning
Capacity
Planning
Resource
Level
Product lines or
families
Aggregate
production
plan
Resource
requirements
plan
Plants
Individual
products
Master
production
schedule
Rough-cut
capacity
plan
Critical
work
centers
Components
Material
requirements
plan
Capacity
requirements
plan
Manufacturing
operations
Shop
floor
schedule
Input/
output
control
Items
All work
centers
Individual
machines
10
Aggregate Planning
for Services
n
n
n
n
n
Services can’t be inventoried
Demand for services difficult to
predict
Capacity also difficult to predict
Service capacity must be provided
at the appropriate place and time
Labor is usually the most
constraining resource for services
11
Yield Management
n
n
n
n
Attempts to find the optimal
number of rooms or seats
overbooked
Based on the probability of noshows
Matches overbooking policy to
the number of no-shows
Also used to partition demand
into different fare classes
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Sec# 12213
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MGT 4700 - Operations Management
Georgia State University - Spring, 2004
Linear Programming
n
n
Quantitative modeling technique
Helps make operational decisions
n
Production level, worker
requirements, shipment amounts,
inventory levels, …
n
Subject to limited resources
n
Driven by a common objective
n
n
n
Time, labor, materials, budgets, …
Minimizing cost
Maximizing profit
13
LP Model
n
Decision variables
n
Production levels for different
products
n
Objective function
n
Constraints
n
n
n
Profit function
Labor and material restrictions on
each of the products
Solution
n
Excel’s Solver tool
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