McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Facilities
decisions
Facilities
decisions
Aggregate
planning
Aggregate
planning
Scheduling
Scheduling
0
6
12
18
24
Months
Planning Horizon
122
Maximum output that can be produced
over a given period of time.
•
Theoretical capacity
•
Effective capacity
• Labor availability and overtime
• Physical assets, delayed maintenance, etc.
• Can be used for short-term demand spikes
• Should be used in planning
• Subtracts maintenance downtime, shift
breaks, absenteeism, etc.
123
Utilization = Actual output
Capacity
x 100%
Utilization is seldom 100%.
Estimates capacity usage and ‘busyness.’
124
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How much capacity is needed?
How large should each facility be?
When is the capacity needed?
Where should the facilities be located?
What type of facilities/capacity are needed?
125
Considers:
• Amount of capacity
• Size of capacity cushion
•
Size of facilities
• Economies/diseconomies of scale
•
Timing of facility decisions
• Preemptive, wait-and-see
•
Types of facilities
• Product-focused, market-focused, process-focused,
general-purpose
126
1.
Predicted demand
2.
Cost of facilities
3.
Likely behavior of competitors
4.
Business strategy
5.
International considerations
127

Capacity cushion = 100% – utilization

Three strategies:
1. Large cushion (e.g., make-to-order)
2. Moderate cushion (cost of running out
balanced with cost of excess capacity)
3. Small cushion (e.g., make-to-stock)
128
1.
Economies of scale
◦ Production costs are not linear
◦ Overhead spread over more units
2.
Diseconomies of scale
◦ Increased transportation costs
◦ Cost of more bureaucracy
◦ Increased organizational complexity
129
1.
Preempt the competition
◦ Build capacity ahead of need
◦ Positive capacity cushion
2.
Wait-and-see strategy
◦ Small or negative capacity cushion
◦ Lower risk strategy
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1.
Quantitative Factors
 ROI, NPV
 Transportation, Taxes
 Lead times
2.
Qualitative Factors
 Language, norms
 Worker and customer attitudes
 Proximity to customers, suppliers, competitors
1211
1.
Product-focused (55%)
 One family of products/services (e.g., computers)
2.
Market-focused (30%)
 Located near sales (e.g., electricity, bakeries)
3.
Process-focused (10%)
 Few technologies (e.g., computer chips, MRI center)
4.
General purpose (5%)
 Several products/services (e.g., furniture, banking)
1212
•
•
Matching supply & demand over a medium time
range
Time horizon of about 12 months
•
Aggregated demand for one or few categories of
product. Demand may fluctuate or be uncertain.
•
Possible to change both supply and demand
•
Variety of management objectives
•
Facilities are fixed (cannot be expanded or
reduced)
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1.
Budgeting: closely tied to aggregate plan
2.
HR: workforce availability
3.
Operations: capacity/inventory planning
4.
Accounting: cost analysis
5.
Finance: capital investments
6.
Marketing: sales plan
1214
1.
Pricing
2.
Advertising and promotion
3.
Backlogs or reservations (shift demand)
4.
Development of complementary offerings
Seasonal products/service spread demand
 Lawn mower, snow blower
 Ski resort, mountain biking
1215
1.
Share Hiring and layoff of employees
2.
Using overtime and undertime
3.
Using part-time or temporary labor
4.
Carrying inventory
5.
Outsourcing/subcontracting
6.
Cooperative arrangements
• capacity during demand peaks
• Airlines, hotels, utilities
1216
1.
Level strategy
• Constant work force
• Inventory as buffer
2.
Chase strategy
• Vary workforce
• Produce to demand
• Typical for services
1217
Chase Strategy Level Strategy
Level of labor skill required
Job discretion
Compensation rate
Training required per employee
Labor turnover
Hire-layoff cost per employee
Amount of supervision required
Type of budgeting and forecasting required
Low
Low
Low
Low
High
Low
High
Short-run
High
High
High
High
Low
High
Low
Long-run
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
Hiring and firing costs (Chase strategy)

Overtime and undertime costs (Chase)

Subcontracting costs (Chase)

Part-time labor costs (Chase)

Inventory-carrying costs (Level strategy)

Cost of stockout or back order (Level)
1219
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Facilities Decisions
Facilities Strategy
Sales & Operations Planning Definition
Cross-Functional Nature of S&OP
Planning Options
Basic Aggregate Planning Strategies
Aggregate Planning Costs
Aggregate Planning Example
1220