TOPIC 6: CAPACITY MANAGEMENT 1. TO DO: Identify examples of short- and long-term capacity decisions. The ability to increase or decrease capacity can be viewed in time phases; short term and long term. Short-term planning – this is a reactive time scale and can be as immediate as adjusting capacity on the same day or on a time scale of up to around 3 months (depending on the industry) Here, only flexible resources can be applied to increase the capacity. It may be costly to the operation as the speed of readjusting the resources may be higher on short term timescales. In many cases employees are the most readily available resource. Examples of this may involve measures such as; Over time for existing staff Having multi-skilled staff that can be reallocated to where a bottle neck has occurred. An example of this could be the annoy call in a supermarket requesting, ‘all till trained staff to report to the checkout’ in order to increase the capacity for payment, where queues are backing up at the checkout. Long-term planning – this planning is a time scale beyond 12- 18 months. Here the investment decisions tend to be more significant and will link to the strategy of the operation. The changes will take a long time to implement but are also difficult to reverse. There are many more options available to consider with long term decisions relating to capacity and the possibilities for increases are far greater. They could include; New trained full time staff or fire existing staff New processes that may be faster New Machinery on a manufacturing line Information systems or technology can be applied to increase efficiency and capacity Additional facilities With each of these options the ability to utilise the adjustment 1. CAPACITY DECISIONS SHORT TERM LONG TERM Amount of overtime scheduled for the Construction of a new manufacturing next week plant Number of ER nurses on call during Expanding the size and number of a downtown festival weekend beds in a hospital Number of call center agent workers Number of branch banks to establish to staff during holiday season in a new market territory Question: How do you compute the capacity of a manufacturing or service resource? Measuring Capacity When measuring capacity the unit of measure can be either an input or an output to the process. The key is to take the most logical unit that reflects the ability of the operation to create its product or service. However, where the input is more complicated to measure, such as machine hours on a process layout, then output is a more suitable measure. The unit of time could be a minute, an hour, a day or a week, or whatever time scale fits the operation, but the unit of output and time scale needs to be consistent. Input measures of capacity When using input measures of capacity, the measure selected is defined by the key input into the process. Where the provision of capacity is fixed, it is often easier to measure capacity by inputs, for example; rooms available in a hotel or seats at a conference venue. Input measures are most appropriate for small processes or where capacity is relatively fixed, or for highly customised or variable outputs such as complicated services. Output measures of capacity The output measures count the finished units from the process such as mobile phones produced in a day or cars manufactured per week. This measure is best used where there is low variety in the product mix or limited customisation 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 𝒕𝒊𝒎𝒆 𝒂𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆 𝒕𝒊𝒎𝒆 𝒐𝒇 𝒕𝒂𝒔𝒌 Insert example* 1. Question: How do you compute safety capacity? Safety capacity (often called the capacity cushion) is an amount of capacity reserved for unanticipated events, such as demand surges, materials shortages, and equipment breakdowns. Average safety capacity (%) = 100% − Average resource utilization % [10.1] 𝑆𝑎𝑓𝑒𝑡𝑦 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 𝒕𝒉𝒆𝒐𝒓𝒆𝒕𝒊𝒄𝒂𝒍 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚 − 𝒆𝒇𝒇𝒆𝒄𝒕𝒊𝒗𝒆 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚 INSERT EXAMPLES* Using Capacity Measures for Operations Planning Capacity needs must be translated into specific requirements for equipment and labor. Example: Juan Burger Co. is building a Fast-food Counter near Cagayan National High School. The outlet will operate 16 hours per day, 360 days per year. The owners concluded that outlet should have the capacity to handle a peak hourly demand of 100 customers. This peak hour of demand happens during lunch break. The average customer purchase is: 1 pc. Hamburger or Cheeseburger (4-ounces) 1 bag of French Fries (4 ounces) 1 cup/glass 12-ounce soft drink As a result, the owners would like to determine how many grills, deep fryers, soft drink spouts are needed. A 36 X 36-inch grill cooks 48 ounces of burgers every 10 minutes, and a single-basket deep fryer cooks 2 pounds of French fries in 6 minutes, or 20 pounds per hour. Lastly, one soft drink spout dispenses 20 ounces of soft drink per minute, or 1,200 ounces per hour. These effective capacity estimates are based on the equipment manufacturer’s studies of actual use under normal operating conditions. To determine the equipment needed to meet peak hourly demand, Juan Burger must translate expected demand in terms of customers per hour into needs for grills, deep fryers, and soft drink spouts. With the above given information, compute for the number of grills, deep fryers, and soft drink spouts needed to satisfy the peak demand. ANSWER: TO DO: READ MORE ON THE FOUR BASIC STRATEGIES 1. QUESTION: WHAT IS THE THEORY OF CONSTRAINTS? The theory of constraints has as its goal maximizing flow through the entire system, which it does by emphasizing balancing the flow through the various operations. It begins with identifying the bottleneck operation. Production planning approach that emphasizes balancing flow throughout a system, and pursues a perpetual five-step improvement process centered on the system’s currently most restrictive constraint. The Theory of Constraints (TOC) is a set of principles that focuses on increasing total process throughput by maximizing the utilization of all bottleneck work activities and workstations. Throughput: amount of money generated per time period through actual sales. Constraint: anything that limits an organization from moving toward or achieving its goal. A physical constraint is associated with the capacity of a resource (e.g., machine, employee). A bottleneck work activity is one that effectively limits capacity of the entire process. A nonbottleneck work activity is one in which idle capacity exists. A nonphysical constraint is environmental or organizational (e.g., low product demand or an inefficient management policy or procedure). THE NEED FOR LOCATION DECISIONS Existing organizations may need to make location decisions for a variety of reasons. Firms such as banks, fast-food chains, supermarkets, and retail stores view locations as part of marketing strategy, and they look for locations that will help them to expand their markets. Basically, the location decisions in those cases reflect the addition of new locations to an existing system. A similar situation occurs when an organization experiences a growth in demand for its products or services that cannot be satisfied by expansion at an existing location. The addition of a new location to complement an existing system is often a realistic alternative. Some firms face location decisions through depletion of basic inputs. For example, fishing and logging operations are often forced to relocate due to the temporary exhaustion of fish or forests at a given location. Mining and petroleum operations face the same sort of situation, although usually with a longer time horizon. For other firms, a shift in markets causes them to consider relocation, or the costs of doing business at a particular location reach a point where other locations begin to look more attractive. THE NATURE OF LOCATION DECISIONS Location decisions for many types of businesses are made infrequently, but they tend to have a significant impact on the organization. In this section we look at the importance of location decisions, the usual objectives managers have when making location choices, and some of the options that are available to them. 1. Strategic Importance of Location Decisions Location decisions are closely tied to an organization’s strategies. For example, a strategy of being a lowcost producer might result in locating where labor or material costs are low, or locating near markets or raw materials to reduce transportation costs. A strategy of increasing profits by increasing market share might result in locating in high-traffic areas, and a strategy that emphasizes convenience for the customer might result in having many locations where customers can transact their business or make purchases (e.g., branch banks, ATMs, service stations, fast-food outlets). Location choices can impact capacity and flexibility. Certain locations may be subject to space constraints that limit future expansion options. Moreover, local restrictions may restrict the types of products or services that can be offered, thus limiting future options for new products or services. Location decisions are strategically important for other reasons as well. One is that they entail a long-term commitment, which makes mistakes difficult to overcome. Another is that location decisions often have an impact on investment requirements, operating costs and revenues, and operations. A poor choice of location might result in excessive transportation costs, a shortage of qualified labor, loss of competitive advantage, inadequate supplies of raw materials, or some similar condition that is detrimental to operations. For services, a poor location could result in lack of customers and/or high operating costs. For both manufacturing and services, location decisions can have a significant impact on competitive advantage. And another reason for the importance of location decisions is their strategic importance to supply chains 2. Objectives of Location Decisions As a general rule, profit-oriented organizations base their decisions on profit potential, whereas nonprofit organizations strive to achieve a balance between cost and the level of customer service they provide. It would seem to follow that all organizations attempt to identify the “best” location available. However, this is not necessarily the case. In many instances, no single location may be significantly better than the others. There may be numerous acceptable locations from which to choose, as shown by the wide variety of locations where successful organizations can be found. Furthermore, the number of possible locations that would have to be examined to find the best location may be too large to make an exhaustive search practical. Consequently, most organizations do not set out with the intention of identifying the one best location; rather, they hope to find a number of acceptable locations from which to choose. Location criteria can depend on where a business is in the supply chain. For instance, at the retail end of a chain, site selection tends to focus more on accessibility, consumer demographics (population density, age distribution, average buyer income), traffic patterns, and local customs. Businesses at the beginning of a supply chain, if they are involved in supplying raw materials, are often located near the source of the raw materials. Businesses in the middle of the chain may locate near suppliers or near their markets, depending on a variety of circumstances. For example, businesses involved in storing and distributing goods often choose a central location to minimize distribution costs. Web-based retail businesses are much less dependent on location decisions; they can exist just about anywhere. STRATEGIC RESOURCE ORGANIZATION: FACILITIES LAYOUT Layout refers to the configuration of departments, work centers, and equipment, with particular emphasis on movement of work (customers or materials) through the system. This section describes the main types of layout designs and the models used to evaluate design alternatives. As in other areas of system design, layout decisions are important for three basic reasons: (1) They require substantial investments of money and effort; (2) They involve long-term commitments, which makes mistakes difficult to overcome; and (3) They have a significant impact on the cost and efficiency of operations. The need for layout planning arises both in the process of designing new facilities and in redesigning existing facilities. The most common reasons for redesign of layouts include inefficient operations (e.g., high cost, bottlenecks), accidents or safety hazards, changes in the design of products or services, introduction of new products or services, changes in the volume of output or mix of outputs, changes in methods or equipment, changes in environmental or other legal requirements, and morale problems (e.g., lack of face-to-face contact). Poor layout design can adversely affect system performance. For example, a change in the layout at the Minneapolis–St. Paul International Airport solved a problem that had plagued travelers. In the former layout, security checkpoints were located in the boarding area. That meant that arriving passengers who were simply changing planes had to pass through a security checkpoint before being able to board their connecting flight, along with other passengers whose journeys were originating at Minneapolis–St. Paul. This created excessive waiting times for both sets of passengers. The new layout relocated the security checkpoints, moving them from the boarding area to a position close to the ticket counters. Thus, the need for passengers who were making connecting flights to pass through security was eliminated, and in the process, the waiting time for passengers departing from Minneapolis–St. Paul was considerably reduced. The basic objective of layout design is to facilitate a smooth flow of work, material, and information through the system. Supporting objectives generally involve the following: 1. To facilitate attainment of product or service quality. 2. To use workers and space efficiently. 3. To avoid bottlenecks. 4. To minimize material handling costs. 5. To eliminate unnecessary movements of workers or materials. 6. To minimize production time or customer service time. 7. To design for safety. The three basic types of layout are product, process, and fixed-position. Product layouts are most conducive to repetitive processing, process layouts are used for intermittent processing, and fixed-position layouts are used when projects require layouts. The characteristics, advantages, and disadvantages of each layout type are described in this section, along with hybrid layouts, which are combinations of these pure types. These include cellular layouts and flexible manufacturing systems. 3. The four (4) major layout patterns 1. Product layout - Layout that uses standardized processing operations to achieve smooth, rapid, high-volume flow. Product layouts are used to achieve a smooth and rapid flow of large volumes of goods or customers through a system. This is made possible by highly standardized goods or services that allow highly standardized, repetitive processing. The work is divided into a series of standardized tasks, permitting specialization of equipment and division of labor. The large volumes handled by these systems usually make it economical to invest substantial sums of money in equipment and job design. Because only one or a few very similar items are involved, it is feasible to arrange an entire layout to correspond to the technological processing requirements of the product or service. The main advantages of product layouts are: A high rate of output. Low unit cost due to high volume. The high cost of specialized equipment is spread over many units. Labor specialization, which reduces training costs and time, and results in a wide span of supervision. Low material-handling cost per unit. Material handling is simplified because units follow the same sequence of operations. Material handling is often automated. A high utilization of labor and equipment. The establishment of routing and scheduling in the initial design of the system. These activities do not require much attention once the system is operating. Fairly routine accounting, purchasing, and inventory control. The primary disadvantages of product layouts include the following: The intensive division of labor usually creates dull, repetitive jobs that provide little opportunity for advancement and may lead to morale problems and to repetitive stress injuries. Poorly skilled workers may exhibit little interest in maintaining equipment or in the quality of output. The system is fairly inflexible in response to changes in the volume of output or changes in product or process design. The system is highly susceptible to shutdowns caused by equipment breakdowns or excessive absenteeism because workstations are highly interdependent. Preventive maintenance, the capacity for quick repairs, and spare-parts inventories are necessary expenses. Incentive plans tied to individual output are impractical since they would cause variations among outputs of individual workers, which would adversely affect the smooth flow of work through the system. Production line Standardized layout arranged according to a fixed sequence of production tasks. Assembly line Standardized layout arranged according to a fixed sequence of assembly tasks. 2. Process layouts- Layouts that can handle varied processing requirements. Process layouts (functional layouts) are designed to process items or provide services that involve a variety of processing requirements. The variety of jobs that are processed requires frequent adjustments to equipment. This causes a discontinuous work flow, which is referred to as intermittent processing. The layouts feature departments or other functional groupings in which similar kinds of activities are performed. A manufacturing example of a process layout is the machine shop, which has separate departments for milling, grinding, drilling, and so on. Items that require those operations are frequently moved in lots or batches to the departments in a sequence that varies from job to job. Consequently, variable-path material-handling equipment (forklift trucks, jeeps, tote boxes) is needed to handle the variety of routes and items. The use of general-purpose equipment provides the flexibility necessary to handle a wide range of processing requirements. Workers who operate the equipment are usually skilled or semiskilled. Figure 6.6 illustrates the departmental arrangement typical of a process layout. Process layouts are quite common in service environments. Examples include hospitals, colleges and universities, banks, auto repair shops, airlines, and public libraries. For instance, hospitals have departments or other units that specifically handle surgery, maternity, pediatrics, psychiatric, emergency, and geriatric care. And universities have separate schools or departments that concentrate on one area of study such as business, engineering, science, or math. Because equipment in a process layout is arranged by type rather than by processing sequence, the system is much less vulnerable to shutdown caused by mechanical failure or absenteeism. In manufacturing systems especially, idle equipment is usually available to replace machines that are temporarily out of service. 3. Fixed-position layout - Layout in which the product or project remains stationary, and workers, materials and equipment are moved as needed. In fixed-position layouts, the item being worked on remains stationary, and workers, materials, and equipment are moved about as needed. This is in marked contrast to product and process layouts. Almost always, the nature of the product dictates this kind of arrangement: Weight, size, bulk, or some other factor makes it undesirable or extremely difficult to move the product. Fixed-position layouts are used in large construction projects (buildings, power plants, dams), shipbuilding, and production of large aircraft and space mission rockets. In those instances, attention is focused on timing of material and equipment deliveries so as not to clog up the work site and to avoid having to relocate materials and equipment around the work site 4. Cellular production- Layout in which workstations are grouped into a cell that can process items that have similar processing requirements. Cellular production is a type of layout in which workstations are grouped into what is referred to as a cell. Groupings are determined by the operations needed to perform work for a set of similar items, or part families, which require similar processing. The cells become, in effect, miniature versions of product layouts. The cells may have no conveyor zed movement of parts between machines, or they may have a flow line connected by a conveyor (automatic transfer). All parts follow the same route, although minor variations (e.g., skipping an operation) are possible. In contrast, the functional layout involves multiple paths for parts. Moreover, there is little effort or need to identify part families. Cellular manufacturing enables companies to produce a variety of products with as little waste as possible. A cell layout provides a smooth flow of work through the process with minimal transport or delay. Benefits frequently associated with cellular manufacturing include minimal work in process, reduced space requirements and lead times, productivity and quality improvement, and increased flexibility. 5. Facility layout in service organizations Service facility layouts are often categorized under three heads, which are: ➢ €Product layout: This type of layout is used only in cases where services are organized in a sequence. ➢ €Process layout: These layouts are highly common in service facilities as they successfully deal with the varied customer processing requirements. ➢ €Fixed position layout: In this type of service layout, materials, labour and equipment are brought to the customer’s place. This layout is used in services like appliance repair, landscaping, home remodeling, etc. Types of Service Facility Layouts Warehouse and storage layouts: The layouts of warehouse and storage facilities are designed by considering the frequency of order. Items that are ordered frequently are placed near the facility entrance. However, items that are not ordered frequently are placed at the rear of the facility. Apart from this, correlation between two merchandises is also important while designing a layout for a warehouse and storage facility. Retail layouts: A retail store layout refers to a systematic arrangement of merchandise groups within a store. A well-planned retail store layout provides a description of the size and location of each department of the store, fixture locations, and traffic patterns. It also helps consumers find products of their choice in a short time. Different retail layouts are: ➢ Grid layout ➢ Free-form layout ➢ Loop layout ➢ Spine layout Office layouts: Designing of office layouts is witnessing revolutionary changes as paperwork is now replaced with different modes of electronic communications. Today, office layouts focus more on creating an image of openness. Low-rise partitions are preferred between departments to facilitate easy communication among workers 6. Designing product layout- Product layouts in flow shops generally consist of a fixed sequence of workstations. Workstations are generally separated by buffers (queues of work-in-process) to store work waiting for processing, and are often linked by gravity conveyors (which cause parts to simply roll to the end and stop) to allow easy transfer of work. Such product layouts, however, can suffer from two sources of delay: flow-blocking delay and lack-of-work delay. Flow-blocking delay (or blocking delay) occurs when a work center completes a unit but cannot release it because the in-process storage at the next stage is full. The worker must remain idle until storage space becomes available. Lack-of-work delay occurs whenever one stage completes work and no units from the previous stage are waiting processing. Lack-of-work delay is often described as “starving” the immediate successor workstation. Such delays cause bottlenecks, which we defined in Chapter 7, limiting the throughput of the entire process. It is important to identify any bottlenecks if process improvements are to be made. These sources of delay can be minimized by attempting to “balance” the process by designing the appropriate level of capacity at each workstation. This is often done by adding additional workstations in parallel. Product layouts might have workstations in series, in parallel, or in a combination of both. Thus, many different configurations of workstations and buffers are possible, and it is a challenge to design the right one. An important type of product layout is an assembly line. An assembly line is a product layout dedicated to combining the components of a good or service that has been created previously. Assembly lines were pioneered by Henry Ford and are vital to economic prosperity and are the backbone of many industries such as automobiles and appliances; their efficiencies lower costs and make goods and services affordable to mass markets. Assembly lines are also important in many service operations such as processing laundry, insurance policies, mail, and financial transactions Assembly-Line Balancing -The sequence of tasks required to assemble a product is generally dictated by its physical design. Clearly, you cannot put the cap on a ballpoint pen until the ink has been inserted. However, for many assemblies that consist of a large number of tasks, there are many ways to group tasks together into individual workstations while still ensuring the proper sequence of work. Assemblyline balancing is a technique to group tasks among workstations so that each workstation has—in the ideal case—the same amount of work. Assembly-line balancing focuses on organizing work efficiently in flow shops. 7. Designing process layoutsIn designing process layouts, we are concerned with the arrangement of departments or work centers relative to each other. Two major approaches are commonly used. The first focuses on the costs associated with moving materials or the inconvenience that customers might experience in moving between physical locations. This approach is widely used in manufacturing. In general, work centers with a large number of moves between them should be located close to one another. This approach usually starts with an initial layout and data on the historical or forecasted volume between departments and the materialshandling costs. The centroid of each department, which is the geometric center of the shape, is used to compute distances and materials-handling costs for a particular layout. In an effort to improve the current solution, exchanges between the locations of two or three departments at a time are made, and the new total cost is calculated. If the total cost has been reduced, then this solution is used to examine other location changes in an effort to reduce the total cost. The second approach is used when it is difficult to obtain data on costs or volumes moved between departments. This approach is useful in many service applications such as offices, laboratories, retail stores, and so on. Rather than using materials-handling costs as the primary criterion, the user constructs a preference table that specifies how important it is for two departments to be close to one another. An example of such “closeness ratings” follows: A Absolutely necessary B Especially important C Important D Ordinary closeness okay E Unimportant F Undesirable Using these ratings, the approach attempts to optimize the total closeness rating of the layout. Computer graphics and design software are providing a major advance in layout planning. They allow interactive design of layouts in real time and can eliminate some of the disadvantages, such as irregularly shaped departments, that often result from manual design on a block grid. Despite the capabilities of the computer, no layout program will provide optimal solutions for large, realistic problems. Like many practical solution procedures in management science, they are heuristic; that is, they can help the user to find a very good, but not necessarily the optimal, solution 8. Workplace designKey questions that must be addressed in designing the workplace include: 1. Who will use the workplace? Will the workstation be shared? How much space is required? Workplace designs must take into account different physical characteristics of individuals, such as differences in size, arm length, strength, and dexterity. For offices, layouts range from open formats to encourage collaboration and relationship building to isolated cubicles and offices with walls and few windows. As described in Chapter 5, defining the office service escape and service-encounter design are also important. 2. How will the work be performed? What tasks are required? How much time does each task take? How much time is required to set up for the workday or for a particular job? How might the tasks be grouped into work activities most effectively? This includes knowing what information, equipment, items, and procedures are required for each task, work activity, and job. 3. What technology is needed? Employees may need to use a computer or have access to customer records and files, special equipment, intercoms, tablets, and other forms of technology. 4. What must the employee be able to see? Employees might need special fixtures for blueprints, test procedures, sorting paper, antiglare computer screens, and so on. 5. What must the employee be able to hear? Employees may need to communicate with others, wear a telephone headset all day, be able to listen for certain sounds during product and laboratory testing, or be able to hear warning sounds. 6. What environmental and safety issues need to be addressed? What protective clothing or gear should the employee wear? What is an acceptable noise level? Are all employees trained on emergency evacuation procedures and plans? To illustrate some of these issues, let us consider the design of the pizza-preparation table for a pizza restaurant. The objective of a design is to maximize throughput—that is, the number of pizzas that can be made—minimize errors in fulfilling customer orders; and minimize total flow time and customer waiting and delivery time. In slow-demand periods, one or two employees may make the entire pizza. During periods of high demand, such as weekends and holidays, more employees may be needed. The workplace design would need to accommodate this. 9. The Human Side of Work – Job Design The physical design of a facility and the workplace can influence significantly how workers perform their jobs as well as their psychological well-being. Thus, operations managers who design jobs for individual workers need to understand how the physical environment can affect people. A job is the set of tasks an individual performs. Job design involves determining the specific job tasks and responsibilities, the work environment, and the methods by which the tasks will be carried out to meet the goals of operations. Two broad objectives must be satisfied in job design. One is to meet the firm’s competitive priorities—cost, efficiency, flexibility, quality, and so on; the other is to make the job safe, satisfying, and motivating for the worker. Resolving conflicts between the need for technical and economic efficiency and the need for employee satisfaction is the challenge that faces operations managers in designing jobs. Clearly, efficiency improvements are needed to keep a firm competitive. However, it is also clear that any organization with a large percentage of dissatisfied employees cannot be competitive. What is sought is a job design that provides for high levels of performance and at the same time a satisfying job and work environment. This is true for manufacturing jobs such as working on an assembly line, as well as for service jobs such as working in a lawyer’s office or medical clinic. The relationships between the technology of operations and the social/psychological aspects of work have been understood since the 1950s. It is known as the sociotechnical approach to job design and provides useful ideas for operations managers. Sociotechnical approaches to work design provide opportunities for continual learning and personal growth for all employees. Job enlargement is the horizontal expansion of the job to give the worker more variety— although not necessarily more responsibility. Job enlargement might be accomplished, for example, by giving a production-line worker the task of building an entire product rather than a small subassembly, or by job rotation, such as rotating nurses among hospital wards or flight crews on different airline routes.