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Supplement 7Capacity and Constraint Management

BackgroundEven though this is a supplement, it contains enough information to be treated as an independent chapter.The bottleneck analysis material itself could easily be expanded to cover a full class session, particularlyif the dice game simulation see !ctive Classroom "earning Exercises# is played. Taken together, thetools and concepts in this chapter provide the future operations manager $ith an excellent starting pointfor thinking about capacity issues.

Class Discussion Ideas

%. &ne interesting $ay to demonstrate design and effective capacity is to use the school's lecture halls asan example. (hile the design capacity is every seat full for all classes, the effective capacity isconsiderably less. This can be compared to other services such as airlines or restaurants.

). ! simple *uestion that can generate a long list of ideas is to ask the students for $ays in $hich firmscan increase capacity in the short run and the long run. (hile the distinction bet$een the short andlong run is not al$ays clear and not necessarily that important any$ay#, the follo$ing types ofans$ers might be provided. Short run+ using longer production runs implying fe$er setups, usingovertime, subcontracting, adding shifts, hiring temporary $orkers, leasing e*uipment, renting morespace, using better or faster $orkers, eliminating inefficiencies, increasing productivity, improvingbottleneck capacity, and decreasing maintenance andor eliminating inspections andoreliminatingreducing employee breaks these last three ideas may have detrimental long-run

implications#. "ong run+ purchase ne$ e*uipment, automate processes, design ne$ processes that aremore product focused, expand the permanent $orkforce, expand facilities, enter into oint ventures,and purchase merge $ith# the competition.

/. 0f the I Love Lucyvideo is sho$n see Cinematic Ticklers belo$#, 1-%2 minutes of discussion canfollo$. This clip is as much about poor management techni*ues as it is about not matching theprocess time of a station $ith the speed of incoming product. !sk students $hat $ent $rong. They'lllikely identify some of the follo$ing. There $as no training of the ne$ employees. There $as nosupervision. (e observe 3management by threat.4 The incentive $as only to $rap every candy$ithout letting any get through un$rapped, implying no *uality control and encouraging the hiding ofmistakes. There $as no employee involvement. Communication $as one $ay from the boss to the$orkers. Communication $ithin the production line $as non-existent5if the upstream station kne$$hat $as happening, it might have slo$ed do$n the line.

Active Classroom Learning Exercises

%. 6ands-&n Simulation of the ice 8ame from The GoalThe dice game in Chapter %9 in The Goal (Goldratt and Cox, Third Revised Edition, North RiverPress, 2004 can be played in the classroom $ith groups of five people. The only supplies needed aredice and 3products4 matches or pennies, for example#. The game as described during the :oy Scouthike in The Goaldemonstrates the detrimental effects of dependent events and statistical fluctuationson throughput.

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Ca!acity and Constraint "ana#e$ent

The game places five players in a ro$. The first player has an unlimited supply of ra$ materials.uring each round, player % rolls one die and moves that number of products into the ra$ materialsbo$l of player ). Then player ) rolls the die and moves the minimum of the roll and the number ofproducts in the bo$l into the ra$ materials bo$l of player /. This continues do$n the line.


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%2 years, and, if so, should building space even if empty for the time being# be built at one timeMoreover, is bigger al$ays better 6o$ many births should this hospital perform before it begins toturn customers a$ay

Cinematic Ticklers

%. I Love Lucy, The Co$!lete +econd +eason -o. +/itchin# (Lucille 1all and ivian ance,Para$ount, ori#inal airdate +e!3 5, *52This classic clip sho$s "ucy and Ethel $rapping candies on an automatic assembly line. The clipnever fails to generate laughter in the classroom. Soon after the line starts up, the $omen fall behindand start to store, hide, and eat the product to avoid letting any get through un$rapped becausethey'll be fired if that happens#. The situation only $orsens $hen the supervisor returns to observe noproblems due to hidden and destroyed candy#, so she yells out, 3Speed it up a littleD4

Jay and Barrys ! Blog

%. 6" in the Ne/s 6verca!acity &its the Euro!ean %uto "a7ersEuropean auto makers are no$ facing the dramatic issue of too much manufacturing capacity. !bout

/2 of the A European auto-assembly plants are operating belo$ 72F of their capacity.

http+hei@errenderom.$ordpress.com)2%)2B)/om-in-the-ne$s-overcapacity-hits-the-european-auto-makers

). 6" in the Ne/s &o/ %irlines "atch Ca!acity to 8e$andMany fe$er people fly in the $inter than during school breaks, maor holidays, and summervacations. 6ere $e see four suggested &M strategies that airlines can implement to break the cycle.

http+hei@errenderom.$ordpress.com)2%)2/2)om-in-the-ne$s-ho$-airlines-match-capacity-to-demand

/. 6" in the Ne/s 9hat &a!!ens 9hen 8isney, :niversal, and Le#oland Reach Ca!acityThis is an interesting story of ho$ different companies deal $ith capacity constraints. Gniversal andisney's tactics for managing operations at full capacity are described here.

http+hei@errenderom.$ordpress.com)2%)2%2%om-in-the-ne$s-$hat-happens-$hen-disney-universal-and-legoland-reach-capacity

9. 6" in the Ne/s :P+ 8rivers Pic7 :! the PaceThe 9+-Sept. %B, )2%%# describes ho$ G


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three planning hori@ons short-range, intermediate-range, and long-range#.Slides -A+ These slides define four common capacity-related terms+ desi#n ca!acity, e


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$eek period in the latter half of the month#, or even a year e.g., deep discounts at skiresorts during summertime#.

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:&TT"EIEC !I!"JS0S !I T6E T6E&?J &L C&IST?!0ITS S7-)9 through S7-/%#Slides )9-)1+ This section covers a topic often ignored in introductory operations management books but

that is crucial for anyone analy@ing processes5bottleneck analysis. Kust as a chain is notstronger than its $eakest link, a production system can produce no faster than its slo$eststation bottleneck#. Therefore, operations managers must learn to identify the bottlenecks#in a process and focus on improving its their# capacity to increase the throughput of the

entire system. 8oldratt's and Cox's popular book, The Goal % Process o< 6n#oin#I$!rove$ent, /rd rev. ed. 8reat :arrington, M!+ Iorth ?iver


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Slides )-)A+ These slides summari@e Example S9, $hich incorporates simultaneous processes. Slide )Aincludes all of the calculations, and helpfully puts the process flo$ chart at the top of theslide. The important point in this example is that the computation of throughput time doesnot involve simply adding all times in the system together. ue to simultaneous processing,the time of each path through the system must be computed5$ith the longest pathrepresenting the throughput time.

Slide /2+ This slide identifies the five steps of the theory of constraints, populari@ed in The Goal.This approach applies to managing bottlenecks and more broadly to anything that limits orconstrains an organi@ation's ability to achieve its goals.

Slide /%+ This slide identifies four principles of bottleneck management.


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produced and sold in order to start making a profit. Slide /B identifies limitations of usingthe simple linear break-even analysis approach. Slides /7 and / provide the necessaryformulas, $hich can all be derived $ith some simple algebra.

Slides /A-9%+ These slides present Example S1. Iote that the graph in Slide 9% is not presented in thetext.

Slides 9)-99+ These slides present the multiproduct break-even analysis. Slide 9) presents the formula for

the break-even point in dollars. Slides 9/ and 99 present Examples SB and S7 together.

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?EGC0I8 ?0S (0T6 0IC?EMEIT!" C6!I8ES S7-1) through S7-11#Slides 91-9A+ Slide 91 Ligure S7.B# displays the four approaches to adding ne$ capacity+ lead /ith

incre$ental ex!ansion, lead /ith one>ste! ex!ansion, la#, and straddle. The next fourslides focus on each approach individually. ! leading strategy captures all demand, but atthe cost of excess capacity for certain time periods. "eading $ith incremental expansionSlide 9B# involves less excess capacity and doesn't tie up as much money compared to aone-step expansion Slide 97#N ho$ever, economies of scale in construction and e*uipment

purchase may encourage expanding all at once. ! one-time expansion also avoids theeffects of inflation and maximi@es flexibility in output rate. ! lag strategy Slide 9# neverunderutili@es capacity, but it may be unable to capture all demand. ! straddle strategySlide 9A# attempts to minimi@e the disadvantages of the t$o extreme strategies, $hile stillretaining some of the advantages.

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as this $ith only one decision point, a decision tree see Module !# could help visually butis not necessary to conduct the analysis.

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Additional Assignment Ideas

%. Monte Carlo Simulation of the ice 8ame from The GoalThe dice game from The Goalsee !ctive Classroom "earning Exercises above# can be simulated inExcel rather easily. This exercise can be a nice opportunity for students to $ork on their Excel skillsand explore Excel's random number capabilities. The assignment demonstrates the detrimental effectsof dependent events and statistical fluctuations on throughput. Extensions include adding inventory

buffers to eliminate dependent events, using a less variable die to minimi@e statistical fluctuations,exploring $here to place the bottleneck in the production line, and examining $here to place excesscapacity in the production line. ! sample set of instructions is provided in &ther SupplementaryMaterial belo$.

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Additional Case #tudies

0nternet Case Study $$$.pearsonhighered.comhei@er#

o +outh/estern :niversity?s @ood +ervice (8+ ?e*uires the development of a multi-product break-

even solution.

6arvard Case Studies http+harvardbusinessonline.hbsp.harvard.edu#o @resh ConnectionsRB222)), ; )22/#

o AristenBs Coo7ie Co3 (% (%.rid#edRB22/7, ; )227#

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&perational 6edging!nother capacity concept is 3operational hedging,4 $hich refers to the practice of having excess capacityat plants around the $orld that is utili@ed $hen exchange rates shift favorably. !s a *uick example, acompany has a plant in both the G.S. and the G.., as $ell as demand in both countries. ! G.S.-basedshipper charges H%.22 per unit to ship bet$een the t$o countries. !ssume no taxes. Monthly demand is%2,222 units in the G.S. and ,222 units in the G.. Monthly capacity is %1,222 units in the G.S. and

%),222 units in the G.. The production cost is HB.22 in the G.S. and /.22 in the G.. sales prices areirrelevant#. (e examine three cases. Case %+ the exchange rate is H) = %. 6ere the production cost is thesame in both countries, so given the shipping cost, each country should produce its o$n demand. Case )+the exchange rate is H/ = % dollar depreciates#. !sk the students $hat they think might happen. Theproduction cost in the G.. umps to A. Thus, even $ith shipping, production in the G.S. is cheaper. TheG.S. plant should maximi@e its production at %1,222 units and ship 1,222 units to the G.. The G.. plantshould produce the remaining /,222 units for the rest of the G.. demand.


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#ample !onte Carlo #imulation Excel Assignment 1or t0e Dice 2ame in The Goal


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eliverables for


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