s7 - 1 course title: production and operations management course code: mgt 362 course book:...

S7 - 1

Course Title: Production and Operations Management

Course Code: MGT 362

Course Book: Operations Management 10th Edition. By Jay Heizer & Barry Render

S7 - 2

Chapter 7S: Capacity and Constraint Management

S7 - 3

Outline

Capacity Design and Effective Capacity Capacity and Strategy Capacity Considerations Managing Demand Demand and Capacity

Management in the Service Sector

S7 - 4

Outline – Continued

Bottleneck Analysis and Theory of Constraints Process Times for Stations,

Systems, and Cycles Theory of Constraints Bottleneck Management

Break-Even Analysis Single-Product Case Multiproduct Case

S7 - 5

Outline – Continued

Reducing Risk with Incremental Changes

Applying Expected Monetary Value to Capacity Decisions

Applying Investment Analysis to Strategy-Driven Investments Investment, Variable Cost, and

Cash Flow Net Present Value

S7 - 6

Process Strategies

The objective of a process strategy is The objective of a process strategy is to build a production process that to build a production process that meets customer requirements and meets customer requirements and product specifications within cost product specifications within cost and other managerial constraintsand other managerial constraints

S7 - 7

Capacity

The throughput, or the number of units a facility can hold, receive, store, or produce in a period of time

Determines fixed costs

Determines if demand will be satisfied

Three time horizons

S7 - 8

Planning Over a Time Horizon

Figure S7.1

Modify capacity Use capacity

Intermediate-range planning

Subcontract Add personnelAdd equipment Build or use inventory Add shifts

Short-range planning

Schedule jobsSchedule personnel Allocate machinery*

Long-range planning

Add facilitiesAdd long lead time equipment *

* Difficult to adjust capacity as limited options exist

Options for Adjusting Capacity

S7 - 9

Design and Effective Capacity

Design capacity is the maximum theoretical output of a system Normally expressed as a rate

Effective capacity is the capacity a firm expects to achieve given current operating constraints Often lower than design capacity

S7 - 10

Utilization and Efficiency

Utilization is the percent of design capacity Utilization is the percent of design capacity achievedachieved

Efficiency is the percent of effective capacity Efficiency is the percent of effective capacity achievedachieved

Utilization = Actual output/Design capacity

Efficiency = Actual output/Effective capacity

S7 - 11

Bakery Example

Actual production last week = 148,000 rollsEffective capacity = 175,000 rollsDesign capacity = 1,200 rolls per hourBakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

S7 - 12

Bakery Example



S7 - 13

Bakery Example



Utilization = 148,000/201,600 = 73.4%

S7 - 14

Bakery Example



Utilization = 148,000/201,600 = 73.4%

S7 - 15

Bakery Example



Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

S7 - 16

Bakery Example



Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

S7 - 17

Bakery Example

Actual production last week = 148,000 rollsEffective capacity = 175,000 rollsDesign capacity = 1,200 rolls per hourBakery operates 7 days/week, 3 - 8 hour shiftsEfficiency = 84.6%Efficiency of new line = 75%

Expected Output = (Effective Capacity)(Efficiency)

= (175,000)(.75) = 131,250 rolls

S7 - 18

Bakery Example

Actual production last week = 148,000 rollsEffective capacity = 175,000 rollsDesign capacity = 1,200 rolls per hourBakery operates 7 days/week, 3 - 8 hour shiftsEfficiency = 84.6%Efficiency of new line = 75%

Expected Output = (Effective Capacity)(Efficiency)

= (175,000)(.75) = 131,250 rolls

S7 - 19

Capacity and Strategy

Capacity decisions impact all 10 decisions of operations management as well as other functional areas of the organization

Capacity decisions must be integrated into the organization’s mission and strategy

S7 - 20

Capacity Considerations

1. Forecast demand accurately2. Understand the technology and capacity

increments3. Find the optimum

operating level (volume)

4. Build for change

S7 - 21

Economies and Diseconomies of Scale

Economies of scale

Diseconomies of scale

25 - room roadside motel 50 - room

roadside motel

75 - room roadside motel

Number of Rooms25 50 75

Ave

rage

uni

t cos

t(d

olla

rs p

er ro

om p

er n

ight

)

Figure S7.2

S7 - 22

Managing Demand

Demand exceeds capacity Curtail demand by raising prices,

scheduling longer lead time Long term solution is to increase capacity

Capacity exceeds demand Stimulate market Product changes

Adjusting to seasonal demands Produce products with complementary

demand patterns

S7 - 23

Complementary Demand Patterns

4,000 –

3,000 –

2,000 –

1,000 –

J F M A M J J A S O N D J F M A M J J A S O N D J

Sale

s in

uni

ts

Time (months)

Jet ski engine sales

Figure S7.3

S7 - 24


4,000 –

3,000 –

2,000 –

1,000 –


Sale

s in

uni

ts

Time (months)

Snowmobile motor sales


Figure S7.3

S7 - 25


4,000 –

3,000 –

2,000 –

1,000 –


Sale

s in

uni

ts

Time (months)

Combining both demand patterns reduces the variation

Snowmobile motor sales


Figure S7.3

s7 - 1 course title: production and operations management course code: mgt 362 course book:...

Documents