Capacity Management

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Capacity Management

Short and Long-Term Capacity Management
Short-Term:

You can’t always get what you want. No, you can’t always get what you want. But if you try sometimes, you just might find You get what you need. – Rolling Stones

• overtime, floating labor, added shifts • sub-contracting • workforce supplements (e.g., temps)

Intermediate Term:
• mix changes (build ahead) • efficiency improvements • marketing emphasis • product re-design

Long -Term:
• equipment additions • facility expansions • workforce policies (e.g., long -term hiring) 1 4
© Wallace J. Hopp, Mark L.Spearman, 1996, 2000

© Wallace J. Hopp, Mark L.Spearman, 1996, 2000

http://factory -physics.com

http://factory -physics.com

Hierarchical Production Planning
Marketing Parameters Product/Process Parameters FORECASTING CAPACITY/FACILITY PLANNING Capacity Plan WORKFORCE PLANNING Personnel Plan AGGREGATE PLANNING Aggregate Plan WIP/QUOTA SETTING Master Production Schedule WIP Position REAL- IME T SIMULATION Work Forecast SEQUENCING & SCHEDULING Work Schedule SHOP FLOOR CONTROL PRODUCTION TRACKING Labor Policies

Predictions and Assumptions
Demand:
• growth and mix (including international) • variability (uncertainty)

Strategy
Customer Demands DEMAND MANAGEMENT

Costs:
• building plants • operating plants

Tactics

Technological Change:
• rate (including breakthroughs) • direction

Control

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© Wallace J. Hopp, Mark L.Spearman, 1996, 2000

5 http://factory -physics.com

© Wallace J. Hopp, Mark L.Spearman, 1996, 2000

http://factory -physics.com

Capacity Management Issues
Volume:
• relative to demand • safety capacity

Predictions and Assumptions (cont.)
Competition:
• likely behavior • anticipated reactions

Timing:
• lead or follow demand • relative to process technology changes

Suppliers:
• costs • availability • partnering/contracts

Configuration:
• spatial distribution • vendoring • layout

Flexibility:
• volume (scalability) • mix (flexibility)
© Wallace J. Hopp, Mark L.Spearman, 1996, 2000

3 http://factory -physics.com
© Wallace J. Hopp, Mark L.Spearman, 1996, 2000

6 http://factory -physics.com

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Strategic Capacity Planning
Market Share:
• how much of total market to aim for? • effect on competitors

Market Share Calculation (cont.)
Example: Suppose capacity costs $1/yr for each unit of productive capacity and lost sales result in $3 per unit. Then

Timing:
• lead • match • follow

cs − c o 3 −1 = = 0. 67 cs 3
So we should choose capacity slightly above the mean forecast (which would correspond to the ratio 0.5)

Increments:
• • • • process considerations economies of scale exposure to risk defensive value 7
© Wallace J. Hopp, Mark L.Spearman, 1996, 2000

Note: This is very rough, since cs and co may change based on how much capacity is installed (e.g., economies of scale) and may be influenced by the future (e.g., failure to meet demand now may affect future sales). But it gives a rough idea of whether we should aim for a large or small capacity cushion.

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© Wallace J. Hopp, Mark L.Spearman, 1996, 2000

http://factory -physics.com

http://factory -physics.com

Strategic Capacity Planning (cont.)
Type:
• matching technology to market • flexibility

Market Share Example
Situation: In 1966 Zenith faced
• Industry sales for color TV’s had doubled each year for 3 years. • Total demand greater than 5 million annually by 1966. • • • • • Zenith had maintained a 20% market share. Capacity of 1 million/year (4,000/day) was stretched to limit. Industry demand expected to increase to 7 -10 million in next 2 years. Selling price of $370/unit. After tax profit rate of 7% of sales.

Location:
• make or buy? • expansion or new facility? • global strategy

• Proposal: expand 2 existing plants and add new plant to bring capacity to 7,300 per day. New plant would cost $6 million and would have capacity of 2,100 per day.

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© Wallace J....
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