Capacity Management Flashcards
What is Capacity Management, overcapcity and undercapcity?
Capacity management: aims to maximise the returns an organisation achieves on the assets and systems it uses.
Overcapacity: resources available for production are not fully utilised.
Undercapacity: more production is being demanded than is able to be produced
How might capcity be measured?
Capacity might be measured either in terms of input resources available or in terms of output produced. Where output produced is non-standard, any capacity measurement based on output will have to use an average measure.
Commonly, one or more parts of an operation will work at their capacity limit. The parts of an operation working at their capacity limit represent the operation’s capacity constraints.
Capacity constraints cause bottlenecks in the work flow and result in unsatisfied demand.
What issues are there in balancing capacity and demand?
How might one resolve this?
- Uncertainties in demand: due to the unpredictable nature of customers and require flexible planning and control.
- Dependant (predictable) demand: dependent demand is based on known factors and describes predictable demand.
- Materials requirement planning (MRP)
Capacity planning and control: aims to balance the capacity of an operation with the demand from customers. It involves:
- Planning the normal capacity of the operation
- Reacting to changes in demand
What Planning and Control Activities are there?
To balance capacity and demand:
- Loading: the amount of work allocated to an operating unit
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Sequencing: sequencing descries the order in which different jobs are to be done and the order in which different orders are to be fulfilled. The basis for sequencing may be:
- Customer priority
- Due date
- Last in first out
- First in first out (for example perishable goods)
- Longest operation time first
- Shortest operation time first
- Scheduling: schedules are detailed timetables specifying the time that jobs should be started and when they should end. In operations where demand is unpredictable, scheduling is impractical and the operation must simply react to orders as they arrive
- Monitoring and controlling: management must monitor the operation to make sure that the work is proceeding as planned
What is a push and pull control?
Push control: the focus is on pushing work through each stage of the process, regardless of whether the next stage is ready to receive it.
Pull control: the work is not delivered from the previous process until it is needed. With pull control, there should be less inventory in the system.
How might demand be forecasted?
In most organisations, the sales and marketing department is responsible for forecasting demand. The following methods can be used to help forecast demands:
- Delphi technique – a panel of experts develop an expert opinion poll and are repeatedly questioned on similar topics. They are then provided with feedback from each other until consensus is reached
- Regression analysis – a way of mathematically identifying which variables have the most impact
- Customer surveys – based on all customers or just a sample can be used to judge their future demand
- Statistical analysis – can be used to estimate future demand from past actual data
How might one plan future capacity?
- Level Capacity Plan: a plan to maintain activity at a constant level over the planning period and ignore fluctuations in forecast demand. In a manufacturing operation, when demand is lower than capacity the operation will produce goods for inventory (storage).
- Chase Demand Plan: aims to match capacity to forecasted fluctuations in demand. Staff and other resources must be flexible.
- Demand Management Planning: aims to reduce peak demand by switching it to the off-peak periods. A common approach to managing demand is through price discrimination.
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Yield Management: A yield management approach is appropriate where:
- Short-to medium-term capacity is constant
- The market can be segmented allowing price discrimination
- The service cannot be sold in advance
- The cost of making an additional sale is low
- Flexible Manufacturing Systems (FMS): FMS use automated computer systems to produce output rapidly in response to specific customer orders, e.g. print on demand services are operated by some printing organisations. These systems enable production to switch quickly between orders of small batches of output. FMS systems may be less efficient than production systems which focus on a single product, as these benefit from economies of scale and spcialisation.
- Queuing Theory: seeks to balance customer waiting (or queuing) time and idle service capacity through mathematical modelling. The theory states that customer satisfaction and throughput increases if a single queue is used rather than several shorter queues. (The frustration of being in a ‘slow queue’ is removed). Benefits of applying queuing theory include the ability to give customers an estimated waiting time, plan peaks and dips in demand to ensure staffing levels are appropriate, manage demand through appointment systems and use queuing theory data as benchmarks to compare performance.
How might one control capacity?
- Materials Requirements Planning (MRP I): The purpose of an MRP I system is to calculate the quantity of each type of material required and when it will be required. The materials requirements are calculated from known future orders and a forecast of other future orders. Estimates of demand can be converted into a materials requirements schedule.
- Manufacturing Resource Planning (MRP II): MRP II evolved from MRP I. It is a plan for anticipating and monitoring all the resources of a manufacturing company. MRP II is a computerised system that incorporates a single database used by many different areas of the organisation. It enables optimal inventory control based on the matching supply and demand.
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Optimised Production Technology (OPT): OPT is a computer-based method for scheduling production. It focuses on known capacity constraints (bottlenecks) of the operation. It aims to:
- Identify the capacity constraints in the system
- Schedule production to capacity constraints
- Identify how to overcome the capacity constraint
- Schedule production to next constraint
- Enterprise Resource Planning (ERP): ERP software attempts to integrate all departments and functions of an organisation in a computer system able to meet the needs of users from across the whole organisation. An ERP system includes managing the key elements of the supply chain.
What types of inventory are there?
Inventories can be classified under 4 broad headings:
- Raw materials
- Spare parts/consumables
- Work in progress
- Finished goods
Why are inventory controls are required?
- Holding inventory may be expensive
- Production will be disrupted if the company runs out of raw materials
- If inventory with a short shelf life is not used or sold, their value may fall. Obsolete inventories are those items which have become out-of-date and are no longer required
- If orders can’t be supplied immediately, customer satisfaction suffers
- If stocks are too high, holding costs will be incurred unnecessarily
- If inventories are kept low, small quantities will have to be ordered more frequently, thereby increasing procurement costs
What is the ABC method t inventory management?
The ABC method is a selective approach to stores control whereby materials are classified A, B or C according to their value. A refers to high value inventory, B to medium and C to low value inventory.
- Expensive and medium-cost materials are subject to careful stores control procedures to minimise cost
- Inexpensive materials can be stored in large quantities
What is Just in Time?
JIT employs the idea that goods and services should be produced only when they are needed. JIT is also known as stockless production and may be used as part of a lean production process. Whereas JIT in manufacturing seeks to eliminate inventories, JIT in service operations seeks to eliminate queues of customers.
What characteristics does JIT require in operations:
- High quality
- Speed
- Reliability
- Flexibility
- Close relationships with their supply chain partners. Advantages of developing such close relationships include:
- Location of suppliers
- On time delivery
- Quality of supplies
- Low inventory levels
What are the 3 key elemnts to JIT philosophy?
What tool is often used as part of JIT?
There are 3 key elements in the JIT philosophy:
- Elimination of waste: Waste is defined as any activity that does not add value e.g. overproduction, waiting time, defective goods.
- The involvement of all staff in the operation: JIT is a cultural issue, and its philosophy has to be embraced by everyone involved in the operation.
- Continuous improvement: The JIT philosophy is that an organisation should work towards the ideal, and continuous improvement is both possible and necessary.
Kanban: A Kanban system controls the flow of materials between one stage in a process and the next.
