Capacity Management Flashcards
Define capacity Management
the activity of understanding the nature of demand for products and services, and effectively planning and capacity in the short term, medium term and long term.
what is planning and control
The activities which reconcile supply and demand
what is long-term capacity strategy
concerned with introducing (or removing) major increments of capacity.
what is short-term capacity management
Tactical capacity or Demand Adjustments
what are the important characteristics of capacity management
• setting capacity levels over the medium and short terms in aggregated terms
• ‘aggregated’
○ different products and services are bundled together in order to get a broad view of demand and capacity.
• The ultimate aggregation measure is money.
how is performance affected by managers’ decisions?
- Costs - balance between capacity and demand.
- Revenues - balance between capacity and demand, but in the opposite way.
- Working capital - if an operation decides to build up finished goods inventory prior to demand.
- Quality of goods or services might be affected - capacity plan that involves large fluctuations in capacity levels, by hiring temporary staff
- Speed of response to customer demand could be enhanced either by the build-up of inventories or by the deliberate provision of surplus capacity to avoid queuing
- Dependability of supply will also be affected by how close demand levels are to capacity.
- Flexibility, especially volume flexibility, will be enhanced by surplus capacity.
the process of managing capacity
- measure aggregate demand and capacity. Understand changes to demand and capacity
- determine the operations base level of capacity
- identify and select methods of coping with mismatches between demand and capacity
- understand the consequences of different capacity decisions
What is required from a demand forecast?
It is expressed in terms that are useful for capacity management
It is as accurate as possible
It gives an indication of relative uncertainty.
what are the causes of seasonality are
○ climatic (holidays), ○ sometimes festive (gift purchases), ○ sometimes financial (tax processing), or ○ social, or ○ political;
What is the activity mix
• How much an operation can do depends on what it is being required to do.
Some of the problems caused by variation mix can be partially overcome by using aggregated capacity measures.
what is an output capacity measure
the most appropriate measure because the output from the operation does not vary in its nature
what is capacity
the output that an operation can deliver in a defined unit of time
what is design capacity
§ the theoretical capacity of an operation that one of its technical designers had in mind when they commissioned it.
§ Each line will be capable of running at a particular speed.
Multiplying the maximum coating speed by the operating time of the plant gives the theoretical design capacity of the line.
what is effective capacity
§ the capacity of an operation after planned losses are accounted for rate.
The ratio of the output actually achieved by an operation to its design capacity, and the ratio of output to effective capacity,
utilisation and efficiency equations
Utilization = Actual output/ Design capacity
Efficiency = Actual output/ Effective capacity
how to set base capacity
factors:
○ The relative importance of the operation’s performance objectives.
○ The perishability of the operation’s outputs.
○The degree of variability in demand or supply
how does variability affect an operation
either in demand or capacity, will reduce the ability of an operation to process its inputs.
will reduce its effective capacity
the greater the variability in arrival time or activity time at a process, the more the process will suffer both high throughput times and reduced utilization.
more variability, more extra capacity
What are the capacity demand strategies
Level capacity plan= absorb demand
– Ignore demand fluctuations and keep nominal capacity levels constant.
Chase demand plan = adjust output to match demand
– Adjust capacity to reflect the fluctuations in demand
Demand Management = change demand
Attempt to change demand to align with capacity
How to achieve demand management
Constraining customer access
Price differentials
Scheduling promotion
Service differentials
Three methods to assess the consequences of adopting particular capacity plans
○ Consider capacity decisions using cumulative representations.
○ Consider capacity decisions using queuing principles.
○ Consider capacity decisions over time.
When is level capacity appropriate
Capital intensive businesses where assets or facility utilization is a priority, not suitable for perishable
products
Benefits and cons of level capacity
benefits
high utilization
•stable employment patterns
•low unit cost
cons
high inventories
•danger of over- and under- production
when is chase demand appropriate
Operations which cannot store their output such as customer processing operations, not suitable with non-perishable goods
• Varying levels of staff, working hours, equipment etc.
Benefits and cons of chase demand
benefits
flexible operation
•less over- or under-production
•less wastage in terms of unused resources
cons
reduced quality control? •difficult to plan and control
when is demand management appropriate
operations which respond to highly seasonal demand or demand which fluctuates on a predictable basis in the shorter term
benefits and cons of demand management
benefits
improved planning
•improved utilization
Cons
•loss of business?
•discounts may devalue products/services
