Capacity Management Flashcards
Definition of Capacity (Slack et al 2016)
The maximum level of value-added activity over a period of time that the process or operation can achieve under normal operating conditions.
Definition (Slack et al 2016)
The activity of understanding the nature of demand for products and services, and effectively planning and controlling capacity in the short term, medium term and long term.
Aggregate Planning
Short to medium-term planning, making broad capacity decisions but not concerned with all of the detail of the individual products and services offered. (e.g. a retailer using total revenue pcm, ignoring variation in customer spending)
Heathrow Airport
Air-borne holding - 32 to 40 jets typically circling over London costing £119,000 in wasted fuel and 600 tonnes of CO2 emissions. 98% operating capacity, short and medium-term solutions are very difficult to consider with the rejection of the third runway.
Capacity Constraint
The part of the operation that is operating at their capacity ‘ceiling’, constraining the whole operation.
Objectives
Costs - capacity levels in excess of demand could mean under-utilisation of capacity and therefore high units cost
Revenues - capacity levels equal to or higher than demand at any point in time will ensure that all demand is satisfied and no revenue lost
Working Capital - a build up of finished goods prior to demand might allow future demand to be satisfied at the expense of higher storage costs until sold/or opportunity cost
Quality of Goods - large fluctuations in capacity levels could be fixed by hiring extra temporary staff, however new staff could disrupt the routine working of the operation (training) and increase errors
Speed - response to customer demand by building up finished goods or deliberate provision of surplus capacity to avoid queueing
Dependability - the closer demand gets to the operations capacity ceiling is less able to cope with any unexpected disruptions/fluctuations and may become less dependable
Flexibility - volume flexibility, enhanced by surplus capacity. If demand and capacity are balanced, the operation will not be able to respond to changes in demand swiftly
Process of Managing Capacity
1) measure the aggregate demand and capacity levels and understand changes in these levels for the planning period
2) determine the operation’s base level of capacity from which adjustments can be made
3) identify and select methods of coping with mismatches between demand and capacity (level capacity plan, chase demand plan, demand management)
4) understand the consequences of different capacity decisions
Demand Forecast Requirements
It is expressed in terms that are useful for capacity management
It is as accurate as possible
It gives an indication of relative uncertainty
Measures of Capacity
Design Capacity - the theoretical capacity
Effective Capacity - capacity after planned losses are accounted for (maintenance, changeover etc)
Actual Output - capacity after planned and unplanned losses (quality problems, breakdowns, absenteeism)
Utilisation and Efficiency Formula
Utilisation = Actual Output/Design Capacity Efficiency = Actual Output/Effective Capacity
