Chapter 12 Flashcards
Hierarchy of Capacity Decisions
Facilities Decisions
Aggregate Planning
Scheduling
Facilities Decisions Characteristics
- Long range planning horizon (2+ years)
- Time units = years
- Acquire appropriate levels of plant and equipment
- Considers acquisition of resources only (no allocation)
- Often decided by a committee or task force
Facilities Decisions
When is the capacity needed?
How much total system capacity is needed?
Where should the facilities be located?
How much total system capacity is needed?
How large should each facility be?
What type of facilities are needed?
Factors Affecting Facilities Strategy
Predicted demand Cost of facilities Likely behavior of competitors Business strategy International considerations
Facility Planning Steps
- Develop a capacity measure
- Forecast demand
- Determine facility needs
- Generate alternatives
- Evaluate alternatives
- Decide
- Implement the decision
- Solicit and use feedback to continuously improve the process
Capacity
The maximum possible amount of output per time period
Theoretical capacity primarily determined by:
Capital assets
Labor availability
Actual Capacity:
Subtracts downtime, shift breaks, etc.
Is the capacity that should be used in planning
Capacity Examples
Automobile assembly line ‑ maximum # cars that can be produced per day
Restaurant ‑ seats times optimal turnover rate (within hours of operation)
University ‑ maximum # that could graduate per year
Developing A Capacity Measure Potential confounding factors
Aggregation
Normal (sustained) vs.Peak
Service industries
Determine Facility Needs
Time phased
Managerial judgment
Sensitivity (“what if”) analysis
Risk assessment
Begin to address 3 basic questions when determining Facility Needs:
When will additional capacity be needed?
How much additional capacity will be needed?
Where should the additional capacity be located?
Strategies for “Capacity Cushion”
Large cushion (significant capability to handle unanticipated demand, often used with make-to-order)
Small cushion (little capability to handle unanticipated demand, often used with make-to-stock)
Moderate cushion (hybrid approach)
Capacity Cushion =
100% capacity – Utilization level
What is “Optimum” Facility Size?
Economies of scale
Diseconomies of scale
Timing of Facility Additions
Preempt the competition
Wait-and-see strategy
Step 4: Generate Alternatives-Identify specific answers (alternatives) to the three basic questions:
Timing
Capacity
Location
Step 5: Evaluate The Alternatives
Variety of models available to assist the decision-maker
Generally a cost/benefit approach
Facility Location Criteria
Labor (cost, availability) Raw Materials (cost, availability) Transportation (cost, access) Market (customer, competition) Land and building costs Taxes (all types) Community dominance and attitudes Government regulations Urban vs.Rural Technology
Step 6: Decide
Managerial judgment, augmented by results from model(s)
Rating Models:Additive
- Identify the sites (communities) you wish to consider (# = n)
- Identify important factors (# = m)
- Assign relative weights to the factors
- For each site, rate them on each factor on a consistent scale
- Multiply the ratings by the corresponding weights and sum for each site
Rating Models:Multiplicative Model
- Identify the sites (communities) you wish to consider (# = n)
- Identify important factors (# = m)
- Assign relative weights to the factors
- For each site, rate them on each factor on a consistent scale
- Ratings are raised to the power represented by the weights (the weights are exponents) and these products are then multiplied together for each site
Aggregate Planning aka
Sales & Operations Planning
Aggregate Planning Characteristics
Long range planning horizon (approx. 12 months)
Time units = months
Links Facility Decisions with Scheduling
Considers acquisition and allocation of resources
- Allocation of plant and equipment (fixed)
- Acquisition of labor, inventory, outsourcing (variable)
Determine in rough/aggregate terms what will be produced (often using demand for several products aggregated together)
Possibility of influencing both supply and demand
4 Steps of Aggregate Planning
- Forecast demand
2a. Smooth out demand
2b. Determine supply options/factors - Develop the aggregate plan
Options for Smoothing Demand (Step #2a)
Pricing
Advertising and promotion
Backlog or reservation
Development of complementary products
Options for Influencing Supply (Step #2b)
Hiring, firing, and laying-off of employees
Using overtime and undertime
Using part-time or temporary labor
Carrying inventory
Subcontracting/Outsourcing
Making cooperative arrangements
Developing the Aggregate Plan(Step #3) Basic Strategies
“Level” strategy (produce at a constant rate)
“Chase” strategy (produce only when there is demand)
Aggregate Planning Costs
Hiring and firing costs
Overtime and undertime costs
Inventory carrying costs
Subcontracting/Outsourcing costs
Part-time labor costs
Costs of stockouts or back orders
Aggregate Planning -Simple Mathematical Model
Pt = Pt-1 + A (Ft - Pt-1)
Where:
Pt= Production level (units) in month t
A= Smoothing constant (0 <=1)
Ft= Demand forecast (units) for month t
A = 0
Level Strategy
A = 1
Chase Strategy
In Practice these Strategies:
Strong tendency to maintain level work force in manufacturing
Service must focus more on demand side, chase strategy
Aggregate planning may get “squeezed out”
- Model must be tailor-made to company
- Problem with split responsibility and control
- Management busy “fighting fires”
Transportation Method
Special case of linear programming
Used in facility planning to help determine where facilities should be located
Multiple applications, including aggregate planning
Assumes all costs are related linearly to quantities shipped
May factor in any variable costs, revenues, and profit contribution values
Other Transportation Method Scenarios
Minimum plant utilizations levels
Total Demand > Total Supply
Total Demand = Total Supply
