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Flexibility and Capacity

Requirement

BUAD311 Operations Management

Session 4

1

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More on Capacity Management

So far, we analyzed a process given its capacity.

A natural question: Given demand, how much

capacity do we need to meet demand?

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Capacity Requirement: Example

Kristen expects demand to be high and would like

to produce 26 dozen cookies (in one-dozen size

orders) per 4 hours.How many ovens and mixers does Kristen need?

One Oven Mixer Kristen Roomie

6 10 7.5 15

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Capacity Requirement: Example

Kristen expects demand to be high and would like

to produce 26 dozen cookies (in one-dozen size

orders) per 4 hours.How many ovens and mixers does Kristen need?

Two Ovens Mixer Kristen Roomie

2 X 6 = 12 10 7.5 15

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Capacity Requirement: Example

Kristen expects demand to be high and would like

to produce 36 dozen cookies (in one-dozen size

orders) per 4 hours.Can Kristen meet the demand?

Two Ovens Mixer Kristen Roomie

12 10 7.5 15

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Capacity Requirement: Example

Solution: Cross-training

Kristen and the roomie are trained to handle other

peoples work. Kristen spends 8 minutes per a dozen and the roomie

spends 4 minutes per a dozen.

After cross training, each of them spends 12 minutesper a dozen.

Each person can make 5 dozens per an hour and we

have two identical resource. Capacity of combined

resource is now 10 dozens per an hour.

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Utilization Rate & Flexibility

Flexible equipment: an equipment that can

produce several different products efficiently.

In the past, car manufacturers generallyproduced only one car type in a factory.

For decades, mainstream models such as the Ford

Taurus sold in such large volumes they could keep aplant or two running at full capacity for years.

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Variety and Customization

Growth of variety

Number of automobile lines sold in U.S.

41 in 1971

65 in 1992

Total sales per model

1950 Chevy Impala: 1.5M

1990 Honda Accord: 0.5M

To be competitive, auto manufacturers need to

offer consumers many choices. This means

assembly lines must allow for different car

models.

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Flexibility of Car Manufacturers

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What are the Advantages and

Disadvantages of Flexibility?

Advantages:

Fewer resources; Increasing utilization rates

Better equipped to meet changing demands

Disadvantages:

Higher investment

Training, Learning curve

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Capacity Requirement: Example

The demand for dolls is:

200,000 in January through October

5,000,000 dolls in November

5,000,000 dolls in December

Each of Mattels plants is capable of producing

500,000 dolls per month. Without keepinginventory, how many plants should Mattel build?

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Capacity Requirement: Example

SolutionEach Mattels plant is capable of producing500,000 dolls per month, how many plants

should Mattel build?

Max demand/ month=5,000,000 per month

If no inventory is held,

need 5,000,000/500,000 plants=10 plants

100% utilization in Nov, Dec

Only 4% utilization in other months Jan-Oct

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Other AlternativesSolution

Does Mattel have other alternatives? Building inventory

Total Demand per year=12 million

Total Plant capacity per year=6 million/plant No. of Plants=12/6 = 2 plants

Utilization per year= 12 million/(2*6 million) = 1= 100%

What are the advantages?Availability

What are the disadvantages?Obsolescence, holding cost

Outsourcing What are the advantages?No need to invest in facilities, lower cost

What are the disadvantages?Loss of control on quality and delivery

leadtimes