PGBM03 Operations Management

Session 06Operations Planning and

Managing Capacity

Module Leader: Peter Coleman

Capacity planning and control

Operations

strategy

Improvement

Planning and

control

Operations management

Capacity planning and

control

The operation supplies ...the capacity to deliver products and services

The market requires …the availability of products

and servicesDesign

In Chapter 10 – The nature of planning and control – Slack et al. identify the following key questions:

• What is planning and control?

• How do supply demand affect planning and control?

• What are the activities of planning and control?

Planning and Control

• Planning is a formalization of what is intended to happen at some time in the future.

• A plan does not guarantee that an event will actually happen, it is a statement of intention.

• Although plans are based on expectations, during their implementation things do not always happen as expected.

• Control is the process of coping with any changes that affect the plan. It may also mean that an ‘intervention’ will need to be made in the operation to bring it back ‘on track’.

Planning is deciding

Control is

what activities should take place in the operation

when they should take place

what resources should be allocated to them

understanding what is actually happening in the operation

deciding whether there is a significant deviation from what should be happening

(if there is deviation) changing resources in order to affect the operation’s activities.

PLANNING

CONTROL

Tim

e h

ori

zon

Ho

urs

/day

sD

ays/

wee

ks/m

on

ths

Mo

nth

s/ye

ars

Long-term planning and controlUses aggregated demand forecasts

Determines resources in aggregated form

Objectives set in largely financial terms

Medium-term planning and controlUses partially disaggregated demand forecasts

Determines resources and contingencies

Objectives set in both financial and operations terms

Short-term planning and controlUses totally disaggregated forecasts or actual demand

Makes interventions to resources to correct deviations from plans

Ad hoc consideration of operations objectives.

Scheduling Loading

SequencingMonitoring and control

When to do things?

In what order to do

things?

How much to do?

Are activities going to plan?

Activities

The ability to meet requirements

•The number of units produced in a specified time

•Cars per hour•Barrels per day

•Bed-nights per week•Student contact hours per year

Capacity

Capacity =

Total productive time available

Time for one unit

= Total time x output per unit of time

Capacity

Capacity

• A plant operates 250 days per year for 8 hours per day

• The time to produce one unit is 15 minutes

• What is the plant’s capacity?

• Total time available = 250 * 8 = 2000 hours per year

• Time for one unit = 0.25 hours

• Capacity = 2000/ 0.25 = 8000 units per year

CAPACITY

Design Capacity = Maximum rate

Design capacity

CAPACITYDesign Capacity = Maximum rate

Effective Capacity = Achievable rate

Design capacity

Effective capacity

CAPACITY

Design capacity

Effective capacity Actual

performance

• Efficiency = Actual output x 100

CAPACITY

• Utilisation = Actual output x 100

Design capacity

Effective Capacity

Designcapacity

168 hoursper week

Capacity Efficiency and Utilisation

Designcapacity

168 hoursper week

Effective capacity

109 hours per week

Capacity Efficiency and Utilisation

Planned lossof 59 hours per week

Designcapacity

168 hoursper week

Effective capacity

109 hours per week

Actual output51 hours per week

Capacity Efficiency and Utilisation

Planned lossof 59 hours per week

Avoidable loss58 hours

Planned lossof 59 hours

per week

Capacity Example

• A section of a call centre employs 5 people who work 8 hrs. a day for 5 days a week.

• Each person can handle 20 enquiries per hour.

• They are 90% effective

• One week, the office handles 3000 enquiries.

• What is the efficiency of the call centre staff?

• What is their utilisation ?

Capacity Example

• Total time per week = 5 days x 8 hrs= 40 hrs

• Applications processed/ hr. = 100

• Design capacity = 4000 per week• 90% effective

• Actual = 3000 in a week

• Effective capacity = 4000x 0.9 = 3600 enquiries

• Efficiency = 3000 x 100 = 83.3 %3600

•Utilisation = 3000 x 100 = 75 % 4000

Ways of reconciling capacity and demand

Level capacity

Demand

Capacity

Chase demandDemand

management

CapacityCapacity

Demand Demand

How do you cope with

fluctuations in demand?

Absorb

demand

Change

demandAdjust output

to match

demandLevel capacity

Chase demand

Demand

management

Ways of reconciling capacity and demand

Absorb

demand

Part finished

Finished goods, or

Customer inventory

Queues

Backlogs

Have

excess

capacity

Make to

stock

Keep output

level

Make

customer

wait

Source: Madam Tussaud’s

Adjust output to

match demand

Hire Fire

Temporary labour Lay-off

Overtime

Subcontract

Short time

Third-party work

Source: Corbis/Photocuisine

Change

demand

Change pattern of demand

Develop alternative products

and/or services

Thank you