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Measures of capacity Bottlenecks Capacity strategies A systematic approach to capacity decisions Make or Buy problem Decision making under uncertainty and risk
Capacity Planning
Capacity is the maximum rate of output for a facility. Capacity planning considers questions such as:
Should we have one large facility or several small ones? Should we expand capacity before the demand is there or wait until demand is more certain? Should we invest in flexible or non-flexible capacity?
Measuring Capacity Measurement Type: Output measure for product focus Input measure for process focus
Pressures for Large Cushion Uneven demand Uncertain demand Changing product mix Capacity comes in large increments Uncertain supply
Other Choice Faster delivery times Smaller yield losses Higher capital intensity Less worker flexibility Lower inventories More stable schedules
Optimal rate
Rate of output
Capacity
Capacity
Large economies of scale Cost of lost sales is high Increases in demand are fairly certain Most capital intensive businesses shy away from expansionist strategy
Short-term options available Customers accept backorders Cost of over-capacity is high Technology becomes obsolete quickly
Bottleneck
A mortgage review process:
20/hr
Step 1 Accept mortgage applications
5/hr
Step 2 Review applications and verify information
10/hr
Step 3 Decisions (and fund transfer if approved)
Bottleneck operation: An operation in a sequence of operations whose capacity is lower than that of the other operations. The capacity of a process is the capacity of the bottleneck operation.
1. 2. 3. 4.
Estimate capacity requirements Identify gaps Develop alternatives Evaluate the alternatives
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M =
Dp N (1 C )
where D = number of units (customers) forecast per year p = processing time (in hours per unit or customer) N = total number of hours per year during which the process operates C = desired capacity cushion rate (%)
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M =
Q = number of units in each lot s = setup time (in hours) per lot Note: Always round up the fractional part for the number of machines required.
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Capacity Planning Problem You have been asked to put together a capacity plan for a critical bottleneck operation at the Surefoot Sandal Company. Your capacity measure is number of machines. Three products (mens, womens, and kids sandals) are manufactured. The time standards (processing and setup), lot sizes, and demand forecasts are given in the following table. The firm operates two 8-hour shifts, 5 days per week, 50 weeks per year. Experience shows that a capacity cushion of 5 percent is sufficient.
Time Standards Processing Setup Lot Size (hr/pair) (hr/lot) (pairs/lot) 0.05 0.5 240 0.10 2.2 180 0.02 3.8 360 Demand Forecast (pairs/yr) 80,000 60,000 120,000
a. How many machines are needed at the bottleneck? b. If the operation currently has two machines, what is the capacity gap? c. If the operation can not buy any more machines, which products can be made? d. If the operation currently has five machines, what is the utilization?
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Capacity Planning Problem Solution Total time available per machine per year: (2 shifts/day)(8 hours/shift)(5 days/week)(50 weeks/year) = 4000 hours/machine/year With a 5% capacity cushion, the hours/machine/year that are available are: 4000(1-0.05) = 3800 hours/machine/year Total time to produce the yearly demand of each product: (This is equal to the processing time plus the setup time.) Mens =(0.05)(80,000)+(80,000/240)(0.5)= 4167 hrs Womens =(0.10)(60,000)+(60,000/180)(2.2)= 6733 hrs Kids =(0.02)(120,000)+(120,000/360)(3.8)= 3667 hrs
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c. With two machines, we have (3800)(2) = 7600 hours of machine capacity. We can make all of the womens sandals (6733 hours) and some of the mens sandals, for example.
d. With five machines, (5)(4000) = 20,000 machine-hours/yr are available. The total number of machine-hours/yr needed for production is 14,567. Utilization = (14,567/20,000)(100%) = 73%. Thus, the capacity cushion is (100% - 73%) = 27%.
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Maximin: Choose the alternative that is the best of the worst. Maximax: Choose the alternative that is the best of the best. Laplace: Choose the alternative with the best weighted payoff. Minimax regret: Choose the alternative with the best worst regret (i.e., opportunity losses).
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Decision Making Under Uncertainty Profits Event 1 (Low demand) Event 2 (High demand) Alternative 1 (Small facility) $300 $200 Alternative 2 (Large facility) $50 $400
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Profits Event 1 (Low demand) Event 2 (High demand) Probability = 0.3 Probability = 0.7 Alternative 1 (Small facility) Alternative 2 (Large facility) $300 $50 $200 $400
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