Capacity Planning

Capacity Planning
Capacity denotes in general the extent of availability of these resources for use by various processes It also denotes the maximum output of products and services one can achieve using these resources Capacity planning is a systematic approach to
Estimate the amount of capacity required, Evaluation of alternative methods of augmenting capacity Devise methods to use capacity effectively

Capacity planning is important

It has a significant impact on the cost of operation of the system due to large fixed costs associated with capacity

Economies of scale is an concept in economics related to capacity

Economies of Scale
An illustration
Average unit cost of output

2000 units per month 5000 units per month 10,000 units per month

Units of output

Capacity buildup
Capacity Demand

Alternative modes
Typical mode
Units

Reactive mode

Time

Proactive mode

Units

Time

Units

Time

Input measures of capacity

Firms operating in low volume, high variety situation find it relevant
Refining capacity of BPCL refinery in Mumbai is 260,000 barrels of crude per day Television manufacturer often measures its capacity by millions of picture tubes that it produces Tool room facility will measure its capacity in terms of machine hours A hospital will measure the capacity in terms of number of beds.

Output measures of capacity

When the volume of production is high and the variety is relatively low output measures are useful
Toyota Kirloskar Auto Parts measures it capacity in terms of number of transmission gear boxes it can produce Tata Bearings, a division of Tata Steel, has a capacity of 25 million pieces per annum MICO Bosch has an installed capacity of one lakh distributor pumps at its Jaipur plant An automated car wash facilitys capacity can be measured in terms of number of cars serviced per day

Japanese notion of capacity

Capacity = Work + Waste
Nine types of waste according to Canon production system:
Waste in Operations Waste in Startup Waste in Equipment Waste in Defects Waste in Materials Waste in Indirect Labour Waste in Human Resources Waste in expense

Capacity Planning
Time Horizon
Criterion Time frame Planning premise Time Horizon for planning Long term Medium term Short-term 2 - 5 years Typically 1 year 1 week to 3 months Augmenting capacity for Balancing demand - supply Maximising availability; projected growth Efficent use of resources Capacity Augmentation; Adjusting demand and Resource deployment Capital Budgeting supply attributes to balance strategies, Maintenance Exercises available capacity to routines, Improvement requirement projects to be undertaken Investment planning; Break- Aggregate Production Planning & Scheduling, even analysis, Discounted Planning; Make or Buy Total Productive cash flow techniques; Maintenance, Waste Decision Trees elimination by continuous improvement; Simulation; Heuristics;Waiting line models

Key decisions made

Tools & Techniques used

Capacity Planning Framework

Estimate the capacity requirements for the planning horizon Compute the available capacity & identify quantum of capacity to be augmented Identify available alternatives & select the best one for capacity augmentation

Capacity Planning
Computational steps
Estimate the total requirement for the planning horizon Estimate Labour and Machine requirements Compute Capacity Availability Compare availability with Requirement Evaluate alternative methods for capacity augmentation

Capacity requirements
Projected demand per unit time during the =D planning horizon Standard labour hours required per unit of product = SL Efficiency of labour
D*SL EL

= EL

Capacity requirements (Labour) = Capacity requirements (Machine) =

D * SM EM

Capacity Availability
System availability
Number of working days in the planning horizon: Nd Number of working hours per day: h System availability (Hours) = Nd * h

Resource availability
Number of machines available: Nm Machine: Time lost in breakdowns & maintenance = b % Number of workers available: NL Labour: Absenteeism of the workers = a %

Capacity available in the system (Hours)

Machine: Nd * h * Nm * (1 b/100) Labour: Nd * h * NL * (1 a/100)

Capacity Augmentation
Alternatives
Waste Elimination Multi-tasking of workforce Sub-contracting/Outsourcing De-bottlenecking Addition of new capacity

Problem
A product is manufactured in a shop using a five-stage process. The first step in the process is to cut the sheet metal to required shapes and sizes using a shearing process. After the shearing process, the components are subjected to pressing operations to alter the shape of the flat sheet as per the design. In the third stage of the process welding is done to join the components. The next step in the process is a painting operation. After painting, the components are packed and kept ready for dispatch. The time take for each of these operations are 20, 30, 15, 12 and 6 minutes respectively. Presently, each stage has only one machine for operation. Map the process and analyse the capacity with respect to the following scenarios:
If the shop works for an 8-hour shift with an effective available time of 450 minutes, what is the production capacity of the shop? Where is the bottleneck in the system? If we want to add one machine, where should we make the investment? Identify the additional capacity required for a daily production target of 25 units. Compute the utilisation of the machines as per the revised capacity calculations.

Shearing (20 minutes)

Pressing (30 minutes)

Welding (15 minutes)

Painting (12 minutes)

Packing (6 minutes)

Shearing (20 minutes)

Pressing (30 minutes)

Welding (15 minutes)

Painting (12 minutes)

Packing (6 minutes)

The production capacities are:

Shearing: 450/20 = 22.50 Welding: 450/15 = 30.00 Packing: 450/6 = 75.00 Pressing: 450/30 = 15.00 Painting: 450/12 = 37.50

The smallest number in the above calculation limits the production capacity for the shop. Therefore, the current production capacity is 15 units per day.

Bottleneck

Shearing (20 minutes)

Pressing (30 minutes)

Welding (15 minutes)

Painting (12 minutes)

Packing (6 minutes)

The production capacities are:

Shearing: 450/20 = 22.50 Welding: 450/15 = 30.00 Packing: 450/6 = 75.00 Pressing: 450/30 = 15.00 Painting: 450/12 = 37.50

The smallest number in the above calculation limits the production capacity for the shop. Therefore, the current production capacity is 15 units per day.

Pressing (30 minutes) Shearing (20 minutes) Pressing (30 minutes) Welding (15 minutes) Painting (12 minutes) Packing (6 minutes) Bottleneck

The production target is 25 per day now. Since a day has 450 minutes, the maximum time that the process can take in each stage is 18 minutes.
Packing, Painting and Welding sections have timings less than 18. Therefore, they do not need any more investment in capacity. By adding one more machine at the pressing stage, the effective time will be less than 18 minutes. Similarly, by adding one more machine at the shearing stage, the effective time will be 10 minutes.

Utilisation of Shearing = Daily production * process time 25 * 20 = = 55.56% number of machines * available time 2 * 450 Utilisation of Pressing = Utilisation of Welding =
Utilisation of Painting = 66.67%
25 * 30 = 83.33% 2 * 450

25 * 15 = 83.33% 1 * 450

Utilisation of Packing = 33.33%

Bottleneck & Capacity Analysis

The Wandering Bottleneck

Shearing (20 minutes)

Pressing (30 minutes)

Welding (15 minutes)

Painting (12 minutes)

Packing (6 minutes)

Pressing (30 minutes) Shearing (20 minutes) Pressing (30 minutes) Welding (15 minutes) Painting (12 minutes) Packing (6 minutes)

Hierarchies in capacity estimation

First operation Fabrication Shop Paint Shop Electrical & Wiring Assembly & Testing

Shearing Unit

Pressing Unit

Welding Unit

Hydraulic Press CNC Turret Press 63 Tonne ECC Press NC Press Brake

Denotes bottleneck in the process

Capacity Planning under uncertainty

Use of waiting line models
Often demand placed on resources is uncertain making capacity requirement estimation difficult In such cases, waiting line models
make use of queueing theory fundamentals to analyse the impact of alternative capacity choices on important operational measures such as queue length, waiting time and utilisation of resources

In service systems, waiting time is an important operational measure that determines the service quality
Computerised passenger reservation facility of Indian Railways Banking system or BSNLs bill payment counters

Components of Queuing System

Calling Populatio n

Arrivals

Waiting Line

Server

Served customers

Components of Queuing Systems

Calling Population Arrival Parameters Queue Parameters Servers System Structure & Parameters Service Parameters Performance Metrics Stages Routing Capacit y Infinite Finite Rate Pattern Markovian, General Distbn., Deterministic Single, Bulk, Special group FCFS, LCFS, Random, Balk, Renege, Jog Single, Multiple Single, Multiple Single, Serial, Network Finite, Infinite Markovian, General Distbn., Deterministic Queue length, Waiting time, Utilisation, Cost based

Single-Channel Structures
Single-server, single-stage Waiting line Single-server, multiple stages Waiting line Server

Server s

Multi-Channel Structures
Multiple-servers, single stage

Server s Multiple-servers, multiple-stages

Waiting line

Server s

Single Server Queue

Formulae for Lq
Ls Average number of customers in the system (waiting to be served) Lq Average number of customers in the waiting line Ws Average time a customer spends in the system (waiting and being served) Wq Average time a customer spends waiting in line mean arrival rate mean service rate Single server Queue Lq = 2( (Exponential service time)in a multi-server queue S Number of servers
)

Performance Metrics
Relationships
=

Server utilisation
In the case of single server:

In the case of multiple servers: =

Littles Formula Average time customer spends in system Average time customer spends in queue Average number of customers in system Ws = Wq =

Ls Lq

In the case of a Single Server Ls = Lq +

Problem
The teller facility of a bank has a one-man operation at present. Customers arrive at the bank at the rate of one every 4 minutes to use the teller facility. The service time varies randomly across customers on account of some parameters. However, based on the observations in the past, it has been found that the teller takes on an average 3 minutes to serve an arriving customer. The arrivals follow Poisson distribution and the service times follow exponential distribution.
What is the probability that there are at most three customers in front of the teller counter? Assess the various operational performance measures for the teller facility. Of late the bank officials notice that the arrival rate has increased to one every three and a half minutes. What is the impact of this change in the arrival rate? Do you have any observation to make?

Solution to Problem
Arrival rate at the bank: Service rate at the teller: Utilisation of teller facility: = =
=

= 15 per hour = 20 per hour

15 = = 0.75 20 Probability of at most three customers in the system =

P
n =0

n =3

Using equation, we compute Pn for values of n = 0 to 3 ) = 0.25; P1 = 0.25*0.751 = 0.1875; P0 = (1P2 = 0.25*0.752 = 0.1406; P3 = 0.25*0.753 = 0.1055. Probability of at most 3 customers =
0.25 + 0.1875 + 0.1406 + 0.1055 = 0.6836

Operational Performance Measures

Avg. No. of customers in the waiting line:

2 Lq = ( )

Avg. No. of customers in the system:

Ls = Lq +
Wq = Lq

Avg. time a customer spends waiting in line:

Ls

Avg. time a customer spends in the system:

Ws =

Operational Performance Measures

2 15 2 Lq = = = 2.25 ( ) 20(20 15)

Avg. No. of customers in the waiting line:

Avg. No. of customers in the system:

15 Ls = Lq + = 2.25 + = 3.00 20
Wq = Lq =

Avg. time a customer spends waiting in line: Avg. time a customer spends in the system:

2.25 = 0.15 Hr = 9 min 15 L 3.00 Ws = s = = 0.20 Hr =12 min 15

Impact of Arrival Rate

Arrival rate = 15 per hour Utilisation of the teller facility Avg. number of customers in waiting line Avg. number of customers in the system Average time a customer spends waiting in line 75% 2.25 3.00 9 minutes Arrival rate = 17.143 per hour 85.7% 5.14 6.00 18 minutes 21 minutes

Average time a customer spends in 12 minutes the system

Flexibility/Utilization Trade-off
Operational Performance Measures
High utilization Low cost of operation Poor service

Capacity Design issue

Low utilization High cost of operation Good service

Utilization ()

100%

Cost Relationship in Queuing

Expected costs

Total cost

Service cost Waiting Costs Level of service

Three types of Queuing systems

Single server Queue Exponential service time Single server Queue General service time Lq = 2( ) 2 2 + ( / Lq = 2 2 ) / ( 1 ) Lq = 2 0 + ( / ) 2 2 ( 1 / ) ( / ) 2 2 ( 1 / )

Formulae For Lq

Single server Queue Deterministic service time

2 ( )

Approximation for Lq based on data _

_ Xa Mean Inter-Arrival Time _ Xs (IAT) Service Time (ST) Mean Sa Standard deviation of inter-arrival time Ss Standard deviation of service time _ Ca Coefficient of variation of IAT a/Xa =S _ =S Cs Coefficient of variation of ST s/Xs _ _ Mean arrival rate = 1/ Xa Mean service rate 1/ Xs = = /S Utilisation of the s servers 2( S +1) 2 2

Multi-Server Queues

Ca + Cs Lq = * (1 ) 2

Source: Chase, R.B, F.R. Jacobs, and N. J. Aquilano, (2003), Operations Management for competitive advantage, Tata McGraw Hill, 10th Edition, pp 261 262.

Capacity Management
Services
Peak Hour Assemble to order Service Portfolio (narrow) Demand Mgmt.
Reservations

Non-Peak Hour Made to order Service Portfolio (wide) Demand Mgmt.

Special Tariffs, offers

Exploiting
Multi-skill labour Flexible work force