Capacity, Planning and Control PDF

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LECTURE 5: Capacity, demand, planning and control Learning outcomes LO1 – Recognise the role of operations managers in managing demand and capacity LO2 – Evaluate the effect of planning and control on an organisation LO3 – Apply knowledge of demand and capacity management to solving operational problems

Planning is… A formalization of what is intended to happen at some time in the future. But it does not guarantee that an event will actually happen. Rather it is a statement of intention. Plans ar based on expectations, during their implementation things do not always happen as expected. -

What activites should take place in the operation. When they should take place (stock, responding clients demand,…). What resources should be allocated to them (raw materials, IT, human resources,…).

Control is… Is the process of coping with these types of change. It may mean that plans need to be redrawn in the short term. It may also mean that an “intervention” will need to be made in the operation to bring it it “back on track”. Control activities make the adjustements wich allow the operation to achieve the objectives that the plan has set, even when the assumptions on wich the plan was based do not hold true.

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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

Push: centralised but queues and inventory. Pull: work activities only when required. Long-, medium- and short-term planning and control -Long-term: operations managers make plans concerning what they inted to do, what resources they need, and what objectives they hope to achieve. The emphasis is on planning rather than control, because there is little to control as such. They will use the forecast of likely demand in aggregated terms. -Medium-term: planning and control is more detailed. It looks ahead to assess the overall demand wich the operation must meet in a partially disaggregated manner. Similarly, different categories of staff will have been identified and broad staffing levels in each category set. Just as important, contigencies will have been put in place wich allow for slight deviations from the plans. -Short-term: many of the resources will have been set and it will be difficult to make large changes. Demand will be assesses on a totally disaggregated basis, with all types of surgical procedures treated as individual activities. A general understanding on priorities will form the background to their decision making in orther to balance the quality, speed, dependability, flexibility and cost when changes to the plan take place in the short-term. Volume-Variety impact 1. The Volume Dimension A great example of this is McDonalds, they are a well known example of high volume low cost hamburger and fast food production. The volume of their operation is key to how their business is organised. Essential to their operation is the repeatability of the tasks their employees are doing as well as the systemisation of the work, where standards and procedures drive the way in which each part of the job is carried out. This combination provides a low cost base. In contrast a local café has a much lower volume of output, less labour, less systemisation, and each staff member completes a wider variety of tasks which results in higher unit costs. 2. The Variety Dimension A common example used to describe the variety dimension is the contrast between a taxi and a bus service. Both offer hired transportation services but a taxi service has a much higher variety dimension as they will basically pick you up and drop you off wherever it is you need to go. A bus offers a defined route and schedule. Whilst they offer a similar service, variety and flexibility is high for the taxi company and low for

the bus company. It is worth noting here that the a low cost model is more easily achieved with less variety. As we hace found previously, the volume and variety characteristics of an operation will have an effect on its planning and control activities. Operations wich produce a high variety of services or products in relatively low volume will have customers with differents requirements and use different processes from operations wich create standardized services or products in high volume.

Demand defined “Demand management includes activities that range from determining or estimating the demand from customers, through converting specific orders into promised delivery dates, to helping balance demand with supply” (Vollman, et al., 2005:16). “Demand management encompasses the prediction of customer requirements, labour mapping, materials and production requirements through to distribution” (Martinich, 1997). Uncertainty in demand Demand may be unpredictable. It may be possible to predict certain patterns, but a sudden contingency could significantly and unpredictably increase/decrease demand in the very short term. Dependent and independent demand Some operations can predict demand with relative certainty because demand for their services or products is dependent upon some other factor wich is known. This is known as dependent deman. For example, the demand for tyres in an automobile factory is not a totally random variable. Other operations will act in a dependant demand manner because of the nature of the service or product wich they provide. For example, a custom-made dressmaker will no buy fabric and make up dresses in many different sizes just in case someone comes along and wants to buy one.

By contrast, some operations are subject to independent demand. They need to supply future demand without knowing exactly what that demand will be; or in the terminology of planning and control, they do not have firm “forward visibility” of customer orders. It makes the “best guesses” concerning future demand, attempts to put the resources in place wich can satisfy this demand, and attempts to respond quickly if actual demand does not match the forecast. Respond to demand

Capacity management

Capacity defined Capacity in the static, physical sense means the fixed volume of an operation. However, this may not reflect the operation’s processing capability. The definition of the capacity of an operation is the maximum level of valueadded activity over a period of time that the process can achieve under normal operating conditions. -

Planned capacity: 24/7 = 168 hrs · 6000 = 1,080,000 units but 12hrs ppm (planned preventative maintenance) = 156 10hrs staf/c/o = 146 34hrs breakdown – 112hrs · 6000 = 672,000 but 5400 · 112 = 604,800 units

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Actual capacity: 604,800 => lost of 403,200 units

Capacity reconciliation

(Completar con: https://books.google.co.uk/books? id=7m8VJP0I_ksC&pg=PA68&lpg=PA68&dq=capacity+reconciliation, +chase+demand&source=bl&ots=ZZAy53GK8R&sig=BIYoko_OwKYNy_5fn8p4yT6QUs&hl=es&sa=X&ved=0ahUKEwi4i_7PydbWAhVI7hoKHcvMCr gQ6AEILjAB#v=onepage&q&f=false) -

Level capacity : this strategy sets the processing capacity at a uniform level throughout the planning period regardless of fluctuations in forecast demand. This means for a manufacturer output is set at a fixed rate, usually to meet average demand, and inventory is used to absorb variations in demand. The disadvantage of this strategy is the cost of holding inventory and of perishable items that may have to be discarded. To avoid producing obsolete items firms will try to create inventory for products wich are relatively certain to be sold. For a service organisation output cannot be stored as inventory so a level capacity plan involves running at a uniformly high level of capacity. The drawback of the approach is the cost of maintaining this high level of capacity, although it could be useful when the cost of lost sales is particularly high.

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Chase demand: this strategy seeks to match output to the demand pattern over time. Capacity is altered by such policies as changing the amount of parttime staff, changigng the amount of staff availability throug overtime working, changing equipement levels and subcontracting. The chase demand strategy is costly in terms of the costs of activities such as changing staffing levels and overtime payments. The costs may be particularly high in industries in wich skills are scarce.

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Demand management: while the level capacity and chase demand strategies aim to adjust capcity to match demand, the demand management strategy attempts to adjust demand to meet available capacity. There are many ways this can be done, but most will involve altering the marketing mix (for example price, promotion and so on) and will require coordination with the marketing function. Demand management strategies include varying the price, advertising and offering alternative products during periods of low demand.

Capacity planning Capacity planning and control is the task of setting the effective capacity of the operation so that it can respond to the demands placed upon it. This usually means deciding how the opeartion should react to fluctuations in demand. Medium- and short-term capacity Having established long-term capactiy, operations managers must decid how to adjust the capctiy of the operation in the medium term, wich enable them to flex output for a short period, either on a predicted basis (for example bank checkouts are always busy at lunchtimes) or at short notice (for example, a sunny warm day at a theme park). Aggregate demand capacity Aggregate means that different products and services are bundled together in order to get a broad view of demand and capacity. This may mean some degree of approximation, especially if the mix of products or services being produced varies significantly. Nevertheless, as a first step in management, aggregation is necessary. The objectives of capacity management · Costs : capacity levels in excess of demand could mean under-utilization of capacity and therefore high unit costs. · Revenues: capacity levels equal to or higher than demand at any point in time will ensure that all demand is satisfied and no revenue lost. · Working capital will be affected if an operation decides to build up finished goods inventory prior to demand. · Quality of goods or services might be affected by a capacity plan which involved large fluctuations in capacity levels, by hiring temporary staff for example.

· Speed of response to customer demand could be enhanced, either by the build-up of inventories or by the deliberate provision of surplus capacity to avoid queuing. · Dependability of supply will also be affected by how close demand levels are to capacity. The closer demand gets to the operation’s capacity ceiling, the less able it is to cope with any unexpected disruptions and the less dependable its deliveries of goods and services could be. · Flexibility, especially volume flexibility, will be enhanced by surplus capacity. If demand and capacity are in balance, the operation will not be able to respond to any unexpected increase in demand.

Forecast vs plans “A manager cannot be held responsible for not getting a forecast right. We can and should hold managers responsible for making their plans” Forecasts – the quantity and timing of demand; “estimates of what might occur in the marketplace.” Plans – “look at how the organisations will respond to these forecasts”...