Strategic Capacity Management and Learning Curves

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Strategic Capacity Management and Learning Curves

• Selected Slides from Jacobs et al, 9th Edition
• Operations and Supply Management
• Chapter 5 and 5A
• Edited, Annotated and Supplemented by
• Peter Jurkat

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Capacity
Capacity used rate of output actually achieved
Best operating level capacity for which the
process was designed

• Capacity can be defined as the ability to hold,
  receive, store, or accommodate
• Strategic capacity planning is an approach for
  determining the overall capacity level of capital
  intensive resources, including facilities,
  equipment, and overall labor force size

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Best Operating Level
5-3
Example Engineers design engines and assembly
lines to operate at an ideal or best operating
level to maximize output and minimize wear
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Economies Diseconomies of Scale
5-4
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The Learning Curve
5-5
As plants produce more products, they gain
experience in the best production methods and
reduce their costs per unit
Cannot be a straight line why not?
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Example of a Learning Curve
5A-6
Suppose you start a term paper typing business.
You time yourself on the first paper, then the
second, and so on.
Note that only 90 of 100 minutes are used in the
second repetition. This is an example of a 90
learning curve.
Term paper 1 2 3 4 5 6
Time (in Minutes) 100 90 84.62 81.00 78.30 76.16
Plot is typical for a learning curve starts
high, drops steeply for first few units, then
learning slows down, but the production time
nevertheless continues to drop. See
Ch05A_Learning_Curves.xlsx for calculation tool
now you do 5A.5 and 5A.8
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Existing Learning Coefficients

• Aerospace 85
• Shipbuilding 80-85
• Complex machine tools for new model 75-85
• Repetitive electronics manufacturing 90-95
• Repetitive machining or punch-press op 90-95
• Repetitive welding operations 90
• Raw material manufacturing 93-96
• Purchased parts fabrication 85-88

p149
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Capacity Focus
5-8

• The concept of the focused factory holds that
  production facilities work best when they focus
  on a fairly limited set of production objectives
  (core competencies)
• Plants Within Plants (PWP)
• Extend focus concept to operating level

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Focus and Flexibility

• The concept of the focused factory holds that
  production facilities work best when they focus
  on a fairly limited set of production objectives
  (core competencies)
• Plants Within Plants (PWP)
• Extend focus concept to operating level

• Flexible plants
• Easy re-configuration
• No fixed equipment
• Flexible processes
• Multiple products
• Easy setup and switch over
• Best when multiple products with different
  seasons can be made with same process
• Flexible workers
• Multiple skills
• Broad training
• Work cells

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Capacity Planning
5-10

• Balancing Capacity across Process Steps
• Minimizes bottle necks
• Outputs from prior steps are inputs to next
• Imbalance leads to in process inventory, pure
  cost
• Frequency of Capacity Additions
• Too frequent, unnecessary costs
• Not frequent enough, lost sales
• External Sources of Capacity
• May be cheaper to outsource/subcontract than to
  increase capacity if increase in sales may not be
  permanent
• Sharing resources

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5-11
Visualizing Capacity Change
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Determining Capacity Requirements
5-12

• 1. Forecast sales within each individual product
  line will consider in detail later, for now
  given
• 2.Consolidate like production even if it ends up
  in different products for marketing purposes
• Calculate equipment and labor requirements to
  meet the forecasts
• 3. Project equipment and labor availability over
  the planning horizon - if enough capacity, good
  if not, evaluate options

See JCA12thCh5CapacityRequirementsExample.xlsx
now you do 5.2 and 5.4
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Example of a Decision Tree Problem
5-13
A glass factory specializing in crystal is
experiencing a substantial backlog, and the
firm's management is considering three courses of
action A) Arrange for subcontracting B)
Construct new facilities C) Do nothing (no
change) The correct choice depends largely upon
demand, which may be low, medium, or high. By
consensus, management estimates the respective
demand probabilities as 0.1, 0.5, and 0.4.
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Example of a Decision Tree Problem (Continued)
The Payoff Table
5-14
The management also estimates the profits when
choosing from the three alternatives (A, B, and
C) under the differing probable levels of demand
(states of nature). These profits, in thousands
of dollars are presented in the table below
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Example of a Decision Tree Problem (Continued)
Step 1. We start by drawing the three decisions
5-15
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Example of Decision Tree Problem (Continued)
Step 2. Add our possible states of nature,
probabilities, and payoffs
5-16
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Example of Decision Tree Problem (Continued)
Step 3. Determine the expected value of each
decision
5-17
90k
50k
62k
10k
A
EVA0.4(90)0.5(50)0.1(10)62k
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Example of Decision Tree Problem (Continued)
Step 4. Make decision
5-18
62k
80.5k
46k
Alternative B generates the greatest expected
profit, so our choice is B or to construct a new
facility
Now you do 5.6
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Planning Service Capacity vs. Manufacturing
Capacity
5-19

• Time Goods can not be stored for later use and
  capacity must be available to provide a service
  when it is needed
• Location Service goods must be at the customer
  demand point and capacity must be located near
  the customer
• Volatility of Demand Much greater than in
  manufacturing

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Service Utilization and Service QualityWaiting
Line Theory (details later)
5-20

• l customers per unit time demand
• m customers per unit time service
• r utilization rate l/m
• Best operating point is near 70 of capacity
• From 70 to 100 of service capacity, what do you
  think happens to service quality?
• Even 70 is high since there may be customer
  independent overhead to keep service available
  (e.g., computer n/w)