Capacity Planning

1
Chapter 9

• Capacity Planning

2
Capacity Planning

• Establishes overall level of productive resources
• Affects lead time responsiveness, cost
  competitiveness
• Determines when and how much to increase capacity

3
Capacity Expansion

• Volume certainty of anticipated demand
• Strategic objectives for growth
• Costs of expansion operation
• Incremental or one-step expansion

4
Capacity Expansion Strategies
Figure 9.1
5
Best Operating Levels
Figure 9.2
6
Aggregate Production Planning (APP)

• Matches market demand to company resources
• Plans production 6 months to 12 months in advance
• Expresses demand, resources, and capacity in
  general terms
• Develops a strategy for economically meeting
  demand
• Establishes a company-wide game plan for
  allocating resources

7
Inputs and Outputs to APP
Figure 9.3
8
Adjusting Capacity to Meet Demand

• Producing at a constant rate and using inventory
  to absorb fluctuations in demand (level
  production)
• Hiring and firing workers to match demand (chase
  demand)
• Maintaining resources for high demand levels
• Increase or decrease working hours (overtime and
  undertime)
• Subcontracting work to other firms
• Using part-time workers
• Providing the service or product at a later time
  period (backordering)

9
Strategy Details

• Level production - produce at constant rate use
  inventory as needed to meet demand
• Chase demand - change workforce levels so that
  production matches demand
• Maintaining resources for high demand levels -
  ensures high levels of customer service

10
Strategy Details

• Overtime undertime - common when demand
  fluctuations are not extreme
• Subcontracting - useful if supplier meets quality
  time requirements
• Part-time workers - feasible for unskilled jobs
  or if labor pool exists
• Backordering - only works if customer is willing
  to wait for product/services

11
Level Production
Figure 9.4 (a)
12
Chase Demand
Figure 9.4 (b)
13
Demand Management

• Shift demand into other periods
• Incentives, sales promotions, advertising
  campaigns
• Offer product or services with countercyclical
  demand patterns
• Partnering with suppliers to reduce information
  distortion along the supply chain

14
Demand Distortion along the Supply Chain
15
Hierarchical Planning Process
Figure 9.5
16
Aggregate Planning for Services

• Most services cant be inventoried
• Demand for services is difficult to predict
• Capacity is also difficult to predict
• Service capacity must be provided at the
  appropriate place and time
• Labor is usually the most constraining resource
  for services

17
Yield Management
where n number of no-shows x number of
rooms or seats overbooked Cu cost of
underbooking i.e., lost sale Co cost of
overbooking i.e., replacement cost P
probability
18
Yield Management
Example 9.4
19
Yield Management
Example 9.4