CapacityPlanningDecisionTheory.docVIP

MD 021 - Management and Operations Capacity Planning and Decision Theory Measures of capacity Bottlenecks Capacity strategies A systematic approach to capacity decisions Make or Buy Problem Decision Making Under Uncertainty and Risk, Decision Trees 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? Measuring Capacity Measurement Type Output measure for product focus Input measure for process focus Utilization = Efficiency = Effective Capacity = Design Capacity (maximum output rate) – Allowances (e.g. personal time, maintenance, and scrap) Sizing Capacity Cushion Cushion: the amount of the reserved capacity that a firm maintains to handle sudden increase in demand or temporary losses of production capacity Capacity cushion =1 - Utilization Pressures for Large Cushion Uneven demand Uncertain demand Changing product mix Capacity comes in large increments Uncertain supply Pressure for Small Cushion Capital costs Links with Other Areas Other Choice Cushion Faster delivery times Larger Smaller yield losses Smaller Higher capital intensity Smaller Less worker flexibility Larger Lower inventories Larger More stable schedules Smaller A Systematic Approach to Capacity Decisions 1. Estimate capacity requirements 2. Identify gaps 3. Develop alternatives 4. Evaluate the alternatives Estimate Capacity Requirements 1. One type of product 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 (%) 2. More than one type of product: n types of products Q = number of units in each lot s = setup time (in hours) per lot Note: Always round up the fractional part for