Lesson 9 Capacity Management Chapter 11 Dr. Suanu B Wikinafo

Lesson 9 Capacity Management Chapter 11dr Suanu B Wikinafocus

Lesson 9: Capacity Management (Chapter 11) Dr. Suanu B. Wikina Focus • What is capacity management? • Demand and capacity measurement • Setting the operation’s base capacity • Handling mismatches between demand and capacity • Understanding consequences of capacity decisions What is capacity management? • Capacity management refers to understanding the nature of supply and demand, and coping with any differences between them. This involves: • Selecting supply-side and demand-side responses to meet the needs of the customer while maintaining the efficiency of the operation’s resources, i.e., reconciling competing demands of customer satisfaction and resource efficiency • Planning and controlling capacity in the short-, medium-, and long-term and setting capacity levels in aggregate terms, hence capacity management is often referred to as aggregate planning Objectives of capacity management • Decisions taken in developing capacity plans will affect performance in several ways, such as: • Costs and revenues - the balance between capacity and demand • Working capital – org will fund inventory until it can be sold • Quality - if plan involves large fluctuations in capacity levels • Speed of response to customer demand – avoid or lessen queuing • Dependability of supply – how close are demand levels to capacity? • Flexibility – volume flexibility will be enhanced by surplus capacity The process of managing capacity • Operations managers need to do the following: 1. Measure aggregate demand and capacity, and understand changes in their levels for the planning period 2. Determine the operation’s base level of capacity from which adjustments up or down will be made 3. Identify and select methods of coping with mismatches between demand and capacity 4. Understand the consequences of different capacity decisions Demand and capacity measurement • Understanding the nature of demand is the first task of capacity management • Demand forecasting is an important input to capacity management decisions; there are three requirements from a demand forecast: • It should be expressed in terms that are useful for capacity management, ex., machine hours per year • It should be as accurate as possible • It should give an indication of relative uncertainty Understanding capacity • Capacity depends on: • Service/product mix • Duration over which the output is required • Specification of the output • Capacity management should reflect both predictable and unpredictable variations in capacity and demand • Capacity leakage – arises due to theoretical capacity being difficult to achieve due to technical constraints, delays from switching, scheduling, labor shortages, quality issues, etc. • Overall equipment effectiveness (OEE) = availability (a) X performance or speed (p) X quality of product or services created by the process (q) Setting base capacity Factors influencing the operation’s base level of capacity are the: 1. Relative importance of the performance objectives – set base capacity levels to reflect operation’s performance objectives 2. Perishability of the output – set to a relatively high level as inputs or outputs cannot be stored for long periods 3. Degree of variability in demand or supply – set base level of capacity relatively high to provide extra capacity if there is high level of variability, either in demand or capacity Coping with demand and capacity mismatches • Three pure options are available for dealing with mismatches between demand and capacity, especially in unpredictable variations: 1. Level capacity plan – keep capacity fixed irrespective of forecast demand fluctuations 2. Chase demand plan – match capacity with varying levels of forecast demand 3. Demand management plan – change demand pattern to align it closely to available capacity (stimulate off-peak demand or constrain peak demand) Yield management – use capacity of the operation for generating revenue to its full potential, ex., airlines, hotels Understanding consequences of capacity decisions Before adopting one or more of the three pure capacity plans, use the following three methods to examine their likely consequences by considering: 1. Capacity decisions using cumulative representations 2. Capacity decisions using queuing principles 3. Capacity decisions over time Lesson 8: Planning & Control (P&C) and P & C Systems (Chapters 10 & 14) Dr. Suanu B. Wikina Focus • What is planning and control? • Difference between planning and control • Effect of supply and demand on planning and control • Planning and control activities • Planning and control systems • Enterprise resource planning and planning and control systems • Planning and control systems implementation What is planning and control? • Planning and control is reconciling demands of the market with the ability of the operation’s resources to deliver. • Provides the systems, procedures, and decisions that bring aspects of the demand and supply together • For instance, in a healthcare environment, planning and control activities may include activities of scheduling, coordination, and organization Difference between planning and control • Although distinction between the two terms are unclear, some general features could help to distinguish between them • Planning is formalization of what is intended to happen at some point of time in the future, • i.e., it is a statement of intention, based on expectations that may or may not happen due to a variety of reasons • Control is a process of coping with changes to bring an operation back on track • i.e., making adjustments to allow the operation achieve set objectives Effect of supply and demand on planning and control • Both supply and demand uncertainty make planning and control more difficult.

A combination of supply and demand is difficult. • Dependent demand can be predicted with relative certainty because it is dependent on some other known factor • Independent demand on the other hand is a situation when supply is made without knowing exactly what demand will be, i.e., the firm does not have a firm forward visibility of customer orders • Planning and control depends on how the operation responds to demand, which is related to the type of products/services Planning and control activities There are four overlapping activities: 1. Loading – amount of work allocated to a work center - how much to do? We can have finite and infinite loading 2. Sequencing – order in which work is to be done/priority assigned 3. Scheduling – when to do thing; details with start/end date/time 4. Monitoring & controlling – check to see if things are going according to plan. If not, rectify deviations with interventions which may involve re-planning Planning and control systems • These are the information-processing, decision support, and execution mechanisms that support planning and control activity • Some common elements of planning and control systems are: • Customer (demand) interface • Supply interface • A set of overlapping core mechanisms • Decision mechanism (operations staff and information systems) • Hierarchical planning and control separates different kinds of decisions at different levels over different time periods; and is closely related to enterprise resource planning (ERP) Enterprise resource planning (ERP) and planning and control systems • ERP or materials requirements planning (MRP) enables companies to make decisions about volume (quantity) and timing calculations of materials needed • Automates and integrates core business processes, such as customer demand, scheduling operations, ordering items, keeping inventory records, and updating financial data • Enables proactive planning and thus companies are in a better position to understand the implications of any changes to the plan Planning and control systems implementation • Planning and control systems are designed to address enterprise- wide problems and so they are complex and difficult to get right • Implementation therefore should involve cross-functional teams to deal with challenges of crossing boundaries, unifying divergent processes, and dealing with resistance to change. • Resistance to change could arise from moving everyone to a single, integrated system that runs off a single database, and so this needs to be handled carefully and properly to garner buy in • ERP implementations fail often.

Paper For Above instruction

Capacity management and planning and control are integral components of operational strategy that focus on aligning supply with demand, optimizing resource utilization, and ensuring the efficient delivery of products and services. These concepts are pivotal in maintaining competitiveness and achieving organizational objectives across various industries.

Introduction

Effective capacity management involves understanding and anticipating the needs of the marketplace, and dynamically adjusting resources to meet fluctuating demands. It encompasses fundamental activities such as measuring demand and capacity, setting appropriate baseline capacities, and implementing strategies to address mismatches between supply and demand. In tandem, planning and control functions coordinate the scheduling, sequencing, and monitoring of operations to ensure that organizational goals are met efficiently and flexibly.

Understanding Capacity Management

Capacity management primarily focuses on balancing the resources of an organization with the demands placed upon them. It involves capturing a comprehensive understanding of demand patterns, which can be forecasted with varying degrees of certainty. Accurate demand forecasting is critical, as it influences capacity planning decisions, resource allocation, and service delivery. The process entails analyzing the nature of demand—whether it is predictable (dependent demand) or unpredictable (independent demand)—and adjusting capacity accordingly.

Capacity is influenced by several factors including service or product mix, the temporal requirements of output, and the technical specifications of the output. The goal is to achieve a harmonious balance that minimizes overcapacity, which incurs unnecessary costs, and undercapacity, which compromises service quality and responsiveness. Technical constraints, such as equipment effectiveness (measured by Overall Equipment Effectiveness – OEE), play a significant role in determining achievable capacity levels.

Developing and Adjusting Base Capacity

The base capacity serves as the aggregate level of capacity that supports ongoing operations. Its determination is shaped by multiple considerations—performance objectives, the perishability of outputs, and demand variability. For instance, highly perishable outputs necessitate higher base capacities to avoid waste, while fluctuating demand levels might warrant a conservative or surplus capacity approach. Managers must consider these factors to set a robust baseline that allows flexibility without incurring excessive costs.

Strategies for Handling Demand-Capacity Mismatches

When actual demand surpasses or falls below available capacity, operational managers have several strategies at their disposal. The simplest is the level capacity plan, maintaining a constant capacity regardless of demand fluctuations, which is often suitable for stable environments or where service consistency is prioritized. Alternatively, chase demand plans involve adjusting capacity to align with demand variations—scaling workforce, machines, or operational hours as needed.

Similarly, demand management strategies aim to influence customer demand, encouraging off-peak usage or limiting peak-time consumption to match existing capacity. Yield management techniques, such as those used by airlines or hotels, optimize capacity utilization by selling different classes of service or time slots at variable prices to maximize revenue from available capacity.

Understanding the implications of these strategies requires analysis through models such as cumulative representations, queuing theory, and over-time capacity planning. These approaches facilitate insight into capacity utilization, waiting times, and service levels under different scenarios.

Planning and Control Activities

Planning and control comprise four interconnected activities: loading, sequencing, scheduling, and monitoring. Loading involves allocating work to resources, either as finite or infinite, depending on the operational context. Sequencing determines the order of tasks or jobs based on priority rules, ensuring optimal flow. Scheduling specifies when activities should occur, detailing start and end times to meet deadlines and resource availability. Monitoring and controlling facilitate real-time oversight, enabling quick responses to deviations from the plan through corrective measures or re-scheduling.

The effectiveness of planning and control systems hinges on robust information flows and decision mechanisms. Core components include demand interfaces, supply interfaces, decision support systems, and hierarchical decision-making structures, often integrated through enterprise resource planning (ERP) systems. ERP and Material Requirements Planning (MRP) tools provide proactive planning capabilities, improve coordination, and enhance responsiveness to changes, although implementation challenges—such as resistance to change or technical complexities—must be carefully managed.

Conclusion

In conclusion, capacity management and planning and control are vital for operational excellence. They enable organizations to forecast accurately, adjust flexibly, and respond effectively to market demands. A strategic approach, supported by suitable decision-making frameworks and technological tools, ensures optimal resource utilization and sustained competitive advantage.

References

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