Capacity Issues

Dr David J. Newlands 2016

ISEG School of Management

d.newlands@ieseg.fr

There can be many sources of demand

1

Netted sales forecast

50

60

60

70

90 100 100 100

Customer orders

50

40

40

30

10

Dependent demand

50

Interplant orders

10

Warehouse orders

50

50

20

10

20

20

20

Special marketing promotion

10
10

10

10

-10

Anticipation buildup
Prototype build

50

10

Charity donations

Safety stock increase

5
5

10

15

Total 160 130 165 130 160 130 175 135

Hedging stock allows the gross demand to be balanced. Orders can

replace hedging volume. The volume is put back to a later time slot.
Source: APICS

Capacity Expansion

Volume & certainty of anticipated demand

Strategic objectives for growth
Costs of expansion & operation
Incremental or one-step expansion

Capacity Expansion Strategies

Capacity lead strategy
Units
Capacity

Capacity lag strategy

Units
Demand

Capacity

Demand
Time

Time

Average capacity strategy

Units

Incremental vs. one-step expansion

Units

Capacity
One-step
expansion
Demand

Time

Incremental
expansion
Demand

Time

Strategies for Meeting

Non-Uniform Demand

Build up inventory
Back-ordering
Smooth demand through marketing

Forecast data analysis smoothing to eliminate

seasonality
increase price to reduce demand
decrease price to increase demand

Level Production
Demand

Production

Units

Time

Forrester Effect

Period
1
2
3
4
5
6

Third Tier
Second Tier
First Tier
Original
Supplier
Supplier
Supplier
equipment mfg
Prodn Stock Prodn Stock Prodn Stock Prodn Stock Demand
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-60
20
20
60
60
80
80
90
90
20
60
80
90
260
140
140
100
100
90
90
90
90
140
100
90
90
20
80
80
90
90
90
90
90
90
80
90
90
90
100
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90
90

Adapted from Slack et al, in Newlands (2005)

Causes of uneven demand at plant level

DC1

DC2

DC3

DC4

Independent 1 1 1 1 1 1 1
Demand

5 5 5 5 5 5 5

3 3 3 3 3 3 3

11 11 11 11 11 11 11

Orders
Placed (A)

15

10

15

15

10

10 25

RDC 1

25

25

25

RDC 2

Combined
Demand

20

15

5 15

35

25 10 25

35

Orders
Placed (B)

25

25

25

50

50

50

PLANT

Orders
Received

75

50 25

75

(A) Lot size replenishment policies in multiples of 5 (overpack quantity)

(B) Lot size replenishment policies in multiples of 25 (pallet/truck)

Economic order quantities and economic batch quantities

Christopher, M. (1997)

Level Production

Export Volume
Demand in
theDemand
domesticfor
domestic
market
market

Units

Time

Production

Registration of vehicles in Japan and the US (19701990).

12000000

8000000
Japanese
Vehicle
Registrations

6000000
4000000

US Vehicle
Registrations

2000000
0
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90

Gross number

10000000

Years

Strategies for Meeting

Non-Uniform Demand

Vary capacity

overtime
extra shifts
subcontracting
hiring and layoffs

Chase Demand
Demand

Units

Production

Time

Initial Load Profile

Hours of
capacity
Normal
capacity

Time (weeks)

Adjusted Load Profile

Hours of
capacity

Work an
extra shift

Overtime

Push back

Pull ahead
Push back

Time (weeks)

Remedies for Underloads

1. Acquire more work

2. Pull work ahead that is scheduled for later time

periods
3. Reduce normal capacity (temporary or
permanent)
4. Revise master schedule
5. Focus on system design and process improvement

Remedies for Overloads

1. Eliminate unnecessary requirements
2. Reroute jobs to alternative machines or work centres
3. Split lots between two or more machines
4. Increase normal capacity
5. Subcontract
6. Increase the efficiency of the operation
7. Push work back to later time periods
8. Revise master schedule