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PMBA8155 Operations Management
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Capacity Planning ___________________________________

& Aggregate Planning ___________________________________

___________________________________

___________________________________

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Learning Objectives
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Define Capacity and Best Operating Level
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Explain Economics and Diseconomies of Scale
Understand Capacity Expansion Issues ___________________________________
Calculate Capacity Requirements
Relationship between Capacity Utilization & Service
___________________________________
Quality
___________________________________
Compare and Contrast Chase and Level Aggregate
Planning Strategies of Meeting Demands
Understand the Basics of Yield Management

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Major Operations Planning Activities
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Overview
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Process Planning
Long Supply network
Range planning Strategic Capacity Planning
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Forecasting and ___________________________________
Sales and Operations Planning
Demand Mgmt
Medium Manufacturing Logistics
Range Services ___________________________________
Master Scheduling Vehicle capacity
planning
MRP
___________________________________
Vehicle loading Weekly Workforce &
Order Scheduling Customer Scheduling
Vehicle dispatching
Short
Range Warehouse Daily Workforce &
receipt planning Customer Scheduling
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 ___________________________________
You cant build it if you dont have the capacity
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Strategic Capacity Planning
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Planning for the overall capacity level of ___________________________________

capital-intensive resourcesfacilities,
___________________________________
equipment, and overall labor force size
to achieve a particular level of output ___________________________________
potential
___________________________________

___________________________________
Capacity Planning
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Basic Questions
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What kind of capacity is needed? ___________________________________

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How much is needed?
___________________________________

When is needed? ___________________________________

___________________________________

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What Is Capacity?
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The amount of output that a system is
___________________________________
capable of achieving over a specific
period of time ___________________________________
has a time frame ___________________________________
often measured in terms of resource inputs
___________________________________
cannot be stored for later use

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 ___________________________________
Capacity Planning Concept
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Best Operating Level
___________________________________
Design capacity for which average unit
___________________________________
cost is at the minimum
___________________________________

___________________________________
Average
unit cost
of output
Underutilization Overutilization ___________________________________
Best Operating
Level

Volume
7

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Capacity Planning Concept
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Capacity Utilization
___________________________________
Capacity used ___________________________________
Utilizati on
Best operating level
___________________________________
Capacity used
rate of output actually achieved ___________________________________

Best operating level ___________________________________

capacity for which the process was designed

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Capacity Utilization
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Example
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Design capacity = 50 trucks/day
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Actual output = 36 trucks/day
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Utilization = ?
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Solution:
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Capacity used 36 trucks/da y
Utilizatio n = .72 72%
Best operating level 50 trucks/da y

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 ___________________________________
Capacity Planning Concept
___________________________________
Economies & Diseconomies of Scale
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Economies of Scale and the Experience Curve working
___________________________________

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100-unit
Average plant
unit cost 200-unit ___________________________________
of output plant 400-unit
300-unit
plant ___________________________________
plant

Diseconomies of Scale start working

Volume 10

___________________________________

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Capacity Expansion Issues
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Maintaining system balance
Inputs Outputs
___________________________________
Stage 1 Stage 2 Stage 3
200/hr 50/hr 200/hr
(bottleneck) ___________________________________
External sources of capacity
___________________________________
Timing and frequency of capacity expansions
___________________________________
Volume Volume

Time Time
Timing
Strategy Capacity leads demand Capacity lags demand
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Capacity Expansion Issues ___________________________________
Frequency of Capacity Expansion
___________________________________

___________________________________

___________________________________

___________________________________

___________________________________

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 ___________________________________

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Planning Service Capacity
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Time ___________________________________

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Location
___________________________________

Volatility of Demand ___________________________________

13

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Capacity Utilization ___________________________________
& Service Quality
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Best operating point is near 70% of maximum
___________________________________
capacity for many services
From 70% to 100% of service capacity, service ___________________________________
quality usually gets worse.
Best utilization rate may vary based on context ___________________________________
specific tradeoff
Low rates are appropriate when both the degree of ___________________________________
uncertainty and stakes are high
Relatively predictable services or service facilities without
customer contact can operate much nearer 100 percent
utilization
14

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Aggregate Sales and ___________________________________
Operations Planning
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Balance market demand to company
___________________________________
resources (capacities)
Medium-range: 3-18 months ___________________________________
Goal: specify the optimal combination of ___________________________________
production rate
___________________________________
workforce level
inventory on hand

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 ___________________________________

Balancing Aggregate Demand ___________________________________

and Aggregate Production Capacity
___________________________________
10000
The figure to the right 10000
8000
represents forecast 8000 7000
6000
___________________________________
demand in units 6000 5500
4500
4000

The lower figure 2000

___________________________________
represents the current 0
aggregate capacity of Jan Feb Mar Apr May Jun
___________________________________
the company
10000 9000
8000

What we want to do is
8000
6000 ___________________________________
6000
4500 4000
balance out the 4000
4000
production rate,
2000
workforce levels, and
inventory to make 0
Jan Feb Mar Apr May Jun
these figures match up
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Required Inputs to the Production ___________________________________

Planning System ___________________________________

Competitors Raw material Market
___________________________________
behavior availability demand
External
to firm ___________________________________
External Economic
Planning
capacity conditions ___________________________________
for
production
___________________________________

___________________________________
Current Current Inventory Activities Internal
physical workforce levels required to firm
capacity for
production

___________________________________
Strategies for ___________________________________
Meeting Demand
___________________________________

Level production - produce at constant ___________________________________

rate & use inventory as needed to meet
demand ___________________________________

Chase demand - change workforce levels ___________________________________

so that production matches demand ___________________________________
Mixed strategy - Some combination of
the two
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 ___________________________________
Production Planning Strategies ___________________________________
Level Production
___________________________________

Demand
___________________________________

Production ___________________________________
Units

___________________________________

___________________________________

Time

19

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Production Planning Strategies
___________________________________
Chase Demand
___________________________________
Demand
___________________________________

___________________________________
Units
___________________________________

Production ___________________________________

Time

20

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Matching Capacity to Demand in Service
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Yield Management
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Allocating the fixed capacity of service ___________________________________
(airline seats, rental cars, hotel rooms
etc.) to match potential demands in ___________________________________
various market segments in the most
profitable way ___________________________________
Objective: sell the right capacity to the ___________________________________
right customer segment at the right
price to maximize the revenue or yield

21
 ___________________________________
Industries that Use Yield ___________________________________
Management Techniques ___________________________________
Transportation-oriented industries
Airlines ___________________________________
Railroads
Car rental agencies ___________________________________
Shipping
___________________________________
Vacation-oriented industries
Tour operators
___________________________________
Cruise ships
Resorts

Hotels, retailing, media, broadcasting,

theaters, and sporting events
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Business Environment ___________________________________
for Yield Management
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Relatively fixed capacity but variable
___________________________________
demand
Ability to segment markets ___________________________________
Perishable inventory
___________________________________
Sales via reservations
High fixed cost but low variable cost ___________________________________
Accurate, detailed information Systems

23

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Common Yield ___________________________________
Management Techniques
___________________________________
Reservation systems ___________________________________

Overbooking ___________________________________

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Dynamic pricing
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Capacity allocation among
customer groups or segments
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