0% found this document useful (0 votes)
35 views43 pages

Lecture 9 (Capacity & constraint management)

It covers managing the production, throughput or hold capacity of any organization to balance the demand and production quantity

Uploaded by

Huzaifa Imran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
35 views43 pages

Lecture 9 (Capacity & constraint management)

It covers managing the production, throughput or hold capacity of any organization to balance the demand and production quantity

Uploaded by

Huzaifa Imran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 43

Capacity and

SUPPLEMENT
Constraint
Management

PowerPoint presentation to accompany


Heizer, Render, Munson
Operations Management, Twelfth Edition
Principles of Operations Management, Tenth Edition

PowerPoint slides by Jeff Heyl

Copyright © 2017 Pearson Education, Inc. S7 - 1


Capacity
► The throughput, or the number of units
a facility can hold, receive, store, or
produce in a period of time
► Determines
fixed costs
► Determines if
demand will
be satisfied
► Three time horizons
Copyright © 2017 Pearson Education, Inc. S7 - 2
Planning Over a Time Horizon
Figure S7.1
Options for Adjusting Capacity
Time Horizon
Design new production processes
Long-range
planning Add (or sell existing)
long-lead-time equipment *
Acquire or sell facilities
Acquire competitors
Intermediate-
range Subcontract Build or use inventory
planning Add or sell equipment More or improved training
(aggregate Add or reduce shifts Add or reduce personnel
planning)
Schedule jobs

*
Short-range Schedule personnel
planning Allocate machinery
(scheduling)
Modify capacity Use capacity
* Difficult to adjust capacity as limited options exist
Copyright © 2017 Pearson Education, Inc. S7 - 3
Design and Effective Capacity
► Design capacity is the maximum
theoretical output of a system
► Normally expressed as a rate
► Effective capacity is the capacity a firm
expects to achieve given current
operating constraints
► Often lower than design capacity

Copyright © 2017 Pearson Education, Inc. S7 - 4


Design and Effective Capacity
TABLE S7.1 Capacity Measurements
MEASURE DEFINITION EXAMPLE
Design capacity Ideal conditions exist Machines at Frito-Lay are designed to
during the time that produce 1,000 bags of chips/hr., and the plant
the system is operates 16 hrs./day.
available Design Capacity = 1,000 bags/hr. × 16 hrs.
= 16,000 bags/day

Copyright © 2017 Pearson Education, Inc. S7 - 5


Design and Effective Capacity
TABLE S7.1 Capacity Measurements
MEASURE DEFINITION EXAMPLE
Effective capacity Design capacity Frito-Lay loses 3 hours of output per day
minus lost output (= 0.5 hrs./day on preventive maintenance,
because of planned 1 hr./day on employee breaks, and 1.5
resource hrs./day setting up machines for different
unavailability (e.g., products).
preventive Effective Capacity = 16,000 bags/day
maintenance, – (1,000 bags/hr.)
machine (3 hrs./day)
setups/changeovers, = 16,000 bags/day
changes in product – 3,000 bags/day
mix, scheduled = 13,000 bags/day
breaks)

Copyright © 2017 Pearson Education, Inc. S7 - 6


Design and Effective Capacity
TABLE S7.1 Capacity Measurements
MEASURE DEFINITION EXAMPLE
Actual output Effective capacity On average, machines at Frito-Lay are not
minus lost output running 1 hr./day due to late parts and
during unplanned machine breakdowns.
resource idleness Actual Output = 13,000 bags/day
(e.g., absenteeism, – (1,000 bags/hr.)
machine breakdowns, (1 hr./day)
unavailable parts, = 13,000 bags/day
quality problems) – 1,000 bags/day
= 12,000 bags/day

Copyright © 2017 Pearson Education, Inc. S7 - 7


Utilization and Efficiency
Utilization is the percent of design
capacity actually achieved
Utilization = Actual output/Design capacity

Efficiency is the percent of effective


capacity actually achieved
Efficiency = Actual output/Effective capacity

Copyright © 2017 Pearson Education, Inc. S7 - 8


Design
Bakery Example Capacity
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Copyright © 2017 Pearson Education, Inc. S7 - 9


Bakery Example Utilization

Actual production last week = 148,000 rolls


Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Copyright © 2017 Pearson Education, Inc. S7 - 10


Bakery Example Efficiency

Actual production last week = 148,000 rolls


Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

Copyright © 2017 Pearson Education, Inc. S7 - 11


Design
Bakery Example Capacity
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600 x 2 = 403,200 rolls

Copyright © 2017 Pearson Education, Inc. S7 - 12


Effective
Bakery Example Capacity
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600 x 2 = 403,200 rolls


Effective capacity = 175,000 x 2 = 350,000 rolls

Copyright © 2017 Pearson Education, Inc. S7 - 13


Actual
Bakery Example Output
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600 x 2 = 403,200 rolls


Effective capacity = 175,000 x 2 = 350,000 rolls
Actual output = 148,000 + 130,000 = 278,000 rolls

Copyright © 2017 Pearson Education, Inc. S7 - 14


Utilization
Bakery Example Efficiency
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600 x 2 = 403,200 rolls


Effective capacity = 175,000 x 2 = 350,000 rolls
Actual output = 148,000 + 130,000 = 278,000 rolls
Utilization = 278,000/403,200 = 68.95%
Efficiency = 278,000/350,000 = 79.43%

Copyright © 2017 Pearson Education, Inc. S7 - 15


Capacity Considerations

1. Forecast demand accurately


2. Match technology increments and
sales volume
3. Find the optimum operating size
(volume)
4. Build for change

Copyright © 2017 Pearson Education, Inc. S7 - 16


Managing Demand
► Demand exceeds capacity
► Curtail demand by raising prices, scheduling
longer lead times
► Long-term solution is to increase capacity
► Capacity exceeds demand
► Stimulate market
► Product changes
► Adjusting to seasonal demands
► Produce products with complementary
demand patterns

Copyright © 2017 Pearson Education, Inc. S7 - 17


Bottleneck Analysis
► Each work area can have its own unique
capacity
► Capacity analysis determines the throughput
capacity of workstations in a system
► A bottleneck is a limiting factor or constraint
► A bottleneck has the lowest effective capacity in a
system
► The time to produce a unit or a specified
batch size is the process time
Copyright © 2017 Pearson Education, Inc. S7 - 18
Bottleneck Analysis
► The bottleneck time is the time of the
slowest workstation (the one that takes
the longest) in a production system
► The throughput time is the time it takes
a unit to go through production from start
to end, with no waiting Figure S7.4

A B C

2 min/unit 4 min/unit 3 min/unit

Copyright © 2017 Pearson Education, Inc. S7 - 19


Capacity Analysis
► Two identical sandwich lines
► Lines have two workers and three operations
► All completed sandwiches are wrapped
First assembly line

Bread Fill Toaster


15 sec/sandwich 20 sec/sandwich 40 sec/sandwich
Wrap/
Order
Deliver
30 sec/sandwich
Bread Fill Toaster 37.5 sec/sandwich

15 sec/sandwich 20 sec/sandwich 40 sec/sandwich

Second assembly line

Copyright © 2017 Pearson Education, Inc. S7 - 20


Capacity Bread
15 sec
Fill
20 sec
Toaster
40 sec

Analysis
Order Wrap
30 sec
Bread Fill Toaster 37.5 sec
15 sec 20 sec 40 sec

► The two lines are identical, so parallel


processing can occur
► At 40 seconds, the toaster has the longest
processing time and is the bottleneck for
each line
► At 40 seconds for two sandwiches, the
bottleneck time of the combined lines = 20
seconds
► At 37.5 seconds, wrapping and delivery is
the bottleneck for the entire operation
Copyright © 2017 Pearson Education, Inc. S7 - 21
Capacity Bread
15 sec
Fill
20 sec
Toaster
40 sec

Analysis
Order Wrap
30 sec
Bread Fill Toaster 37.5 sec
15 sec 20 sec 40 sec

► Capacity per hour is 3,600 seconds/37.5


seconds/sandwich = 96 sandwiches per
hour
► Throughput time is 30 + 15 + 20 + 40 + 37.5
= 142.5 seconds

Copyright © 2017 Pearson Education, Inc. S7 - 22


Capacity Analysis
► Standard process for cleaning teeth
► Cleaning and examining X-rays can happen
simultaneously

Hygienist
cleaning

Takes Develops 24 min/unit Check


Check in Dentist
X-ray X-ray out

2 min/unit 2 min/unit 4 min/unit X-ray 8 min/unit 6 min/unit


exam

5 min/unit

Copyright © 2017 Pearson Education, Inc. S7 - 23


Capacity Check
in
Takes
X-ray
Develops
X-ray
Hygienist
cleaning

24 min/unit
Dentist
Check
out

Analysis 2 min/unit 2 min/unit 4 min/unit X-ray


exam

5 min/unit
8 min/unit 6 min/unit

► All possible paths must be compared


► Bottleneck is the hygienist at 24 minutes
► Hourly capacity is 60/24 = 2.5 patients
► X-ray exam path is 2 + 2 + 4 + 5 + 8 + 6 = 27
minutes
► Cleaning path is 2 + 2 + 4 + 24 + 8 + 6 = 46
minutes
► Longest path involves the hygienist cleaning
the teeth, patient should complete in 46
minutes
Copyright © 2017 Pearson Education, Inc. S7 - 24
Break-Even Analysis
► Technique for evaluating process and
equipment alternatives
► Objective is to find the point in dollars
and units at which cost equals
revenue
► Requires estimation of fixed costs,
variable costs, and revenue

Copyright © 2017 Pearson Education, Inc. S7 - 25


Break-Even Analysis
► Fixed costs are costs that continue even
if no units are produced
► Depreciation, taxes, debt, mortgage
payments
► Variable costs are costs that vary with
the volume of units produced
► Labor, materials, portion of utilities
► Contribution is the difference between
selling price and variable cost

Copyright © 2017 Pearson Education, Inc. S7 - 26


Break-Even Analysis
– Total revenue line
900 –

800 – i dor
Break-even point rr Total cost line
t co
700 –
Total cost = Total revenue
rofi
P
Cost in dollars

600 –

500 –
Variable cost
400 –

300 –
oss or
200 – L rid
r
co
100 – Fixed cost
| | | | | | | | | | | |
0 100 200 300 400 500 600 700 800 900 1000 1100
Figure S7.5
Volume (units per period)
Copyright © 2017 Pearson Education, Inc. S7 - 27
Break-Even Analysis
Assumptions
► Costs and revenue are linear

functions
► Generally not the case in the real
world
► We actually know these costs
► Very difficult to verify
► Time value of money is often
ignored
Copyright © 2017 Pearson Education, Inc. S7 - 28
Break-Even Analysis
BEPx = x = number
break-even point of units produced
in units TR = total
BEP$ = revenue = Px
break-even point F = fixed
in dollars costs
P = V = variable
pricepoint
Break-even occurs when cost per unit
per unit
(after all TC = total
discounts) costs = F + Vx
TR = TC F
or BEP x =
P–V
Px = F + Vx

Copyright © 2017 Pearson Education, Inc. S7 - 29


Break-Even Analysis
BEPx = x = number
break-even point of units produced
in units TR = total
BEP$ = revenue = Px
break-even point F = fixed
in dollars costs
P = V = variable
priceP per F Profit
unit = TRcost
- TCper unit
BEP$ = BEP = P
(after all P – V
x

discounts) – (F + =Vx)
= Px TC total
F costs = F + Vx
= (P – V)/P = Px – F – Vx
= (P - V)x – F
F
= 1 – V/P
Copyright © 2017 Pearson Education, Inc. S7 - 30
Break-Even Example
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit

F $10,000
BEP$ = =
1 – (V/P) 1 – [(1.50 + .75)/(4.00)]
$10,000
= = $22,857.14
.4375

Copyright © 2017 Pearson Education, Inc. S7 - 31


Break-Even Example
Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit

F $10,000
BEP$ = =
1 – (V/P) 1 – [(1.50 + .75)/(4.00)]
$10,000
= = $22,857.14
.4375

F $10,000
BEPx = = = 5,714
P–V 4.00 – (1.50 + .75)

Copyright © 2017 Pearson Education, Inc. S7 - 32


Break-Even Example
50,000 –
Revenue
40,000 –
Break-even
point Total
costs
Dollars

30,000 –

20,000 –
Fixed costs
10,000 –

| | | | | |
0 2,000 4,000 6,000 8,000 10,000
Units

Copyright © 2017 Pearson Education, Inc. S7 - 33


Break-Even Example
Multiproduct Case

Break-even
point in dollars
(BEP$)

where V = variable cost per unit


P = price per unit
F = fixed costs
W = percent each product is of total dollar sales
expressed as a decimal
i = each product
Copyright © 2017 Pearson Education, Inc. S7 - 34
Multiproduct Example
Fixed costs = $3,000 per month
ANNUAL FORECASTED
ITEM SALES UNITS PRICE COST
Sandwich 9,000 $5.00 $3.00
Drink 9,000 1.50 .50
Baked potato 7,000 2.00 1.00

1 2 3 4 5 6 7 8 9

ANNUAL ANNUAL WEIGHTED


FORECASTED SELLING VARIABLE FORECASTED % OF SALES CONTRIBUTION
ITEM (i) SALES UNITS PRICE (Pi) COST (Vi) (Vi/Pi) 1 - (Vi/Pi) SALES $ (Wi) (COL 6 X COL 8)

Sandwich
9,000 $5.00 $3.00 .60 .40 $45,000 .621 .248

Drinks
9,000 1.50 0.50 .33 .67 13,500 .186 .125
Baked 7,000
potato 2.00 1.00 .50 .50 14,000 .193 .097

$72,500 1.000 .470


Copyright © 2017 Pearson Education, Inc. S7 - 35
Multiproduct Example
Fixed costs = $3,000 per month
ANNUAL FORECASTED
ITEM SALES UNITS PRICE x 12
$3,000 COST
Sandwich 9,000 = $5.00 = $76,596
$3.00
.47
Drink 9,000 1.50 .50
Baked potato 7,000 Daily $76,596
2.00 1.00
=
sales 312 days = $245.50
1 2 3 4 5 6 7 8 9

ANNUAL ANNUAL WEIGHTED


FORECASTED SELLING VARIABLE FORECASTED CONTRIBUTION
ITEM (i) SALES UNITS PRICE (P) COST (V) (V/P) 1 - (V/P) SALES $ % OF SALES (COL 5 X COL 7)

Sandwich
9,000 $5.00 $3.00 .60 .40 $45,000 .621 .248

Drinks
9,000 1.50 0.50 .33 .67 13,500 .186 .125
Baked 7,000
potato 2.00 1.00 .50 .50 14,000 .193 .097

$72,500 1.000 .470


Copyright © 2017 Pearson Education, Inc. S7 - 36
Reducing Risk with
Figure S7.6 Incremental Changes
(a) Leading demand with (b) Leading demand with a
incremental expansion one-step expansion
New
New capacity
capacity

Demand
Demand

Expected Expected
demand demand

(c) Lagging demand with (d) Attempts to have an average


incremental expansion capacity with incremental
New expansion
capacity New
Demand

Expected Demand capacity Expected


demand demand

Copyright © 2017 Pearson Education, Inc. S7 - 37


Net Present Value (NPV)
In general:
F = P(1 + i)N
where F = future value
P = present value
i = interest rate
N = number of years

Solving for P:
F
P=
(1 + i)N
Copyright © 2017 Pearson Education, Inc. S7 - 38
Net Present Value (NPV)
In general:
F = P(1 + i)N
where F = future value
P While
= present value this works fine, it
i is cumbersome for
= interest rate
N = number oflarger
years values of N

Solving for P:
F
P=
(1 + i)N
Copyright © 2017 Pearson Education, Inc. S7 - 39
NPV Using Factors
F
P= = FX
(1 + i) N

where X = a factor from


Table S7.2 defined as = 1/(1 + i)N
and F = future value
TABLE S7.2 Present Value of $1
YEAR 6% 8% 10% 12% 14%
1 .943 .926 .909 .893 .877
2 .890 .857 .826 .797 .769
3 .840 .794 .751 .712 .675
4 .792 .735 .683 .636 .592
Portion of
5 .747 .681 .621 .567 .519 Table S7.2

Copyright © 2017 Pearson Education, Inc. S7 - 40


Present Value of an Annuity
An annuity is an investment that
generates uniform equal payments

S = RX
where X = factor from Table S7.3
S = present value of a series of
uniform
annual receipts
R = receipts that are received
every year
of the life of the investment

Copyright © 2017 Pearson Education, Inc. S7 - 41


Present Value of an Annuity
TABLE S7.3 Present Value of and Annuity of $1
YEAR 6% 8% 10% 12% 14%
1 .943 .926 .909 .893 .877
2 1.833 1.783 1.736 1.690 1.647
3 2.673 2.577 2.487 2.402 2.322
4 3.465 3.312 3.170 3.037 2.914
5 4.212 3.993 3.791 3.605 3.433

Portion of
Table S7.3

Copyright © 2017 Pearson Education, Inc. S7 - 42


Present Value of an Annuity
▶ River Road Medical Clinic equipment investment

$7,000 in receipts per year for 5 years


Interest rate = 6%
From Table S7.3
X = 4.212

S = RX
S = $7,000(4.212) = $29,484

Copyright © 2017 Pearson Education, Inc. S7 - 43

You might also like