Unit 6 Material -
Capacity

Capacity is defined as the volume of goods or services generated over a certain time


Alternatively (and perhaps more accurately) it can also be defined as the units of resource available for a given work order.


The aim of the management of capacity is to ensure that sufficient capacity is available at any given time to meet the demand from customers

Effective Capacity is the maximum capacity diminished by planned/predictable waste from things like maintenance, holidays etc.


Actual Capacity is effective capacity further diminished by unplanned waste, such as sickness, outages etc

Utilisation = actual output/maximum capacity


Efficiency = actual output/effective capacity

Capacity = Maximum volume of output per time unit x time units in period.

Proxies for capaciity
Outside of straight manufacturing, other organisations have to adopt proxies to measure their output - e.g. the burger meal or in the case of hospitals, beds occupied as opposed to discharges

Inventory - when goods or services exceed demand, they can be stored in 'inventory' until such times as demand outstrips supply. This can however be a costly exercise

It is economically sensible to manage capacity as supply often exceeds demand

Chase Demand/Yield Management Orgs relay on flexible structures and shifts to manage capacity to mirror demand

Manage Demand - where demand is managed to match a rather inflexible capacity, for example hotel rooms or airline seats. Costs are often immediate and it makes sense to drive sales
Some strategies include:

  • Pricing: Early sales can be incentivised by offering early bird discounts
  • Fixed schedules: service etc only available at prescribed times
  • Appointment Systems
  • Delayed Delivery
  • Advertising

Queuing theory - For orgs that do not operate an inventory.
Basic idea is as customers in a queue for a service desk


The main variable to be optimised is the waiting time and/or number of customers in the queue. The model approximates customer arrival with a Poisson distribution and service times with an exponential distribution.

Scheduling - Required to make efficient use of personnel, supplies and equipment.

Sequencing - important when a finite resource is shared between jobs.


There are three possible criteria that determine the order of sequencing.


Process-focused criteria seek to minimise the times the finite resource is idle or maximise the number of jobs processed in a certain time.
Customer-focused (due date) criteria aim to minimise the waiting time for customers.
Cost-based criteria minimise the overall costs of production.

Process Focussed Sequencing
There are 2 relevant criteria for this type of sequencing

  • Flow time: The sum of the job's processing time through workstations + the waiting times in between work stations. - Fi = pij + wij

Or can also be expressed as the difference between the ready time (when all the necessary resources/materials are ready) and the completion time - Fi = Ci - Ri


Makespan calculates this for a series of jobs that are related to each other - eg all jobs taken to produce a car. Calculated as the ready time of the first job and the completion of the car

Customer Focussed Sequencing - Calculated in relation to Due Date
Lateness - difference between the completon time and the due date - can be a + or - value


Tardiness - Only concerned with how the completion date exceeds the due date

Managing Queues

Cost Based Sequencing aims to minimise overall production costs, such as setup, handling, processing and running costs

Sequencing rules

  • SPT: Shortest processing time. Jobs with the shortest PT are sequenced first

  • EDD: Earliest Due Date. If sequencing is based on customer led criteria


    Th above will work well if all jobs are known prior to the start of work as they tend to postpone long jobs or those with a long due date


  • FCFS: First Come First Served.

  • FNO: Fewest Number of Operations Remaining. Jobs which require the smallest number of work stations to pass are prioritised
  • LWR: Least Work Remaining.
  • LWNQ: Least Work at Next Queue. Jobs with the least work awaiting the next step in process are sequenced first
  • Unoccupied waiting time seems longer than occupied time.
  • Pre-process waiting time seems longer than in-process waiting time.
  • Unexplained waiting time seems longer than explained waiting time.
  • Uncertain waiting time seems longer than defined waiting time.
  • The more valuable the service to the customers, the longer they are prepared to wait for it.
  • Waiting time spent alone seems longer than waiting time spent in a group.
  • Waiting time seems longer if progression in the queue is perceived unfair.
  • Anxiety makes waiting times seem longer.

Round Robin - Where an agent can deal with a customer, hand them off to a specialist and then receive them once again
The cμ, index - customers are rated on their need and the time taken to service that need. Priority is given to customers with a high waiting cost and low service time.
Triage - where those most in need of the service are handled first

Work in Progress inventory refers to raw materials and half assembled goods
Finished goods are those completed and waiting to be supplied
Goods in transit - refers to inventory of those items sent but not delivered yet.
Each item in an inventory can be referred to as an SKU (stock-keeping unit)

Inventory

Holding Costs - costs arising from estate, insurance, transport, obsolescence and deterioration.
Shortage costs compromise lost sales, more expensive sales and penalties
Environmentally preferred purchasing takes into account the environmental aspects of the ordering process.

ABC Classification
Pareto's law - 20% of the goods in inventory will account for 80% of the costs.
Classification:

  1. List all goods with annual expenditure - cost per unit x the number of units used in one year
  2. Sort the list by highest value
  3. Work out the cumulative percentages from the top
  4. When you reach 60% - 80% draw a line and the goods above the line are category A
  5. When you reach 75%-90%, draw a second line. Those above are Cat B whilst those below are Cat C
    Cat A items should be monitored closely and demand predicted.
    While annual expenditure is the most common criterion for an ABC classification, other factors, such as deterioration rate, variable delivery times or the amount of disruption caused by a shortage, can also be taken into account.

Fixed Quantity Models - Keeping order quantity stable and determining optimal order point
Based on reordering the same number of supplies. Stock drops in line with demand - minimum stock needs to include enough to cover the lead time of new supply


Fixed Period Model - Keep time interval between orders stable and determining optimal order quantity

Determining reorder point
Static Demand : RP Units = demand (units over time) x Lead Time
Variable Demand : RP = expected demand during lead time + safety stock
Safety stock is calculated using the standard deviations from the mean and during lead time

Economic Order Quantity:
Assumptions:
Demand for each of the items in the inventory is independent, so that each item can be looked at in isolation from the others.
All items of the order arrive at the same time.
Only ordering and holding costs are relevant.
Ordering costs are fixed and do not depend on the quantity ordered.
Holding costs increase in a linear fashion with every item.
No shortages are allowed.
There is constant demand, which implies a constant withdrawal rate from the inventory.
There are constant lead times.

The annual inventory costs are the sum of the annual holding costs (ACH) and annual ordering costs (ACO).