Capter 8-Capacity Management

TQM
CHAPTER 8:
CAPACITY
MANAGEMENT
REPORTERS
JOANA SHARMINE ARROBANG
JAYSON DADIVAS
TQM
LEARNING OBJECTIVES
after studying this chapter you should be able to:
8-1 Explain the concept of capacity.

8-4
Describe how to compute and use capacity

8-2
measures.
8-3
Describe long-term capacity expansion
strategies.
8-4
Describe short-term capacity adjustment
strategies.
Explain the principles and logic of the
8-5
Theory of Constraints.
CAPACITY
is the capability of a manufacturing or service
resource such as a facility, process, workstation, or
piece of equipment to accomplish its purpose over a
specified time period.
Factors Affecting
CAPACITY
Facilities CAPACITY
Equipment Can be viewed in one of two ways:
Technology
As the maximum rate of output per unit of time,
Demand 1 or
Resource
Availability 2 As units of resource availability.
Labor/Human
Capital
External Factors
TYPICAL CAPACITY
issues to address include:
• Can the facility, process, or equipment accommodate new

goods and services and adapt to changing demand for
existing goods and services?
• How large should facility, process, or equipment capacity
be?
• When should capacity changes take place?
CAPACITY MANAGEMENT
PLANNING PROCESS
ECONOMIES OF SCALE DISECONOMIES OF SCALE
are achieved when the average occur when the average unit cost
unit cost of a good or service of the good or service begins to
decreases as the capacity increase as the capacity and/or
and/or volume of throughput volume of throughput increases.
increases.
Financial Economies of Scale
Network Economies of Scale
Purchasing
Division of Labor
Technical Economies of Scale
Infrastructure
Government Influence
Suppliers
Technical Diseconomies
Organizational Diseconomies
Financial Diseconomies
Purchasing Diseconomies
Competitive/Monopoly Diseconomies
Diseconomies of Pollution
Limited Natural Resources
Infrastructure Diseconomies
FOCUSED FACTORY
A focused factory is a way to achieve
economies of scale without extensive
investments in facilities and capacity
by focusing on a narrow range of goods
or services, target market segments,
and/or dedicated processes to maximize
efficiency and effectiveness.
CAPACITY
MEASUREMENT
IN OPERATION
SAFETY CAPACITY AVE. SAFETY
Safety capacity
(often called the CAPACITY
capacity cushion)
is an amount of
(%)
capacity reserved 100% average resource
utilization %
for unanticipated
events, such as
demand surges,
materials TOTAL CAPACITY
shortages, and Utilized Spare
equipment Capacity Capacity
breakdowns.
CAPACITY MEASUREMENT
In a production situation, setup time can be a
substantial part of total system capacity and
therefore must be included in evaluating capacity.
𝑪𝒂𝒑𝒂𝒄𝒊𝒕𝒚 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒅 𝑪𝒊 = 𝑺𝒆𝒕𝒖𝒑 𝒕𝒊𝒎𝒆 𝑺𝒊

+[𝑷𝒓𝒐𝒄𝒆𝒔𝒔𝒊𝒏𝒈 𝒕𝒊𝒎𝒆 𝑷𝒊
× 𝑶𝒓𝒅𝒆𝒓 𝒔𝒊𝒛𝒆 𝑸𝒊 ]
ABC Pet Grooming Center
specializes in grooming different pets
particularly dogs. There usual setup
time for work order is 20 minutes and
a processing time of 70 minutes per
pet. Now, Ms. Castro owns a
Pomeranian dog that badly needed a
groom. Compute for the capacity
required to groom the dog.
𝐶ί 𝑆ί
𝑃ί 𝑄ί
CAPACITY MEASUREMENT
• Solved Problem: Ham’s Dental Office illustrates these
calculations using a dental procedure mix.
• Setup times normally represent a substantial percentage
of the total capacity of most job shops. Every effort must
be made to reduce setup time to the lowest possible
amount so as to “free up capacity” for creating output.
CAPACITY UTILIZATION
 a measure of how well an organization uses its
productive capacity. It's the relationship between
potential or theoretical maximum output and the actual
production output.
𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 𝑈𝑠𝑒𝑑
Utilization (U) =
𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒
𝐷𝑒𝑚𝑎𝑛𝑑 𝑅𝑎𝑡𝑒
Utilization (U) =
𝑆𝑒𝑟𝑣𝑖𝑐𝑒 𝑅𝑎𝑡𝑒 𝑥 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆𝑒𝑟𝑣𝑖𝑐𝑒
Fast Burger incorporated purchases 2 grills, 2 fryers and 2
soft drink sprout to cover up their peak hourly demand from the
campus students as well as to ensure that if the other will
breakdown there will still be extra for use. Resources used in grills
is computed to be 1.39, 1.25 for the fryer and 1.0 for the soft drink
sprout. Now, compute for the grill, fryer and soft drink sprout
capacity utilization.
Grill Utilization (U) = Resources Used/Resources Available
= 1.39 / 2.0 = 69.5 %
Fryer Utilization (U) = Resources Used/Resources Available
= 1.25 / 2.0 = 62.5 %
Soft drink sprout Utilization (U) = Resources
Used/Resources Available
= 1.0 / 2.0 = 50 %
Fast Burger incorporated must also staff the new restaurant
for peak hour demand of 100 customers/hour. Assume front-
counter service personnel can take and assemble orders at the
service rate of 15 customers per hour and the target Labor
utilization fate for the job is 85%. Compute for the number of front-
service counter people that should be assigned to this peak demand
period.
𝐷𝑒𝑚𝑎𝑛𝑑 𝑅𝑎𝑡𝑒
Utilization (U) =
𝑆𝑒𝑟𝑣𝑖𝑐𝑒 𝑅𝑎𝑡𝑒 𝑥 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆𝑒𝑟𝑣𝑖𝑐𝑒
100 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟/ℎ𝑜𝑢𝑟
0.85=
15 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠/ℎ𝑜𝑢𝑟 𝑥 (𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠𝑒𝑟𝑣𝑒𝑟𝑠)
(12.75)(number of customers)= 100
Number of Servers = 7.8

LONG-TERM CAPACITY
STRATEGIES
• In developing a long-range capacity plan, a
firm must make the basic economic trade-off
between the cost of capacity and the
opportunity cost of not having adequate
capacity.
• Long-term capacity planning must be closely
tied to the strategic direction of the
organization—what products and services it
offers.
LONG-TERM CAPACITY
STRATEGIES
• Complementary goods and services can be
produced or delivered using the same
resources available to the firm, but whose
seasonal demand patterns are out of phase
with each other.
• Complementary goods or services balance
seasonal demand cycles and therefore use
the excess capacity available, as
illustrated in Exhibit 10.6.
CAPACITY EXPANSION
Four basic strategies for expanding capacity over some fixed time
horizon:
1.
1 One large capacity increase (Exhibit
10.6a).
2
2. Small capacity increases that match
3 average demand (Exhibit 10.6b).
3. Small capacity increases that lead demand
4 (Exhibit 10.6c).
4. Small capacity increases that lag demand
(Exhibit 10.6d).
SHORT-TERM CAPACITY
STRATEGIES
short-term capacity adjustments to capacity might
include:
• Add or share equipment: lease equipment as needed or
set up a partnership arrangement with capacity
sharing. Examples: mainframe computers, CAT
scanner, farm equipment.
• Sell unused capacity: sell idle capacity to outside
buyers and even competitors. Examples: computing
capacity, perishable hotel rooms.
• Change labor capacity and schedules: short term
changes in work force levels. Examples: overtime,
extra shifts, temporary employees, outsourcing.
• Change labor skill mix: hiring the right people.
• Shift work to slack periods
SHORT-TERM CAPACITY
STRATEGIES
Managing Capacity by Shifting and Stimulating Demand:
• Vary the price of goods or services: price is the
most powerful way to influence demand.
• Provide customers information: best times to call or
visit.
• Advertising and promotion: a vital role on
influencing demand; promotions are strategically
distributed to increase demand during periods of low
sales or excess capacity.
• Add peripheral goods and/or services: change demand
during slack periods.
• Provide reservations: a promise to provide a good or
service at some future time and place.
REVENUE MANAGEMENT SYSTEMS
consists of dynamic methods to forecast demand, allocate perishable
assets across market segments, decide when to overbook and by how
much, and determine what price to charge different customer (price)
classes.
highlighted are the four components of the RMS.

THEORY OF CONSTRAINTS
The Theory of Constraints (TOC) is a set of
principles that focuses on increasing total process
throughput by maximizing the utilization of all
bottleneck work activities and workstations.
highlighted is the four components of the RMS.

THEORY OF
CONSTRAINTS DEFINING TERMS
The Theory of • Throughput: amount of
Constraints (TOC) money generated per
is a set of time period through
principles that actual sales.
focuses on • Constraint: anything
increasing total that limits an
process throughput organization from
by maximizing the moving toward or
utilization of all achieving its goal.
bottleneck work
activities and
workstations.
THEORY OF CONSTRAINTS
• A physical constraint is associated with the capacity of a
resource (e.g., machine, employee).
• A bottleneck work activity is one that effectively limits capacity
of the entire process.
• A nonbottleneck work activity is one in which idle capacity
exists.
• A nonphysical constraint is environmental or organizational
(e.g., low product demand or an inefficient management policy
or procedure).

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TQM

8-1 Explain the concept of capacity.

Describe how to compute and use capacity

• Can the facility, process, or equipment accommodate new

𝑪𝒂𝒑𝒂𝒄𝒊𝒕𝒚 𝒓𝒆𝒒𝒖𝒊𝒓𝒆𝒅 𝑪𝒊 = 𝑺𝒆𝒕𝒖𝒑 𝒕𝒊𝒎𝒆 𝑺𝒊

(12.75)(number of customers)= 100

Number of Servers = 7.8

highlighted are the four components of the RMS.

highlighted is the four components of the RMS.

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