OPERATION MANAGEMENT

CHAPTER 5

Capacity: The upper limit or ceiling on the load that an operating unit can handle.
Capacity needs include: 1 Equipment 2 Space 3 Employee skills

Capacity Planning Questions

What kind of capacity is needed?
How much is needed to match demand?
When is it needed?
Capacity decisions
1 impact the ability of the organization to meet future demands.
2 affect operating costs.
3 are a major determinant of initial cost.
4 often involve long-term commitment of resources
5 can affect competitiveness
6 affect the ease of management
7 have become more important and complex due to globalization
8 need to be planned for in advance due to their consumption of financial and other resources.

Two useful definitions of capacity

1 Design capacity
The maximum output rate or service capacity an operation, process, or facility is designed for
2 Effective capacity
Design capacity minus allowances such as personal time and maintenance.

DETERMINANTS OF EFFECTIVE CAPACITY

Facilities. Product and Service Factors. Process Factors.
Human Factors. Policy Factors. Operational Factors.
Supply Chain Factors. External Factors.
Steps in the Capacity Planning Process:
1 Estimate future capacity requirements.
2 Evaluate existing capacity and facilities and identify gaps.
3 Identify alternatives for meeting requirements.
4 Conduct financial analyses of each alternative.
5 Assess key qualitative issues for each alternative.
6 Select the alternative to pursue that will be best in the long term.
7 Implement the selected alternative.
8 Monitor results.
In-House or Outsource?
Once capacity requirements are determined, the organization must decide
whether to produce a good or service itself or outsource
Factors to consider:
Available capacity Expertise Quality considerations
The nature of demand Cost Risks.
Developing Capacity Alternatives
Things that can be done to enhance capacity management:
Design flexibility into systems
Take stage of life cycle into account
Take a “big-picture” approach to capacity changes
Prepare to deal with capacity “chunks”
Attempt to smooth capacity requirements
Identify the optimal operating level
Choose a strategy if expansion is involved.
Constraint Management
Something that limits the performance of a process or system in achieving its goals.
Market: Insufficient demand.
Resource: Too little of one or more resources (e.g., workers, equipment, and
space),
Material: Too little of one or more materials.
Financial: Insufficient funds.
Supplier: Unreliable, long lead time, substandard quality.
Knowledge or competency: Needed knowledge or skills missing or incomplete.
Policy: Laws or regulations interfere.
Resolving Constraint Issues
1 Identify the most pressing constraint
2 Change the operation to achieve maximum benefit, given the constraint
3 Make sure other portions of the process are supportive of the constraint
4 Explore and evaluate ways to overcome the constraint
5 Repeat the process until the constraint levels are at acceptable levels.
Techniques for Evaluating Alternatives
Cost-volume analysis Financial analysis Decision theory
Waiting-line analysis Simulation.
 CHAPTER 7
Job design: The act of specifying the contents and methods of jobs.
What will be done in a job Who will do the job
How the job will be done Where the job will be done
Importance
Organization’s are dependent on human efforts to accomplish their goals.
Many job design topics are relevant to continuous and productivity
improvement.
Objectives
Productivity Safety Quality of work life.
Efficiency vs. Behavioral Job Design:
Efficiency School: Emphasizes a systematic, logical approach to job design
A refinement of Frederick Winslow Taylor’s scientific management concepts.
Behavioral school: Emphasizes satisfaction of needs and wants of employees.
Behavioral Approaches to Job Design
Job Enlargement: Giving a worker a larger portion of the total task by horizontal
loading.
Job Rotation: Workers periodically exchange jobs
Job Enrichment: Increasing responsibility for planning and coordination tasks, by
vertical loading.
Other Approaches to Job Design:
Motivation. Building Teams. Ergonomics (Human Factor).
Quality of work life: affects not only workers’ overall sense of well-being and
contentment, but also their productivity.
Important aspects of quality of work life:
How a worker gets along with co-workers.
Quality of management.
Working conditions. Physical factors such as temperature, humidity,
ventilation, illumination.
The basic procedure in methods analysis is as follows:
1 Identify the operation to be studied, and gather all pertinent facts about
tools, equipment, materials, and so on.
2 For existing jobs, discuss the job with the operator and supervisor to get their
input.
3 Study and document the present method of an existing job using process
charts. For new jobs, develop charts based on information about the activities
involved.
4 Analyse the job. 5 Propose new methods. 6 Install the new methods.
7 Follow up implementation to assure that improvements have been achieved.

flow process charts:

are used to review and critically examine the overall sequence of an operation
by focusing on the movements of the operator or the flow of materials.
These charts are helpful in identifying non-productive parts of the process
(e.g., delays, temporary storages, distances travelled).
Worker Machine Chart: is helpful in visualizing the portions of a work cycle
during which an operator and equipment are busy or idle.
The analyst can easily see when the operator and machine are working
independently and when their work overlaps or is interdependent.
Motion Study: is the systematic study of the human motions used to perform
an operation.
The purpose is to eliminate unnecessary motions and to identify the best
sequence of motions for maximum efficiency. Hence, motion study can be an
important avenue for productivity improvements.
Work Measurement: concerned with determining the length of time it should
take to complete the job.
Job times are vital inputs for capacity planning, workforce planning, estimating
labor costs, scheduling, budgeting, and designing incentive systems.
Standard time: The amount of time it should take a qualified worker to
complete a specified task, working at a sustainable rate, using given methods,
tools and equipment, raw material inputs, and workplace arrangement.
Commonly used work measurement techniques
Stopwatch time study Predetermined data Work sampling
Stopwatch Time Study: Used to develop a time standard based on
observations of one worker taken over a number of cycles.
Basic steps in a time study:
1 Define the task to be studied and inform the worker who will be studied
2 Determine the number of cycles to observe
3 Time the job, and rate the worker’s performance
4 Compute the standard time.
Development of a time standard involves computation of three times:
The observed time(OT), The normal time (NT), The standard time (ST).
Work sampling is a technique for estimating the proportion of time that a
worker or machine spends on various activities and the idle time.
Work sampling does not require timing an activity or involve continuous
observation of the activity.
CHAPTER 11
Aggregate planning
Intermediate-range capacity planning that typically covers a time horizon of 2
to 18 months.
Useful for organizations that experience seasonal, or other variations in
demand.
Goal:
Achieve a production plan that will effectively utilize the organization’s
resources to match demand.
Why do organizations need to do aggregate planning?
It is connected to the budgeting process.
It can help synchronize flow throughout the supply chain; it affects costs,
equipment utilization; employment levels; and customer satisfaction.
Concept of Aggregation
Aggregate planning is essentially a “big-picture” approach to planning.
Planners usually focus on a group of similar products or services, or sometimes
an entire product or service line.
Aggregate Planning Inputs
1 Resources
Workforce/production rates. Facilities and equipment.
2 Demand forecast
3 Policies
Workforce changes. Subcontracting. Overtime.
Inventory levels/changes. Back orders.
4 Costs
Inventory carrying. Back orders. Hiring/firing.
Overtime. Inventory changes. Subcontracting.
Aggregate Planning Outputs
1 Total cost of a plan
2 Projected levels of
Inventory. Output. Employment. Subcontracting. Backordering.
Aggregate Planning and the Supply Chain
It is essential to take supply chain capabilities into account when doing
aggregate planning, to assure that there are no quantity or timing issues that
need to be resolved.
Supply chain partners should be:
consulted during the planning stage so that any issues or advice they may
have can be taken into account.
informed when plans have been finalized.
Aggregate planning strategies can pertain to demand, capacity, or both.
Demand strategies: intended to alter demand so that it matches capacity.
Capacity strategies: involve altering capacity so that it matches demand.
Mixed strategies: involve both of these approaches.

Level capacity strategy:

Maintaining a steady rate of regular-time output while meeting variations in
demand by a combination of options:
Chase demand strategy:
Matching capacity to demand; the planned output for a period is set at the
expected demand for that period.
Techniques for Aggregate Planning
General procedure:
1 Determine demand for each period
2 Determine capacities for each period
3 Identify company or departmental policies that are pertinent
4 Determine unit costs
5 Develop alternative plans and costs
6 Select the plan that best satisfies objectives. Otherwise return to step five.
Disaggregation:
Translating plans into meaningful terms for production.
Or breaking down the aggregate plan into specific product requirements in
order to determine labor requirements (skills, size of workforce), materials,
and inventory requirements.
Master production schedule (MPS):
A schedule indicating the quantity and timing of planned completed
production.
shows the planned output for individual products rather than an entire
product group, along with the timing of production.
Master Scheduling: The heart of production planning and control.
 It determines the quantity needed to meet demand from all sources
 It interfaces with: Marketing. Capacity planning.
Production planning. Distribution planning.
 Provides senior management with the ability to determine whether the
business plan and its strategic objectives will be achieved.
Validation is referred to as rough-cut capacity planning (RCCP): testing the
feasibility of a proposed master schedule relative to available capacities, to
assure that no obvious capacity constraints exist.
Time Fences.
 Points in time that separate phases of a master schedule planning
horizon.
 It facilitate order promising and the entry of orders into the system.
 It divides scheduling time horizon into three sections or Phases : frozen,
slushy, and liquid, in reference to the firmness of the schedule.