heizer10_ch07S_sg - Supplement 7 Capacity and Constraint...

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Supplement 7 Capacity and Constraint Management Summary Organizations must often build capacity before management understands true demand. Thus, a major investment risks error if it contains too much or too little capacity. Additionally, operations management must balance capacity with demand or else customers must be turned away, excessive backorders occur, or resources sit idle. In any of these cases, excessive costs will occur. Capacity is the number of units held, received, stored, or produced during a period of time. The period can range from now to more than one year. Short-term capacity is scheduled within a 90-day period. Aggregate planning of equipment, people, or subcontractors typically occurs within 3 to 18 months. Long-range capacity decisions apply to the adding of equipment or facilities within a 1 year or longer. Managers cannot usually achieve design capacity. Instead, an organization has an effective capacity so as not to stretch resources to the limit. The design capacity represents the full cost of the facility. An organization tries to utilize as much of the capacity as possible. This is called utilization. Managers try to use the effective capacity as efficiently as possible. This is called efficiency. Both utilization and efficiency, as measures of performance, are measured with ratios (see below). Actual output is a function of the organization’s effective capacity and the efficiency management decisions achieve. Capacity interacts with all of the 10 operations decisions faced by managers. In addition, four special considerations occur: 1. Forecasting demand accurately. 2. Understanding the technology and capacity increments that are possible to adjust capacity. 3. Finding the optimum operating size based on microeconomic principles that involve marginal, fixed, and average cost scenarios. 4. Building for change and allowing flexibility. It is likely that demand will not equal capacity. Various strategies may balance the imbalance, including: 1. Making staffing changes (increasing or decreasing the number of employees or shifts). 2. Adjusting equipment (purchasing additional machinery or selling or leasing out existing equipment). 3. Improving processes to increase throughput . 4. Redesigning products to facilitate more throughput. 5. Adding process flexibility to better meet changing product preferences. 6. Closing facilities. 116
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Capacity and Constraint Management 117 Bottlenecks and other constraints limit capacity. Consider the old adage; a chain is only as strong as its weakest link. This is the same thing for a process. Whatever is the slowest step in a process will limit the overall throughput. A station in a process has an anticipated time to complete its work. We call this the process time of a station. The process time of a system is the time of the longest process. Cycle time is different from system process time. Cycle time is the total time it takes to build a unit while system process time is the time between completions of two units.
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heizer10_ch07S_sg - Supplement 7 Capacity and Constraint...

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