Flexibility and Capacity Requirement

BUAD311 Operations Management Session 4

More on Capacity Management

So far, we analyzed a process given its capacity. A natural question: Given demand, how much capacity do we need to meet demand?

Capacity Requirement: Example

Kristen expects demand to be high and would like to produce 26 dozen cookies (in one-dozen size orders) per 4 hours. How many ovens and mixers does Kristen need?
One Oven 6 Mixer 10 Kristen 7.5 Roomie 15

Capacity Requirement: Example

Kristen expects demand to be high and would like to produce 26 dozen cookies (in one-dozen size orders) per 4 hours. How many ovens and mixers does Kristen need?
Two Ovens 2 X 6 = 12 Mixer 10 Kristen 7.5 Roomie 15

Capacity Requirement: Example

Kristen expects demand to be high and would like to produce 36 dozen cookies (in one-dozen size orders) per 4 hours. Can Kristen meet the demand?
Two Ovens 12 Mixer 10 Kristen 7.5 Roomie 15

Capacity Requirement: Example

Solution: Cross-training
Kristen and the roomie are trained to handle other peoples work. Kristen spends 8 minutes per a dozen and the roomie spends 4 minutes per a dozen. After cross training, each of them spends 12 minutes per a dozen. Each person can make 5 dozens per an hour and we have two identical resource. Capacity of combined 6 resource is now 10 dozens per an hour.

Utilization Rate & Flexibility

Flexible equipment: an equipment that can produce several different products efficiently. In the past, car manufacturers generally produced only one car type in a factory.
For decades, mainstream models such as the Ford Taurus sold in such large volumes they could keep a plant or two running at full capacity for years.
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Variety and Customization

Growth of variety
Number of automobile lines sold in U.S.
41 in 1971 65 in 1992

Total sales per model

1950 Chevy Impala: 1.5M 1990 Honda Accord: 0.5M

To be competitive, auto manufacturers need to offer consumers many choices. This means assembly lines must allow for different car models.

Flexibility of Car Manufacturers

What are the Advantages and Disadvantages of Flexibility?

Advantages:
Fewer resources; Increasing utilization rates Better equipped to meet changing demands

Disadvantages:
Higher investment Training, Learning curve
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Capacity Requirement: Example

The demand for dolls is:
200,000 in January through October 5,000,000 dolls in November 5,000,000 dolls in December

Each of Mattels plants is capable of producing 500,000 dolls per month. Without keeping inventory, how many plants should Mattel build?
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Capacity Requirement: Example

Each Mattels plant is capable of producing 500,000 dolls per month, how many plants should Mattel build? Max demand/ month=5,000,000 per month If no inventory is held, need 5,000,000/500,000 plants=10 plants 100% utilization in Nov, Dec Only 4% utilization in other months Jan-Oct
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Solution

Other Alternatives
Solution

Does Mattel have other alternatives?

Building inventory
Total Demand per year=12 million Total Plant capacity per year=6 million/plant No. of Plants=12/6 = 2 plants Utilization per year= 12 million/(2*6 million) = 1= 100%

What are the advantages?Availability What are the disadvantages?Obsolescence, holding cost

Outsourcing
What are the advantages?No need to invest in facilities, lower cost What are the disadvantages?Loss of control on quality and delivery leadtimes
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