Operations Management

📦Operations Management Unit 4 – Capacity Planning and Facility Design

Capacity planning and facility design are crucial aspects of operations management. These processes involve determining production capacity, optimizing resource utilization, and creating efficient layouts to meet customer demands and improve overall performance. Key concepts include capacity, utilization, efficiency, and bottlenecks. Strategies range from lead and lag approaches to match and adjustment tactics. Facility location and layout decisions consider factors like proximity to stakeholders, transportation access, and workflow optimization.

Key Concepts and Definitions

  • Capacity planning involves determining the production capacity needed by an organization to meet changing demands for its products
  • Capacity the maximum amount of work that an organization is capable of completing in a given period of time
  • Utilization the extent to which an organization's capacity is being used in a given period
  • Efficiency a metric that measures the performance of a process, expressed as the ratio of useful output to total input
  • Bottleneck a point of congestion in a production system that occurs when workloads arrive at a point more quickly than that point can handle them
  • Lead time the total time a customer must wait to receive a product after placing an order
  • Takt time the maximum amount of time in which a product needs to be produced in order to satisfy customer demand

Importance of Capacity Planning

  • Ensures that an organization can satisfy its customers' demands in a timely manner
  • Prevents bottlenecks and delays in production or service delivery
  • Helps optimize resource utilization and minimize waste
  • Enables an organization to adapt to changes in demand
    • Seasonal fluctuations (holiday shopping season)
    • Market trends (shift towards online shopping)
  • Supports long-term strategic planning and decision making
  • Reduces the risk of capacity-related issues
    • Stockouts
    • Excessive inventory
    • Overworked employees
  • Contributes to improved efficiency and profitability

Capacity Planning Strategies

  • Lead strategy adding capacity in anticipation of an increase in demand
  • Lag strategy adding capacity only after an organization is running at full capacity or beyond due to increased demand
  • Match strategy adding or reducing capacity incrementally in response to changing demand in the market
  • Adjustment strategies for modifying capacity
    • Utilizing overtime
    • Adding shifts
    • Outsourcing production
    • Hiring temporary workers
  • Factors influencing the choice of strategy
    • Demand predictability
    • Capacity flexibility
    • Cost considerations
    • Risk tolerance

Facility Location Decisions

  • Proximity to suppliers, customers, and other key stakeholders
  • Access to transportation networks (highways, ports, airports)
  • Availability and cost of labor
  • Local regulations and tax incentives
  • Environmental factors (climate, natural disaster risk)
  • Potential for future expansion
  • Political stability and economic conditions
  • Alignment with overall business strategy

Facility Layout Design

  • Process layout arranging resources around processes, suitable for low-volume, high-variety production
  • Product layout arranging resources in a line, suitable for high-volume, low-variety production
  • Cellular layout combining the benefits of process and product layouts, suitable for medium-volume, medium-variety production
  • Fixed-position layout resources are brought to a fixed location, suitable for large, complex projects (aircraft assembly)
  • Factors influencing layout decisions
    • Material flow
    • Equipment utilization
    • Flexibility for future changes
    • Ergonomics and safety
  • Systematic Layout Planning (SLP) a step-by-step approach to designing facility layouts

Tools and Techniques for Capacity Analysis

  • Capacity planning software for demand forecasting and capacity optimization
  • Simulation modeling to analyze complex systems and test "what-if" scenarios
  • Queuing theory to predict waiting times and identify bottlenecks
  • Break-even analysis to determine the production volume needed to cover costs
  • Process mapping to visualize and optimize workflows
  • Time studies and work sampling to measure and improve process efficiency
  • Capacity Requirements Planning (CRP) to determine the capacity needed to meet production targets

Practical Applications and Case Studies

  • Manufacturing capacity planning for a consumer electronics company
    • Balancing production capacity with seasonal demand fluctuations
    • Implementing a flexible workforce strategy
  • Service industry capacity planning for a call center
    • Forecasting call volumes and staffing requirements
    • Optimizing shift schedules to minimize wait times
  • Healthcare capacity planning for a hospital
    • Managing bed capacity and patient flow
    • Allocating resources to handle emergency surges (COVID-19 pandemic)
  • Retail capacity planning for an e-commerce fulfillment center
    • Designing a facility layout to maximize order processing efficiency
    • Implementing automation technologies to increase throughput
  • Increasing supply chain complexity and uncertainty
  • Rapid technological advancements (Industry 4.0, IoT, AI)
  • Shifting consumer preferences and demand patterns
  • Globalization and geopolitical risks
  • Sustainability and environmental concerns
  • Need for agility and resilience in the face of disruptions
    • Natural disasters
    • Pandemics
    • Economic crises
  • Balancing cost, flexibility, and customer service in capacity planning decisions
  • Importance of continuous improvement and data-driven decision making


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© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.