Capacity Planning & Process Decisions

Time Horizons for Capacity Planning

• Long range decisions cover 1-3 years, including facilities and equipment with long lead times.
• Medium range decisions cover 2-12 months, addressing equipment, personnel, shifts, and subcontracting, also known as aggregate planning.
• Short range decisions cover 2-3 months, focusing on scheduling production, people, and machinery allocation, also known as production planning.

Process Choices

• Process choices depend on production volume and product variety
• Low volume production is process-oriented
• High volume production is product-focused

Process Decisions

• Project is for nonroutine work with unique objectives accomplished in a limited time frame. An example is building a bridge or movie making.
• Job shop operates on a small scale for low-volume, high-variety goods/services and uses repair shops and emergency rooms
• Batch is for moderate volume with moderate variety, examples are commercial bakeries and classroom lectures
• Assembly is for high volumes of standardized goods/services, with automated assembly lines. An example is automatic car washes.
• Continuous is for very high volume of non-discrete, standardized output, e.g., petroleum refining and beverage industries.

Demand Options

• Influence demand through advertising, pricing, and promotions, for example early-bird meals.
• Backorders occur when orders cannot be fulfilled immediately; customers may wait, but substitutable products may be reordered elsewhere.
• New or counter-seasonal demand balances demand in different periods, illustrated by summer clothes companies producing winter clothes.

Supply Options

• Hire and lay off employees allows workforce flexibility but carries risks of unemployment and training costs
• Overtime/idle time adjusts workforce hours based on demand
• Part-time or temporary workers are hired for specific periods, common in contract manufacturing and service industries
• Subcontracting (contract manufacturing) is used when demand is uncertain or capability is lacking
• Vary inventory levels involves producing inventory before peak seasons but may increase holding costs, which is common in the ice cream industry

Aggregate Planning Strategies

• Level plans maintain a constant workforce and output, using inventories/backorders to absorb fluctuations, increasing inventory holding costs.
• Chase plans adjust production and staffing to match demand, minimizing finished goods inventory, but can affect productivity if demand forecasts are inaccurate.
• Mixed strategies combine level and chase plans, using inventory, backorders, layoffs, subcontracting, or reassignments.

Production Strategies

• Make-to-stock (MTS) produces goods based on forecasts and predetermined inventory targets.
• Make-to-order (MTO) produces custom items based on specific customer orders.
• Assemble-to-order (ATO) combines components after receiving a customer order.
• Engineer-to-order (ETO) uses unique engineering design and customization based on customer specifications.

Types of Scheduling

• Forward scheduling plans tasks from resource availability to determine shipping or due dates, example is restaurants
• Backward scheduling plans tasks from due dates to determine the manufacturing start date, example is surgical hospitals

Priority Rules

• First Come, First Served (FCFS) processes jobs in the order received, appearing fairest but not always efficient.
• Earliest Due Date (EDD) prioritizes jobs due soonest.
• Shortest Processing Time (SPT) prioritizes shorter jobs to ensure on-time completion, potentially delaying larger jobs.
• Longest Processing Time (LPT) starts with the longest jobs, which may delay others.
• Critical Ratio (CR) processes jobs based on the smallest ratio of time remaining until the due date.

Waiting Lines (Queuing Systems)

• Waiting line systems estimate the number of potential customers in a service system.
• Optimize service by balancing the number of lines/servers, customer arrival times, and waiting line rules.

Types of Waiting Lines

• Single line systems operate on a first-come, first-served basis, seen as fair
• Multiple line systems offer different transaction types by customer type, such as express lanes at grocery stores.

Customer Behavior in Waiting Lines

• Balking is when a customer chooses not to join the line.
• Reneging is when a customer leaves the line after joining.
• Jockeying is when a customer switches between lines.

Illustration of Waiting Line Analysis (Information Desk)

• An information desk at a shopping mall receives 20 inquiries per hour, and each query takes 2 minutes to answer.
• Lambda (λ) is the average number of arrivals per time period.
• Mu (µ) is the average number of customers served per time period.

Step 1: Probability of Employee Being Idle

• Calculation: 𝑃0 = 1 − (𝜆/µ) = 1 − (20/30) = 0.33 or 33%
• The employee is idle 33% of the time, given 20 arrivals per hour and a service capacity of 30 customers per hour.

Step 2: Proportion of Time Employee Is Busy

• Calculation: 𝑃 = 𝜆/µ = 20/30 = 0.66 or 66%
• The employee is expected to be busy 66% of the time.

Step 3: Average Number of People Receiving/Waiting

• Calculation: 𝐿𝑠 = 𝜆/(µ − 𝜆) = 20/(30 − 20) = 2 people
• On average, two people are either receiving or waiting for information.

Step 4: Average Number of People Waiting in Line

• Calculation: 𝐿𝑞 = 𝜆^2/(µ(µ − 𝜆)) = 20^2/(30(30 − 20)) = 1.33 or 1 person
• Typically, one person is waiting in line.

Step 5: Average Time a Person Spends in the System

• Calculation: 𝑊𝑠 = 1/(µ − 𝜆) = 1/(30 − 20) = 0.10 hours
• People spend 0.10 hours (6 minutes) in the system, including waiting and receiving information.

Step 6: Expected Time Waiting in Line

• Calculation: Wa = 𝜆/(µ(µ − 𝜆)) = 20/(30(30 − 20)) = 0.0667 hours
• A person spends 0.0667 hours (4 minutes) just waiting in line.