Week 2: Analyzing Capacity in Operations

Week 2: Analyzing Capacity in Operations

“Introduction … The Notion of Capacity in Organizations … Process Design and Capacity Analysis … Capacity Estimation and De-bottlenecking … Other Issues in Capacity Planning … Wrap-Up”
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Summaries

  • Week 2: Analyzing Capacity in Operations > 2.0 Introduction > Recap
  • Week 2: Analyzing Capacity in Operations > 2.1 The Notion of Capacity in Organizations > The Notion and Importance of Capacity in Organizations
  • Week 2: Analyzing Capacity in Operations > 2.2 Process Design and Capacity Analysis > Process Analysis Fundamentals (part 1)
  • Week 2: Analyzing Capacity in Operations > 2.2 Process Design and Capacity Analysis > Process Analysis Fundamentals (part 2)
  • Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Increasing Output Through New Capacity Additions
  • Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Increasing Output Through Policy Changes
  • Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Capacity Analysis in Case of Multiple Jobs
  • Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Process Design Issues in a Worker Paced System
  • Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Addressing Increased Output Requirements
  • Week 2: Analyzing Capacity in Operations > 2.4 Other Issues in Capacity Planning > Efficiency Vs Effectiveness in Operations
  • Week 2: Analyzing Capacity in Operations > 2.4 Other Issues in Capacity Planning > Planning Premises for Addressing Capacity Issues
  • Week 2: Analyzing Capacity in Operations > 2.5 Week 2 Wrap-Up > Summary

Week 2: Analyzing Capacity in Operations > 2.0 Introduction > Recap

  • I hope you had a enjoyable, and an insightful one week of going through the Introduction to Operations… …Management course on week one details.
  • In week one, we started by… …saying that manufacturing and service organizations broadly fall under three flow patterns.
  • So these are some of the important issues that we went through in week… …one.
  • How does productivity influence, let’s say… …responsiveness? And thirdly, supply chain choices.
  • What we will do in… …this week, week two of the course, is we will take the issue of capacity and look at it in some details in terms of how does it help your… …organization to be competitive in the marketplace on the basis of some of the performance metrics that you have identified.
  • Welcome to week two of Introduction to Operations Management course.
  • Let’s go through some of these interesting ideas of capacity and I hope you will have some… …insights to take back and apply it in your organizations.

Week 2: Analyzing Capacity in Operations > 2.1 The Notion of Capacity in Organizations > The Notion and Importance of Capacity in Organizations

  • Let us begin first by understanding the notion of capacity.
  • We use the term capacity in our common parlance quite often.
  • We say for… …example, there is not enough capacity to hold wa-the water or a shopkeeper may say we have no capacity to store beyond hundred items in… …stock.
  • So these are some of the commonly heard examples of usage of the word capacity.
  • Let’s look at some of the examples of capacity… …in organizations.
  • Associated Cements Corporation has an installed capacity of 17.65 million tonnes of cement manufacturing.
  • Bharat Petroleum Corporation Limited has a refining capacity of 260,000 barrels of crude every day.
  • So how do we make sense of these… …statements? And what does it mean to us from an operation’s perspective? What exactly we understand by these references and… …utterances related to capacity? So in this module, we shall understand the term capacity more formally and relate it to the notion of… …operations, improvement, competitiveness and so on.
  • We shall also develop a basic understanding as to how to assess capacity in a system and identify… …specific alternatives one can deploy to improve capacity.
  • So let’s look at some examples to understand why we need to worry about… …capacity in the first place and how it affects competitiveness of business firms.
  • First, when capacity choices have not been made appropriately it can result in market share loss, loss of goodwill, customer… …dissatisfaction, think about it, you know it is too crowded I decided not to do executive health check-up or I decided to go elsewhere.

Week 2: Analyzing Capacity in Operations > 2.2 Process Design and Capacity Analysis > Process Analysis Fundamentals (part 1)v

  • Let’s now begin to address the first and the foremost question in this capacity analysis and that is how do I make an… …assessment of the capacity in my organization? Everyone ask this question and a related question is, what kind of data I need to… …collect in order to estimate the capacity in my workplace or it could be a department in the organization.
  • All these collectively influence the capacity in the hospital in terms of how many number of patients are treated let’s… …say in a out-patient section or in a surgical … block.
  • So process analysis is a method by which we can incorporate all these details and use some… …logic to analyse these aspects pertaining to capacity in the system.
  • So let’s try to list down the kind of information that we may need to analyse a process.
  • Every process has a set of activities and these activities are to be organised in a particular way.
  • This is important because only then we will know the flow of… …Activities and that will influence capacity and so on.
  • So Activities and once you have a set of Activities, the Technological and… …the Logical Constraints.
  • So let’s take one manufacturing example and one service example to understand these two ideas and… …then let’s go adding additional details to design a process.

Week 2: Analyzing Capacity in Operations > 2.2 Process Design and Capacity Analysis > Process Analysis Fundamentals (part 2)

  • Let me show you a manufacturing process which is … a shirt manufacturing.
  • There is a one block… …here, there is a second block here and there is a third block here.
  • In many… …manufacturing situations before you actually start the manufacturing some prior operations are done.
  • In the case of a shirt manufacturing,… …the cloth that we have needs to be cut.
  • The second stage is what I call it as Manufacturing.
  • As you see here, it… …starts with collar making and then you have cuff, then you have the sleeve is done, then the front and the back portions are done, the… …shoulders are stitched, then … start attaching the collar, you attach the sleeves, and the sewing is done and finally the hemming is… …done so that completes the manufacturing process.
  • We have identified the Technological and the Logical Constraints.
  • Somebody has… …to rate these in terms of risk profile and that has to decide what is the insurance premium that we need to actually… …quote and once all these are done, finally the policy is written.
  • So in this service example, we find that there are four activities unlike in the manufacturing example where we talked about… …15 Activities and we have also identified the Technological Constraints.
  • … after Under Writing only you can do the Rating and after these three activities are over you can do the Policy Writing.
  • So this is what I mean by saying identify Activities, identify the Technological and Logical Constraints.

Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Increasing Output Through New Capacity Additions

  • Basically, the pallets have to be arranged and part two is each palette holds four toys, so we need to place these toys in each of… …those pallets and that takes four minutes per pallet.
  • So far we have been using only one pallet, but the fact of the matter was it can hold up to three pallets at a time.
  • So let’s bring this information into our current analysis and ask the most important question that we all face, how do I increase the output? How do I increase from these 24 pallets per day, assuming an eight hour working, how do I increase it? So how do we do that? From the description of the process that we have had so far, we are able to identify two choices by which we can actually improve… …the output of the system.
  • One way to improve the output is to add more units of capacity and we all know that capacity must be added only in the bottleneck.
  • Just now I mentioned that a painting booth can hold three pallets instead of one.
  • So one way to say is can I increase the number of pallets which gets into the painting booth? I call it as process choices.
  • What does it mean? The batch size of the pallet is one and there is only one painting booth.
  • What we noticed is … preparation was 7.5 pallets per hour and pre-treatment was 5, painting was 3, and … inspection and… …packing is 12 and since this is a bottleneck, what you find is the line output from this system is 3 pallets per hour.
  • Since we have two painting booths, you will get 3 plus 3, 6 pallets per hour from this station.
  • Of course you have 12 pallets from inspection and packing.
  • By adding one more painting booth, the bottleneck has shifted out of painting into pre-treatment because pre-treatment is dictating… …the final output which happens to be 5 pallets per hour.
  • See we had a-one painting booth which was giving 3 pallets per hour.
  • Suppose we did not take note of this, we would’ve used 6 pallets per hour as the output.
  • We would’ve calculated payback, and the output increase all on the basis of 6 which doesn’t happens to be the case.
  • So we should always remember that when we do de-bottlenecking, when we add a capacity at a bottleneck, it is quite likely that… …something else becomes the bottleneck and that dictates the output and we should use that output for calculating what is the… …additional revenue we will get how will we cover the cost.

Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Increasing Output Through Policy Changes

  • Let’s look at the other option which is to say, we will keep one paint booth but instead of loading one pallet for painting, since the process… …allows more than one pallet up to three, why don’t we explore that? So, we shall increase the pallets processed at the painting booth and see what is its impact on output by not adding a second paint booth.
  • So I have brought back the existing scenario which is … one pallet which we analysed already as you may recall.
  • As you see here painting is the bottleneck and our output is 3 pallets per hour which we have already seen.
  • Let’s now ask what happens when you add a second pallet for painting.
  • So when we add a second pallet to the painting the first thing that we can recognize is while the painting time does not increase we will get… …6 pallets per hour because you are having 2 pallets and each of these 2 pallets will take-the 2 pallets in all will take 20 minutes so… …which means in an hour, we would’ve added 3 times 2 pallets which makes it 6 pallets.
  • Part one is setting up the pallet so that is going to take four minutes, but then part two is it takes four minutes to arrange toys in one… …pallet, so for pallet one you need four minutes to arrange the toys and for pallet two, you need another four minutes to arrange the toys.
  • So you need in all, eight minutes to put the toys in the pallet and four minutes to set up the pallet itself.
  • So in 12 minutes if you can get 2 pallets, we could’ve done it five times in an hour and that’s how you get 10 pallets as the capacity.
  • So we added a one more pallet as a operating policy change.
  • Let’s continue in this because we can go up to three pallets.
  • So moment you add three pallets into the painting booth by the same argument what happens is, in 20 minutes, you would’ve… …got three pallets painted.
  • So in the next 20 minutes you would’ve got another three pallets painted and in the last 20 minutes you would’ve got three more… …pallets painted.
  • Four minutes to prepare the pallet, and for pallet one it takes four minutes to arrange the toys.
  • In 16 minutes we get three pallets which means we will get 11.25 pallets per hour.
  • In the previous example, we added one more painting booth, and increased the output from 3 pallets per hour to 5 pallets per hour.
  • We changed the operating policy and achieved the same output which is 5 pallets per hour.
  • In the previous analysis, when we increased the number of pallets up to three, interestingly we found that both the painting capacity and… …the preparation capacity went up.
  • Change the operating policy and say henceforth we will manufacture in batches of three pallets.
  • Here is the basic process where you have one pallet and one painting booth and we have seen it any number of times so we therefore… …know that painting is the bottleneck and the line output is 3 per hour.
  • Here is a situation where we are processing three pallets instead of one pallet.
  • As we have already done this calculation, when you operate in a policy of three pallets the output at preparation stage is 11.25 pallets… …per hour.
  • Look at pre-treatment, earlier it was doing 5 pallets per hour.
  • Since we’re adding one more pre-treatment, it becomes 10 pallets per hour now.
  • Now what has happened is without adding a painting booth, adding one more pre-treatment unit to the system and changing the… …operating policy to 3 pallets per hour, what we have done is we have increased the capacity which was 3 per hour to 9 per hour.
  • As I told you, from a 3 pallet per hour, we have moved to a situation where it is 9 pallet per hour and … this you are able to do because… …we change the operating policy from one pallet to three pallets.
  • So with a little bit of a change, we ch-added one more pre-treatment and we added one more … operating policy change in terms of three… …pallets in each of the stations.
  • So by adding one more painting booth, the capacity went up from 3 pallets per hour to 5 pallets per hour.
  • Third, when we used a combination of both these which means, change the operating policy to three pallets, add one more pre-treatment… …unit, what we find is the capacity indeed went up to 9 pallets per hour.

Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Capacity Analysis in Case of Multiple Jobs

  • Suppose there is a health diagnostic centre which provides services to the arriving patients.
  • Let’s say there are three types of patients who arrive and they undergo preliminary investigation.
  • So after the preliminary investigation, Patient Type 1 compulsorily have to undergo tests in a coronary unit and the radiology departments… …in the diagnostic centre in that order.
  • Patient Type 2 generally require some tests in the radiology department.
  • Then you have Patient Type Three which undergoes some gynaecology-related tests.
  • So these are the three types of patients this diagnostic centre is receiving and providing service.
  • After all the tests are done, all the three types of patients visit a common facility in which a pool of doctors is available.
  • So one of the doctors meets with the patient, the reports are available the doctor reviews the reports and provide further… …advice wherever is required.
  • So irrespective of the patient type, they can meet any one of the available doctor for the final review.
  • So let’s start with Patient Type 1, Patient Type 1 has a dedicated preliminary investigation which he or she goes through.
  • So let me create one block of-in the process flow, let me call it as P1. Then the patient moves to a coronary unit where some time is spent for some tests and then to the radiology department to take some… …more investigative tests in this department and then the patient has to go for a final review.
  • To indicate patient one, let me use the blue colour.
  • After that the patient goes to the coronary unit and then radiology unit, final review and goes out.
  • Type 2 patients have their own dedicated preliminary investigation as the problem specified.
  • So let me create a separate block for preliminary investigation of Type 2 patients.
  • So we have the third … target group of patients, Patient Type 3.
  • So Type 3 patients come to the pre-preliminary investigation.
  • So let me summarize this by identifying the patient types.
  • So we have Patient Type A who passes through the system in a particular way.
  • We have Patient Type 2 who visits this in a different sequence.
  • Of course we have Patient Type 3 also indicated by these colour codes.
  • So as you see here, the preliminary investigation takes 20 minutes for Patient Type 1.
  • Preliminary investigation for Patient Type 2 takes 15 minutes.
  • Preliminary investigation for Patient Type 3, 10 minutes and five resources are available.
  • Based on some historical trends, the diagnostic centre expects the potential daily arrivals of the three patient types as follows.
  • They will on an average receive 100 patients of Type 1, 200 patients of Type 2 and 220 patients of Type 3.
  • Preliminary investigation for Patient 2 is 15 minutes 4 per hour.
  • Preliminary investigation for Patient 3 is 10, so we will have six.
  • If there is one resource, three patients can be processed per hour.
  • Now if you may recall, Type 1 patient directly goes to the coronary unit.
  • Radiology department, Type 2 patients, 80 percent of them come to radiology department.
  • So Type 2 patients 80 percent will come here, so 80 percent of 192 makes it 153.6 plus Type 1 patient all of them will come and … because… …they go through that process from the coronary unit … they go to the coronary unit so the output of the coronary unit is 80 so you… …have to add that because this will also come to the next stage.
  • Now gynaecology department Type 3 patients come there.
  • That is going to be the output and in the last stage, all patients from here will come and all patients from here will also come… …which makes it 233.6 and 192 which makes it 425.6 if you add these two and the minimum of these two happens to be 425.6.
  • So you see here, all these calculations that we just performed, first and the most important observation I am sure you would all appreciate… …is even though this diagnostic centre can receive 520 patients potentially, the calculation showed to us that it cannot handle more than… …425.
  • Coronary unit seems to be the bottleneck in the system because as you notice here, the Type 1 patient also passes through coronary unit.
  • Type 2 patient also passes through the coronary unit and the output of the coronary unit is just 80 which is constrained by the resources available.
  • Some capacity additions in coronary unit one will become inevitable if we want to increase the number of Type 1 and… …Type 2 patients going through the diagnostic centre.
  • Let’s look at the gynaecology department now which is patient Type 3.
  • That seem constrains the flow of Type 3 patients in the system and that is the bottleneck for that type of patients who visit… …the diagnostic centre.

Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Process Design Issues in a Worker Paced System

  • So let us see if you can manage with five workstations and meet the demand.
  • So let us … have all these … process times and the activities, so I have put it on the table on the top here.
  • You have the activities and the respective processing times.
  • So let me put that activity here which will take 70 seconds.
  • Since cycle time cannot be more than 90, you cannot accommodate it with anything else.
  • The second workstation will have Main Dish which takes 80 seconds.
  • We have 1, 2, 3, 4, 5 of them remaining and two workstations.
  • Additives and Toppings we can put it in the third which will take 40 seconds.
  • Of course, we can go up to 90 seconds because that is the, you know, available time.
  • That takes 20 seconds so this activity is also done and the remaining two tasks can go into the fourth station which is … preparing… …the beverage and also preparing the side dishes, so which takes 40 plus 50.
  • We did not violate the constraint of 90 … seconds cycle time.
  • Let’s find out what is the idle time and utilisation of each of these workstations.
  • Since cycle time is 90, idle time is going to be cycle time minus process time we’ll-idle time is nothing but cycle time minus process time.
  • So here it is going to be 20, here the idle time is 10 seconds, again you have 20 seconds here, there is no idle time here in this… …fourth workstation, again in the fifth workstation you have a 20 seconds idle time.
  • Utilisation is … process time, you remember utilisation is nothing but process time by cycle time.
  • Here it is going to be 80 by 90 which is again a repeating decimal and it’s going to be 88.89.
  • So we have all the calculations here in this table as we just now performed and the bottleneck is indicated by a different colour.
  • As we see here, the bottleneck is the fourth stage because that has exactly 90 seconds which is the targeted cycle time and… …other workstations are differently utilised.
  • The most important requirement is that the cycle time of the station should not exceed 90 seconds.
  • We can come with many different alternatives as long as we don’t violate the constraint and we don’t exceed 90 seconds.

Week 2: Analyzing Capacity in Operations > 2.3 Capacity Estimation and De-bottlenecking > Addressing Increased Output Requirements

  • So we have seen how for a certain targeted output, we will work backwards, identify the cycle time, identify how many workstations… …are required and distribute the activities in all these workstations.
  • At the moment we are talking 320, suppose it becomes 400, we want to know how will it affect the design of this workstation.
  • As we know, targeted cycle time is the available time over targeted production.
  • So the new targeted cycle time is going to be 72 seconds.
  • Now, given that the cycle time has to be 72 seconds, the next question we would like to ask is what is the minimum number of… …workstations required? So, the total task time hasn’t changed, it continues to be 380 and the cycle time is 72, the ratio of these two tells us the number… …of workstations required and this ratio turns out to be 5.27 which is as good as saying we need six workstations.
  • So what we notice now is that it is not possible to meet the demand with five workstations.
  • Earlier, for 320 daily requirement, we had five workstations.
  • Now, we need to add one more workstation and make it six.
  • Moment you have to add a sixth workstation, we also need to redistribute the tasks among the workstations.
  • Another implication is we may have to duplicate the resource in that workstation to bring down the effective process time from… …80 to a number less than 72.

Week 2: Analyzing Capacity in Operations > 2.4 Other Issues in Capacity Planning > Efficiency Vs Effectiveness in Operations

  • Let us find out what will happen if we invested substantially in reducing the service time variability.
  • Because, you know, there is so much of variability in service time which can be in our control.
  • What will happen if I reduce my service time variability? Now, how do we do it? Suppose, we were able to automate this step in the process and reduce the variability and service time to zero because that’s… …what automation will do.
  • A human component … you know, may make it five minutes, seven minutes, three minutes and so on whereas an automation can… …reduce variability to zero.
  • The mean talks about the central value and the standard deviation talks about the variability.
  • So what we will do now is we will compare the queue length formula which we found for the earlier case which is with all variability,… …both in processing time and … demand which this example in which there may be variability in demand but service time… …is-variability is ruled out because we have automated.
  • Below you see another formula which is the length of the queue in this example where the service time variability is completely… …eliminated by automation.
  • All other things are same which actually suggests that in the case of a single server queue with deterministic service time, the length of …the queue is half the length of the queue in the earlier example.
  • The service quality is good and the cost is high because we are not really utilising resources very well.
  • It is a good service, low utilisation but the cost is very high.
  • Whereas if you go to the other end, what will happen is the utilisation is high and what it means is it is really low cost because… …we are able to utilise our resources very well but service quality is poor.
  • If you push it to the other side, the utilisation is ki-high, cost is low and the service is poor.
  • As we see in this graph, both the ends are not really interesting because you cannot afford to have a very good service which is too… …expensive which will make you un-competitive nor can you worry too much about cost that the service quality is so bad customers are… …not going to come.
  • The thumb rule generally in service firms is moment you cross 80 percent utilisation, things are not good.
  • Generally the thumb rule is 80 percent, 85 percent, they don’t increase utilisation beyond that because they realize… …that … service … becomes … not very good.
  • All those are efficient, but it is poor service it is not effective.
  • The expected cost is on the y-axis, the level of service is on the x-axis.
  • This curve nicely summarizes how the cost behave in real life where you have uncertain process times and uncertain arrival rates… …or demand.
  • As the level of service increases, the waiting cost will come down because yo-you tend to be getting more and more effective,… …that is what it means.
  • As the level of services comes down, waiting cost will increase.
  • Now, this-this other curve that you see here is the cost of service.
  • What is interesting is if you try to do a good job of reducing the waiting cost, you will find your cost of service will go up and vice versa.
  • Essentially, in the case of uncertainty, when we make capacity decisions, we are asking how do we locate this particular point which is a… …trade off between the cost of service and the cost of waiting.

Week 2: Analyzing Capacity in Operations > 2.4 Other Issues in Capacity Planning > Planning Premises for Addressing Capacity Issues

  • I have seen it in restaurants, there are applications which we can think about in other service businesses and that is to use… …alternative planning premises to address capacity issues during peak hour.
  • Another is called made to stock and the third one is called assemble to order.
  • We will try to understand these three before finding out how they actually address the capacity.
  • Made to order and made to stock are self-explanatory.
  • This is an interesting planning premise in which part of the service is pre-processed and as soon as the customer arrives in the system,… …the balance work is done and service is delivered faster.
  • Food is half-prepared, a few preliminary steps are done and kept ready so that as soon as customers come during peak hour, with… …very minimal processing it is cooked and microwaved and delivered hot or whatever.
  • Assemble to order is a mechanism in which some work is done in non-peak hour zone which precedes the peak hour and-so some… …capacity is already made use of and therefore we are able to handle more work during the peak hour.
  • Now, once the peak hour is over, during the non-peak hour the service system can resort to the other process choices and offerings.
  • Wide service portfolio and product portfolio is possible.
  • So what am I trying to get across? Increasing capacity is not just adding more and more units.
  • There are ways like these which we can use to actually address the capacity problem.
  • Use analytical methods to estimate the capacity required and any additions required in the system.
  • Second, explore the operation system to identify some of the mechanisms available in the system to increase capacity before going… …for addition of more machines, people and other resources.
  • The capacity puzzle needs to be solved very creatively.
  • While we may identify we may need more capacity, we should explore operational choices, product portfolio choices, workforce… …multi-skilling.
  • Some of these things can really help us address capacity problems that we have and this will make truly the capacity planning… …exercise worthwhile and will perhaps enable your organization compete at the marketplace in a very cost-effective manner.

Week 2: Analyzing Capacity in Operations > 2.5 Week 2 Wrap-Up > Summary

  • Then we moved on and focused on the process analysis which is the fundamental mechanism for any capacity analysis that we need to make.
  • We identified the kind of information that we need to do a process flow diagram-the various activities, the re-resources and constraints,… …the process time, the number of resources, what is the demand? So these kinds of information we gathered and developed a process flow diagram and used it as a basic unit of analysis for analyzing… …capacity related issues in variety of situations.
  • How does it mean? So what capacity should I build? So we addressed that … problem and understood capacity from that perspective.
  • So far we have up to these we were discussing capacity from a deterministic process times and demand.
  • So we went one step further and asked the question, what insights do I have if my process is characterized by a lot of uncertainty… …in demand and uncertainty in process times? So, we used rudimentary ideas from queueing theory and tried to establish some useful managerial insights.
  • How do we address peak hour requirements? We-we looked at that problem in some detail and tried to identify four five strategies which you can use in your work settings by which you …will be able to instead of investing in more units of capacity, deploy the existing capacity a little bit innovatively and address the peak… …hour demand.
  • You will be able to identify specific areas in your workplace where you can perform similar analysis and address the issue of capacity.

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