Capacity Management (No Background Music)

Summary

This video on operations management discusses capacity management, an essential aspect of operations planning. Capacity is defined as the maximum output an operation can handle under normal conditions. The video explores how organizations manage capacity to meet fluctuating demand through three approaches: Level Capacity, Chase Demand, and Demand Management. It also explains the importance of accurate demand forecasting and measuring capacity using design, effective, and actual categories. The video emphasizes balancing capacity with performance objectives like cost, quality, speed, dependability, and flexibility for efficient operations.

Takeaways

• 📊 Capacity is defined as the maximum output that an operation can deliver under normal conditions.
• 🔧 Capacity management is essential to ensure an operation can meet demand and deliver goods or services efficiently.
• ⏳ Capacity is usually measured in units such as liters per hour or people per unit of time, depending on the industry.
• 🚍 An example of capacity in practice is a 56-seater bus, where the capacity is the number of passengers it can carry under normal circumstances.
• ⚙️ The operations performance objectives—cost, speed, quality, flexibility, and dependability—must be reflected in how capacity is managed.
• 🔍 Forecasting demand accurately is critical for effective capacity management; too much capacity leads to waste, while too little capacity leads to dissatisfied customers.
• 📐 Capacity can be measured in three categories: design capacity (maximum potential output), effective capacity (accounts for planned losses), and actual capacity (accounts for both planned and unplanned losses).
• 📉 Capacity utilization is calculated by dividing actual capacity by design capacity, while efficiency is determined by dividing actual capacity by effective capacity.
• 📈 There are three main capacity management methods: Level Capacity (keeps capacity constant), Chase Demand (adjusts capacity to meet demand), and Demand Management (manipulates demand to match capacity).
• 💡 Organizations can use short-term measures such as pricing strategies or promotions to manage demand fluctuations effectively in the Demand Management method.

Q & A

What is capacity in the context of operations management?

Capacity is defined as the maximum level of value-added activity over a period of time that a process can achieve under normal operating conditions. It represents the maximum amount of demand that an operation can handle.

Why is capacity management important for operations?

Capacity management is crucial because it ensures that an operation can meet demand efficiently. Proper capacity management helps avoid excessive costs, maintain quality, respond to customer demand, and manage flexibility in production.

What are the three categories of capacity measurement?

The three categories are: Design capacity (the maximum output an operation can achieve without interruptions), Effective capacity (the capacity after accounting for planned stoppages and losses), and Actual capacity (the capacity after accounting for both planned and unplanned losses).

How do you calculate capacity utilization?

Capacity utilization is calculated by dividing the actual capacity by the design capacity and multiplying the result by 100 to get a percentage. This shows how much of the available capacity is being used.

What is the difference between design capacity and effective capacity?

Design capacity is the maximum possible output without considering any interruptions or breaks, while effective capacity takes into account planned losses, such as breaks and maintenance, providing a more realistic measure of operational output.

How can organizations cope with the mismatch between capacity and demand?

Organizations can use three methods: Level capacity plan (keeping capacity constant and using inventory to manage demand), Chase demand capacity plan (adjusting capacity to match demand), and Demand management (manipulating demand through strategies like pricing and promotions).

What is capacity utilization, and why is it important?

Capacity utilization is the measure of how much of an operation’s available capacity is used. It is important because it indicates how efficiently an organization is using its resources, impacting both costs and customer satisfaction.

What factors can lead to unplanned capacity losses?

Unplanned capacity losses can occur due to issues like quality problems, stockouts, poor work rate, absenteeism, and equipment failures.

What is the Chase demand capacity management method?

The Chase demand capacity management method involves adjusting the operation’s capacity to closely match demand fluctuations. This requires careful planning, multi-skilled staff, and flexible production capabilities.

What is the purpose of demand management in capacity planning?

Demand management aims to bring demand closer to capacity by using short-term strategies such as adjusting prices, running promotions, and restricting access to services during certain periods. The goal is to manage fluctuations in demand without changing capacity.