Basics of Supply Chain Management
Session 5
Capacity Management and Production
Activity Control
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Basics of Supply Chain Management, Version — August 2001
Session 1: Introduction to Supply Chain Management
Session 2: Forecasting
Session 3: Master Planning
Session 4: Material Requirements Planning
Session 5: Capacity Management and Production
Activity Control
Session 6: Inventory Fundamentals
Session 7: Inventory Management
Session 8: Physical Distribution
Session 9: Quality Management and Purchasing
Session 10:Just-in-Time Manufacturing
Course Outline
5-1a
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Session 5 Objectives
Capacity management and its relation to
priority planning
Rated or calculated capacity
Capacity required for a shop order
Purpose and activities of production activity
control (PAC)
5-1b
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Session 5 Objectives (cont.)
Process of order preparation and data
requirements for a PAC system
Techniques of scheduling
Purpose of a shop order and necessary
information
Implementation and control of work orders
Input/output reports
5-2
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Capacity Management
Planning and controlling resources needed to meet
production objectives
Planning: Determining resources
needed to meet the priority plan
Selecting methods to make
that capacity available
Controlling: Monitoring output, comparing with the
plan, and taking corrective action
Capacity management occurs at each planning level
5-3
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Basics of Supply Chain Management, Version — August 2001Figure adapted from CPIM Exam Content Manual, APICS, 1997
Capacity Management
Techniques
Capacity
Requirements
Planning (CRP)
Priority Management
Techniques
Resource
Requirements
Planning
(RRP)
Production
Plan
Rough-Cut
Capacity
Planning (RCCP)
Master
Production
Schedule
Material
Requirements
Planning (MRP)
Production
Activity Control
(PAC) Operation
Sequencing
Input/Output
Control
Planning Levels
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Defining Capacity
The capability of a system to perform its
expected function
The capability of a worker, machine, work
center, plant, or organization to produce
output per time period
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Capacity Planning Process
Determine the capacity available
Translate the released and planned orders
into capacity required
Sum up capacities required for each work
center
Resolve differences between available
capacity and required capacity
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Determining Capacity Available
Capacity available is
“The capability of a system or resource to produce a
quantity of output in a particular time period”
—APICS Dictionary
Available capacity can be calculated or measured
To calculate available capacity, identify
Available time
Utilization
Efficiency
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Available Time
Available time: depends on the number of
machines, number of workers, and hours of
operation
Number of machines (or number of workers) × hours of operation
What is the weekly available time for a work
center that has four machines and works eight
hours a day for five days a week?
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Utilization
Utilization: Percentage of the time that the
work center is active
Example: Work center is available 120
hours a week, but actually
produces goods for 90 hours
utilization 75% 100%
120
90 =×
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Efficiency
Efficiency: Actual output rated against
standard output
Example: A work center is utilized 100
hours per week and produces
110 standard hours of work
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Problem
A work center produces 90 standard hours of
work in one week. The hours scheduled are
80, and 70 are actually worked. Calculate the
utilization and efficiency of the work center.
Utilization =
Efficiency =
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Rated Capacity
Rated capacity = available time x utilization x efficiency
Example: A work center consists of three machines and is
operated eight hours a day for five days a week.
Past utilization has been 75%, and efficiency has
been 110%.
Available time =
Rated capacity =
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Problem
A work center consists of six machines that
are available 16 hours per day for five days a
week. Utilization is 80%, and efficiency is
110%. What is the rated weekly capacity?
Rated weekly capacity =
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Demonstrated Capacity
Proven capacity calculated from actual performance
data
Example: Over the previous four weeks, a work
center produced 110, 140, 120, and 130
standard hours of work. What is the
demonstrated capacity?
Demonstrated weekly capacity = standard hours/week
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Load
Generated by the priority planning system
(MRP)
Translates the priorities, given in units, into
time required at each work center in each
time period
Takes place at each planning level
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Capacity Requirements Planning
Need to Know Take Information From
Open shop orders Open order file
Planned order releases MRP
Where work is done Routing file
Time needed (standard hours) Routing file
Lead times Routing file
Work center file
Work center capacity Work center file
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Mon. Tues. Wed. Thurs. Fri.
July
127 128 129 130 131
9 10 11 12 13 14 15
28
132 133 134 135 136
16 17 18 19 20 21 22
29
137 138 139 140 141
23 24 25 26 27 28 29
30
142 143 144 145 146
30 31 1 2 3 4 5
31
123 124 125 126
2 3 4 5 6 7 8
27
123
July 2
2
Work Day—123 Defines non-work days
Reprinted with permission, . Tony Arnold, Introduction to Materials Management, Prentice-Hall.
Shop Calendar
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Lead-Time Elements
Queue Setup Run Wait Move
Lead Time
Queue Time waiting before operation begins
Setup Time getting ready for operation
Run Time performing operation
Wait Time waiting after operation ends
Move Time physically moving between operations
Adapted from Material and Capacity Requirements Planning Certification Review Course, 1993, APICS
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Scheduling Orders
To determine when orders should be
started and completed on each work
center
Calculate operation time required at each
work center
Operation time = setup time + run time
Allow for queue, wait, and move times
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Order quantity = 100 units
From route sheet
From work center files
Schedule
Scheduling Example
5-20
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Problem
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Typical Load Profile
Shows the capacity required at a work center based on planned and
released orders for each time period
Example
Work center: 10 Rated capacity: 110 standard hours/week
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Resolving Differences
Change the available Use overtime or
capacity: undertime
Hire or lay off
Shift work force
Use alternate routings
Subcontract
Alter the load: Alter lot sizes
(May complicate schedule Reschedule
for other work centers)
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Production Activity Control
5-24
Production Plan
Planning
Implement
control Purchasing
Production
Activity
Control
Master
Production
Schedule
Materials
Requirements
Planning
Capacity
Control
Input/Output
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Objectives of PAC
Execute the MPS and MRP
Optimize use of resources
Minimize work in process
Maintain customer service
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PAC Functions
Plan
Ensure resources are available
Schedule start and completion dates
Execute
Gather relevant shop order information
Release shop orders
Control
Establish and maintain order priority
Track actual performance
Monitor and control WIP, lead times, and queues
Report work center performance
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Reprinted with permission, . Tony Arnold, Introduction to Materials Management, Prentice-Hall.
Planning, Executing, and Controlling
5-27
Manufacturing Operations
Execute
Work
Authorization
Control
Compare
Decide
Plan
Schedule
Replan
Production Activity Control
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Data Requirements
Must Know Obtained From
What and how many to produce
When parts are needed
What operations are needed
How much time operations will take
How much capacity is available at each work center
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Scheduling
Objectives
Meet delivery dates
Effectively use manufacturing resources
Involves
Establishing start and finish dates for each
operation needed to complete an order
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Scheduling and Loading Techniques
Forward scheduling: Activities are schedule from
a start date with the
completion date of an order
computed
Backward scheduling: Activities are scheduled back
from the due date
Infinite loading: Assumes capacity is infinite
at any work center
Finite loading: Assumes there is a definite
limit to capacity at any work
center
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Reprinted with permission, BMS Associates, Inc.
Backward and Forward Scheduling
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Infinite versus Finite Loading
Source: Bihun and Musolf, Capacity Management Review Course, 1985
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Bottlenecks
Bottlenecks control the throughput of all products
processed by them
Work centers feeding bottlenecks should be scheduled at
the rate the bottleneck can process
A time buffer inventory should be established before the
bottleneck
Work centers fed by the bottleneck have their throughput
controlled by the bottleneck
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Execute the Plan—Shop Order Packet
Order number, part number, name and
description, and quantity
Engineering drawings
Bills of material
Route sheets
Material issue tickets
Tool requisitions
Job tickets and move tickets
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Period 1 2 3 4 5 Total
Planned input 38 32 36 40 44 190
Actual input 34 32 32 42 40 180
Cumulative variance
Planned output 40 40 40 40 40 200
Actual output 32 36 44 44 36 192
Cumulative variance
Planned backlog 32
Actual backlog 32
Work center: 201
Capacity per period: 40 standard hours
Input/Output Control
5-35
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Period 1 2 3 Total
Planned input 38 36 42
Actual input 34 36 40
Cumulative variance
Planned output 40 40 40
Actual output 42 36 42
Cumulative variance
Planned backlog 30
Actual backlog 30
Work center: 20
Capacity per period: 40 standard hours
Problem
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Dispatch List
Work center: 10
Rated capacity: 100 standard hours per week
Shop date: 250
Order Part Order Setup Run Operation Date
Number Number Quantity Hours Hours Start Finish
123 6554 100 15 249 250
121 7345 50 30 249 251
142 2687 500 75 250 259
Total standard hours 120
Jobs coming:
145 7745 200 20 251 253
135 2832 20 253 254
Reprinted with permission, . Tony Arnold, Introduction to Materials Management,3rd ed. Prentice-Hall, 1998
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Dispatching Rules
First come, first served (FCFS)
Jobs performed in order received
Earliest job due date (EDD)
Jobs performed according to due dates
Earliest operation due date (ODD)
Jobs performed according to operation due dates
Shortest process time (SPT)
Jobs sequenced according to process time
Critical ratio (CR)
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Critical Ratio
Example:
Today’s date is 180
Critical Time Work
Order Due Date Remaining Remaining Ratio
A 185 5 days 10 days .5
B 190 10 days 10 days
C 195 15 days 10 days
If CR less than (<) 1: Order is late
If CR equal to (=) 1: Order is on time
If CR greater than (>)1: Order is ahead of schedule
5-39
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Production Reporting
Feedback on what is actually happening
plantwide and by work center
Order status
Exception reports
Inventory status
Labor reports
Machine performance
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Session 5: Objectives
Discuss objectives of capacity management and its relation to priority
planning
Understand how to determine rated or calculated capacity (available
capacity)
Understand how to calculate the capacity required for a shop order
(required capacity)
Define the purpose of production activity control (PAC) and the
activities performed
Understand the process of order preparation and the data
requirements for a PAC system
Describe the basic techniques of scheduling
Describe the purpose of a shop order and the information it should
contain
Summarize the process of implementing and controlling work orders
Develop a simple input/output report
5-41
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Problem
Available hours =
Hours actually worked =
Standard hours produced =
Utilization =
Efficiency =
Weekly available time =
Rated capacity =
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Problem (Solution)
Available hours = 12,000
Hours actually worked = 10,440
Standard hours produced = 11,480
Utilization = x 100% = 87%
Efficiency = x 100% = 110%
Weekly available time = 3 x 16 x 5 = 240 hours
Rated capacity = 240 x .87 x =
5-42a
10,440
12,000
11,480
10,440
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Work center: 20
Capacity per period: 40 standard hours
Problem
5-43
Period 1 2 3 4 Total
Planned input 36 38 35
Actual input
Cumulative variance
Planned output 40 40 40
Actual output
Cumulative variance
Planned backlog 32
Actual backlog 32
40
34 32 32 42
40
38 36 40 38
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Work center: 20
Capacity per period: 40 standard hours
Problem (Solution)
5-43a
Period 1 2 3 4 Total
Planned input 36 38 35 149
Actual input
-2 -8 -11 -9Cumulative variance
Planned output 40 40 40 160
Actual output
Cumulative variance
Planned backlog 32
Actual backlog 32
40
-9
34 32 32 14042
40
28 24 16 20
-2 -6 -6 -8-8
38 36 40 15238
28 26 21 21
