5. Capacity Management
Capacity - is the maximum level of value-added activity that a process can achieve over a period of time under normal operating conditions.
Examples of Capacity
A car park can process a total of fifty cars per day when fully occupied by office workers.

A machine can produce 100 bars of chocolate in one hour.

An elevator can carry 6 people at a time.
Capacity management is about ensuring that sufficient capacity of the right type is available at the right time to meet customer demand.

Capacity management has two basic parts:

1. Measure capacity / Measure demand.

2. Choose an appropriate strategy to reconcile capacity and demand.
Measuring Capacity
Capacity can be expressed in the following forms: design capacity; effective capacity; actual capacity

design capacity
The capacity of an operation that represents the theoretical output of a process as it was designed.
theoretical output - This level of capacity is rarely met as certain factors (both planned and unplanned) can prevent the operation producing its full output.
effective capacity
The capacity of an operation that remains after loss of output due to planned factors.
planned factors - activities whose timing can be determined in advance
actual capacity
The capacity of an operation that remains after loss of output due to both planned factors and unplanned factors.
unplanned factors - events that cannot be predicted; Certain steps must be events that cannot be predicted taken to help reduce the impact of these unplanned factors (e.g. preventive maintenance / employee motivation etc).
Measuring Demand
As customer demand can change instantaneously, there will always be a lag between deciding to change capacity and the change taking effect.
Capacity decisions should therefore be based on estimates of customer demand (demand forecasting). A number of time series forecasting methods can be used to produce estimates of customer demand.
Responding to Demand Fluctuations
The following strategies (capacity plans) can help respond to fluctuations in demand: level capacity plan, chase demand plan, manage demand plan
level capacity plan
This plan sets processing capacity at a uniform level throughout the planning period regardless of fluctuations in forecast demand. During periods of low demand any overproduction can be transferred to finished goods inventory in anticipation of sales at a later time period.
Disadvantages (level capacity plan)
-considerable inventory has to be financed and stored
-can only be used for goods but not services
-not suitable for certain types of goods (e.g. food products)
-future sales may be affected by changes in fashion or design (e.g. clothes or music)
chase demand plan This plan attempts to match capacity closely to the level of predicted demand. It is usually adopted by service operations which cannot store their output.
Disadvantages (chase demand plan)
-not always easy to achieve large variations in capacity from period to period
-would normally require part-time or temporary staff to be employed in busy periods
-need to maintain customer service levels, quality standards and safety procedures
manage demand plan
While the previous plans aim to adjust capacity to match demand, the manage demand plan attempts to adjust demand to meet available capacity. The manage demand plan normally involves altering the marketing mix (e.g. price or promotion).
price - e.g. city hotels offering lower room rates during specific days or periods.
promotion - e.g. turkey growers promoting their products at times other than Christmas.

6. Demand Forecasting I
Forecasting demand
Capacity decisions are often based on estimates of customer demand (demand forecasting).
A number of forecasting methods can be used to produce estimates of customer demand.
Time series forecasting: the type of forecasting where the value of a variable is predicted based on its past performance.
Assumptions made:
-the past is a good guide to the future 
-past tendencies or patterns will continue in the future
Time Series Components: Trend component, seasonal component, cyclical component, irregular component
Method of Exponential Smoothing
A simple time series forecasting method with low data requirements. The method aims to smooth out random fluctuations in the data values.
Measuring forecast accuracy
How can we measure the accuracy of our forecasts?
A number of forecast error measures have been suggested.

7. Demand Forecasting II
Holt’s Exponential Smoothing
An extension of simple exponential smoothing which provides a more appropriate forecasting method for time series that have a trend.
Like simple exponential smoothing, this method also aims to smooth out random fluctuations in the data values.

8. Project Management I
Projects
A project is a unique set of activities designed to accomplish a specific set of objectives (e.g. building a new factory, introducing a new product to the market etc.)
As projects may consist of many activities, they need to be carefully planned, coordinated and controlled in order to: (a) accomplish their objectives (b) meet time and cost targets
Project management involves the process of planning, coordinating and controlling projects that consist of various activities (- sequential and interrelated)
Project completion time
As a number of activities can take place at the same time (concurrent activities), the expected completion time of the project will be less than the sum of the completion times of all its activities.
Network analysis involves the use of network-based methods that can be used as tools in the analysis and management of projects.
Critical Path Method (CPM)
A simple network-based method which can estimate how long a project will take and which activities are critical for its on time completion.
Two ways of drawing CPM diagrams: activities represented by lines; activities represented by nodes
9. Project Management II
Expected duration of a project
Once the expected completion time of a project has been estimated, it may be necessary or desirable to try to reduce it. This would normally imply an extra cost.
Project managers should therefore decide whether to use extra resources in order to reduce the expected completion time of a project.
Project crashing is the process of reducing the expected completion time of a project.
Some points to remember:
-Reducing the expected completion time of a project will involve shortening a number of its activities.
-Shortening activities would normally imply a cost.
-There might be some activities that cannot be shortened.
-The activities to be shortened must be on the critical path.
-The process of project crashing could create more critical paths.
10. Performance Management
Organisational performance is the accumulated results of all the organisation’s work processes and activities.
Performance management is the process of measuring, monitoring and improving organisational performance.
improving - Operations managers are judged not only on how they achieve a smooth running of the company’s operations but also on how they improve the performance of the company’s operations function
The performance management process involves four basic steps.
Step 1 - Define objectives and set standards
The standard will itself have an effect on its achievement.
-standards seen as too high may be ignored as unattainable
-standards that are too low will lower performance
Step 2 - Measure performance.
Quantifiable aspects of performance are relatively easy to measure whereas non-quantifiable aspects of performance are more open to subjective interpretations.
Step 3 - Compare performance with standard
As some variation from the plan is always to be expected, managers need to determine the acceptable range of variation.
Step 4 - Take appropriate managerial action to correct variations or inadequate standards.
Taking action
Managers need to act on significant variations from the plan – either to correct future performance or to revise inadequate standards.
revise inadequate standards - Be careful – a constant lowering of standards can result in employees blaming the standard as being too high rather than accepting that their performance was inadequate!
Measuring performance – Productivity
Ways to increase productivity: by increasing output without a proportionate increase in input; by decreasing input without a proportionate decrease in output.
One of the problems with this measure is that it does not consider performance from a wider viewpoint that also includes the needs of customers and other important stakeholders.
Improving Performance
Any attempts to improve the performance of one or more aspects of the organisation and its operations will undoubtedly result in some sort of change.
Two types of approaches to performance improvement: Breakthrough improvement; Continuous improvement
Breakthrough Improvement
-It assumes that the main vehicle for improvement is major and dramatic change in the way the operation works.
-It is a radical philosophy that does not accept many constraints on what is possible.
An example of breakthrough improvement would be the total redesign of a computer-based hotel reservation system.
Continuous Improvement
-It assumes that the main vehicle for improvement is many small incremental improvement steps.
-Small improvements have one significant advantage over large ones – they can be followed relatively painlessly by other small improvements.
An example of continuous improvement would be the effort to simplify the amount of information a customer is asked to provide when making a hotel reservation.
11. Process Design
A process is an arrangement of resources that make a product.
Process design is about conceiving the looks, arrangement and workings of a process before it is created.
Selecting a process type is a strategic decision for the organisation, as it usually represents a large amount of capital investment in terms of equipment and human resources. e.g. a car manufacturer building a new assembly line
Process Types
Different process types have been suggested depending on certain product characteristics. (variety; volume)
Project processes
-Are used to make one-off products to a customer specification.
-Require transforming resources to move to the location of the product.
-Transforming resources typically comprise general-purpose equipment that can be used on a number of projects.
-Normally consist of many activities and require a problem-solving approach.
Examples: building a house, writing a book, making a movie.
Jobbing processes
-Are used to make one-off, or low volume, products to a customer specification.
-Require the product to move to the location of the transforming resources.
-Transforming resources are shared between different products.
-Require the use of skilled labour in order to cope with the need for customisation (variety) of the finished product.
Examples: makers of custom-built furniture, tailors.
Batch processes
-Group products into batches, whose batch size can range from two to hundreds.

-Require the product to move to the location of the transforming resources.

-Transforming resources are shared between different batches.

-Batch processes can reduce delays and costs by making more units of each product in each run, with any units not needed for current orders put into a stock of finished products.

Example: bakeries.
Mass processes
-Make products of low variety and high volume.

-There is little variety in the product except small changes to the basic model introduced in the finishing.

-Production process broken down into a number of small, simple tasks.

-Setting up of equipment is minimised (high utilisation).

Examples: car manufacturers, computer manufacturers.
Continuous processes
-Make a standard product of a very high volume.
-A large amount of equipment is used, which is dedicated to producing a single product.

-To make this large investment in equipment cost-effective, continuous processes are often in operation 24 hours a day.

-The role of labour is mainly one of monitoring and control of the process equipment with little contact with the product itself.

Examples: oil refinery, steel making, electricity production.
Manufacturing Process Types
Which of the five manufacturing process types are customer-to-order systems and which ones are make-to-stock systems?
Manufacturing Process Types
Project processes; Jobbing processes; Batch processes; Mass processes; Continuous processes
Professional Service processes
-Operate with high variety and low volume.
-Each service delivery is tailored to meet individual customer needs (high customisation).
-High level of communication between service provider and customer and therefore a high level of customer contact.
-The emphasis is on the service delivery process itself rather than a tangible item associated with that service.
Examples: Services provided by doctors, architects, accountants etc.
Service Shop processes
-Operate with medium variety and medium volume.

-Some customisation of the service to individual customer needs but not as extensive as in professional services.

-A high level of customer contact but not as significant as in professional service processes.

-The emphasis is both on the service delivery process itself and on any tangible items that are associated with that service.

Examples: Services provided by shops, banks, schools, hospitals etc.
Mass Service processes
Operate with low variety and high volume.
-Little customisation of the service to individual customer needs.
-Low level of customer contact.
-The emphasis is on the tangible item that is associated with the service delivery process.
Examples: Services provided by supermarkets, cinemas, airports etc.
Simulation modelling
Simulation is a modelling approach which attempts to imitate the dynamic operations of a real-world system.
It can help organisations design their processes effectively and efficiently.