Operations Management / Supply Chain Management

Module 06: Process Strategy and Capacity Management

In this Module we will take a look at different Production Process design strategies and also review how these relate to, and depend upon, capacity planning and capacity management.  Strategic decisions thus have long term effects on production efficiency, flexibility, cost and quality.

The overall objective of Operations Strategy is to create a process to produce products (and services) that meet customer requirements within cost and other managerial constraints.

We will explore many different approaches to manufacturing and service process design.  As with anything in Operations Management, there is no one perfect approach for every business in every industry.  Rather, each operation must be configured in such a way to meet the strategies, objectives and capabilities available.  Some general guidelines can be proposed however.   The Text Authors describe four basic approaches: Process Focus, Repetitive Focus, Product Focus and Mass Customization.  The selection of approach generally depends on the Volume and Variety of Products / Services produced.

With the Process Focus approach, facilities are organized around specific activities or processes.  General purpose equipment and skilled personnel are utilized to provide a high degree of product flexibility.  This results in typically high costs and low equipment utilization.  Product flows may vary considerably making planning and scheduling a challenge.

With a Repetitive Focus approach, facilities are organized around specific activities or processes.  General purpose equipment and skilled personnel are utilized.  As with Process Focus, this provides a high degree of product flexibility but also brings typically high costs and low equipment utilization. Product flows may vary considerably making planning and scheduling a challenge.

With a Product Focused approach (often Assembly Line or Continuous Plant), facilities are organized by product and production is established for high volume but low variety of products. Long, continuous production runs enable efficient processes.  This usually results in typically high fixed cost but low variable cost.  Generally less skilled labor is employed to support the operations.

Mass Customization refers to the rapid, low-cost production of goods and service to satisfy increasingly uniquecustomer desires.  It combines the flexibility of a process focus with the efficiency of a product focus.

In order to be practical, Mass Customization requires:

  • Imaginative product design
  • Flexible process design
  • Tightly controlled inventory management
  • Tight schedules
  • Responsive supply-chain partners

Capacity decisions vary depending on the Operation Systems employed.

Capacity can be classified as budgeted, dedicated, demonstrated, productive, rated, safety, standard or theoretical.

Capacity Management is the function of establishing, measuring, monitoring, and adjusting limits or levels of capacity in order to execute all manufacturing schedules (i.e., the Operations Plan, Master Production Schedule, Material Requirements Plan and Detailed Scheduling).

The primary objective of capacity planning techniques is to estimate capacity requirements early enough to be able to meet those requirements.  Flawless execution of the capacity plan allows the firm to avoid unpleasant surprises while insufficient capacity leads to deteriorating delivery performance.  On the other hand, excess capacity may be a needless expense.

Capacity planning and management addresses two managerial problems:

  • Matching capacity to plans–by either providing sufficient capacity to execute the plan or adjusting the plan to meet available capacity.
  • Considering the marketplace implications of faster throughput times–at the expense of reduced capacity utilization.

Capacity planning and management techniques are relevant to all levels in the planning hierarchy from Strategic Planning to detailed Shop Floor Control and Purchasing.  Yes, capacity is surely a critical question where suppliers are involved.  Capacity management acts at each stage to test the validity of each plan and then drive decisions and actions if there is a mismatch.  As such, Capacity Management answers the question: “Can we do it?”  With one of two answers:

  1. Yes we can!
  2. No we can’t

If the answer is “Yes, we can”, then the plan can go forward.  If the answer is “No, we can’t”, then either more resources must be added or the plan must be changed.  A change at any level impacts linked plans above and below in the Operations Management planning and control processes.