Highlights of our full range of training courses / Workshops:
Lean & Agile Supply Chain / Inventory Modelling
Lean & Agile Manufacturing Planning & Control
Operations Management / Team Leader Training
Step Change Management / Business Process Reengineering
Continuous Improvement
Procurement (Purchasing & Supplier Management)
IS / IT / e-commerce
Product Management / New Product Introduction / Quality Management
Bookmarks for this topic below:
Our full range of training
Relevant Training / Workshops
Expert Systems / Tools
Relevant Further Reading
Relevant Training Course / In-house Workshop Highlights:
Capacity Management Training Programme Structure
Expert Systems / Tools:
Expert Systems & Development Tools
Relevant Further Reading:
The following further articles were mentioned in this paper:
a. Permanently Maintained Website Articles:
Lean Manufacturing
Lean Supply Chains
Agile Manufacturing
Kanban
Participative Master Production Scheduling
Materials Management and Stock Control
Organisational Redesign
MRP1
MRP2
Capacity exchange curves
Period Batch Control
Rough Cut Capacity Planning
b. Previously Featured Articles from our Archives
(Up to 2 per organisation available on request):
Previous Best Practices:
B005: "Level Scheduling"
B006: "Scarce Skills Management"
B035: "Out Tray Management"
B045: "OTIF Measuring On-time Delivery"
B046: "Using Takt time to manage your business"
Previous Techniques:
T007: "CARAP" (Process effectiveness measurement, or why OEE / OME is for the birds)"
T017: "Loading Boards" (Simple Scheduling Systems)
T020: "Close Scheduling"
T021: "Takt Time"
T033: "Process FMEA"
Previous Questions:
Previous Malpractices:
M006: "Hitting the numbers"
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Capacity
Management
This document describes our personal view of the
meaning, principles and some of the problems of
Capacity Planning and Control. It provides a new, lean,
agile and holistic vision of capacity management including new
principles, based on our own research and experience, but encompasses existing
principles which we believe are beneficial including the work of: Burbidge;
Shingo; Taguchi; and the early work of Goldratt & Fox; and Wight. It also discusses
the limitations of popular computer based scheduling systems and how to avoid
them. It also provides an appraisal of
Advanced Planning and Scheduling (APS), Work flow, BPM and MRP2 systems, Finite material and
capacity planning (including OPT, and PERT networks).
Links to
related training and further reading on left
There are two components of capacity management:
- Capacity Planning (creating sufficient, flexible, capable, capacity & a valid, best,
"do-able", resilient, plan, to accommodate demand)
- Capacity Control (ensuring the plan is met by managing resources)
Without capacity (and materials) to meet the demand, the plan cannot be valid.
A. Capacity Planning
There are, in a typical business, four levels where capacity planning (&
control) is required (as shown below). At each of these levels there may be a one-to-many
relationship with the level below. There are certainly differences in both
planning detail and planning horizon required to satisfy each level. For example at
strategic planning level one, product groups (not necessarily individual
products) are being forecast with an horizon of perhaps years. At level four, when you are managing an individual
resource, you are dealing with detailed operating instructions for an individual process and horizons of
perhaps seconds:
Taking each of these levels in turn:
(as a part of business planning) includes capacity management activity to:
- Define longer term capacity goals (time phased resources required to meet the business plan)
- Capability
- Capacity
- Impact of New Product Introduction / old product kill
- Manage gross and long term capacity to meet it which will include
the following considerations and actions:
- Devise upsize / downsize strategy (output or responsiveness)
- Manage volume & variety change
- Place products in business units / locations & position capacity geographically (to source supply)
- Devise strategies to manage seasonal demand / demand variability
- Attack the 6 drivers of performance & 5 attributes of resources to provide:
- Resource Viability & Core Competence
- Capacity (line) balancing
- Replacement theory (Repair or replace?)
- Create resilience and consistency of service in the supply chain
- Create / update disaster recovery plan assessing risk / business continuity (See
Process FMEA)
- Define "Critical Mass" to be viable
- Providing competitive performance & meeting Critical Success Factors (CSF's) for the business
- Resources capability (but avoiding the use of
Overall Equipment Effectiveness (O.E.E).)!
- Manpower planning / succession planning for key skills
- Make vs. Buy
- Agility: (Redesign a “Hard Capacity Box”): (We discuss three types of hard capacity constraint and
how to avoid or minimise the impact of them using a number of tools &
techniques such as "capacity exchange curves", "the capacity battery
principle", "redundant methods", and "reducing the impact of forecast
error", in our S04: Strategic Capacity Management
Training Course). These constraints are characterised below:
- Hard Ceilings, where it is extremely difficult to add capacity
e.g. expensive plant or equipment working at full capacity, or a scarce skill. (Also see
Participative Sales & Operations Planning.)
- Hard Floors, where fixed
costs in the business are high and it is difficult to remove them,
due expensive equipment or scarce skills employed and
where underutilisation in the lean times can create financial difficulties
- Hard Walls, (sometimes
referred to as band width, i.e. the inability to accommodate
simultaneous variety, even though there is sufficient overall
capacity, resulting in queuing), where plant or people are insufficiently
flexible to accommodate the range of varieties or changes in mix in
particular but also volume (no multi-purpose / quick change
equipment, or lack of versatility or mobility in the people (See
Agile Manufacturing.)
- Redesign Supply Chains to achieve flow
- Define simplified control systems for levels 2 to 4
- Simplify the process & create value streams (Reducing the need for scheduling)
- Turn the capacity plan into the business plan
- Justify capital expenditure (CAPEX), or produce profitability forecasts
- Manage the implementation as part of programme management
(Management of the demands
on the business and the gross capacity to meet it and make it happen!)
(The Sales & Operations part of this process is mainly covered in a separate article
from our early work in this area "Participative
Sales and Operations Planning".) (See below.)
- We have two general views of this process, as we will explain further:
- If you basically, sell what you can make, you need a "Participative
Master Production Scheduling Process" assisted by a simple
capacity modelling system, (to organise resources to deliver it, which
basically is answering the question, "When?")
- Otherwise, you need or a full "Development, Sales & Operations
Management Process" to make the trade-offs between the difficulty of
selling vs. the difficulty of providing and to additionally manage the
development and sales processes, which answers the three questions, "What, If and When?".
- Traditionally development planning has been excluded from the Sales &
Operations Planning process, but we have found that not only does
development vitally influence the timing of sales & operations plans, but it
also can consume significant amounts of operational resource, so needs to be integrated
into this process. However in some businesses with stable products it is
possible to make simplifying assumptions about the amounts of resource
needed for development.
- Also in addition to development, sales and operations
planning we need to ensure that the plan is met which
means that this is not simply a planning process but also a control
process to make it a complete "Development Sales & Operations
Management" (DS&OM) process. The output of the planning process
is the next, one plan to which everyone in the business unit will
work. How to design this process is well beyond the scope of this
article and it takes us 2-3 days to explain in our training. (M04
/ SSC08 and M05 below) But some
of the key issues follow:
- It is important to distinguish between constraint types when capacity
planning. Hard ceilings in particular need
to be considered in this high level plan, but walls and
floors may also be significant at this level.
- Tools, techniques & methods to manage this level include "Participative
Master Production Scheduling", "TAKT time"
& "Rough Cut Capacity Planning"
(see below).
- There are 11 separate degrees of sophistication which can be applied to
capacity planning and control, ranging from the crude approximations of input / output
control below, to artificial intelligence / heuristics. Generally the more complex the situation, the more sophistication
needed. This will be covered in a future article,
but is included in our current Level 3 training (below).
- Whilst often forgotten in the complications of the budgeting process, capacity has to cope with
peak demand not average demand in order to satisfy
individual customer needs. The difficulty is to satisfy peak demand constrained
by a budget containing average costs. This often leads to
capacity lagging behind demand in an upturn even if the demand is
accurately predicted. Conversely even if a downturn in demand is
accurately predicted, the backward looking financial control
systems do not create cost reduction tension until too late. This
is a problem which management accounting has not yet properly
addressed, but fortunately most general managers have a weather
eye on the order book and sales pipeline to try to keep costs and
income in line. However this check should be a routine part of the
Development, Sales & Operations Management process at level 2.
(This problem is acute in seasonal businesses or where demand varies
considerably, and requires additional sophistication in planning.)
- Advanced Planning and Scheduling (APS) begins to miss the point that if
sophisticated models are needed, perhaps the manufacturing system
is too complex and should be simplified. ("Period Batch
Control" and "Production Flow Analysis for Planning
Group Technology" by the late Jack Burbidge). This thinking has led to the
popularity (but not yet wide-scale adoption) of the concept of
"lean manufacturing" and "lean supply chains", which is
covered in more detail elsewhere on the site. (See below.)
- The "Theory of Constraints"
(TOC) penned by Goldratt & Fox in their book "The Goal"
argued that the capacity of the supply chain system was governed
by the capacity of its weakest link (the bottleneck) and that
overproduction in other areas would simply produce unwanted
inventory. Therefore high level control needs to be exercised to
avoid local optimisation. Capacity planning can
therefore be simplified by
creating representative models of the real world using a
capacity model based on critical or bottleneck
resource availability and by interpreting the demand on that
resource alone to determine the overall likely output. This
technique is called "Rough Cut Capacity Planning" and
provides a rough check that demand and capacity are in balance.
- This whole process was originally envisaged to be the role of an
individual called a "Master Production Scheduler"
("Manufacturing Planning & Control Systems" by Volman, Berry and Whybark), who would present the output plan to
operations to produce. This concept was inherently flawed in that only that person owned the plan. If this check (which can usually
be done on spreadsheets) is in place, a process can then be built
around this to involve the stakeholders in a planning process.
This technique "Participative Master Production
Scheduling" (PMPS) ensures input from the participants to the plan
and thereby commitment to its achievement by those stakeholders.
- By its very nature Master Production
Scheduling (MPS) attempts to smooth demand to produce a stable
operations plan and thereby either, produces items earlier than needed, or increases some batch sizes beyond
immediate requirements in anticipation of future requirements, both of which may
be competing with capacity required for immediate customer
requirements, and produce unnecessary inventory. These practices
have to be viewed as sub-optimal to producing what the customer
wants, when they want it. However in many businesses demand is
influenced by seasonal or other factors which make stable demand
impossible. Or many processes or suppliers' processes are
inflexible, which make changeovers from one job to the next, time
consuming. The danger is that these constraints may be viewed as
immovable objects when in fact they can often be easily removed or
alleviated. (See Agile Manufacturing.)
- When capacity is approached by the
demand, lead-times start to increase disproportionately. In the
figure below the first period is full and there is some capacity
available in the second period to accept further orders (capacity is "Available To Promise" / ATP). So
currently the lead-time is 2 periods. If a small order is taken which
fills this capacity the lead-time is now 3 periods. It is
interesting to note that the sales process from which the
promises are derived often ignores the dynamism of this
relationship and the fact that relatively small increases in demand will
dramatically increase lead-time. This results in unachievable promises being made to
customers, and unrealistic Master Production Schedules, which, if driving the
materials plan, via an MRP1 or
MRP2 system, will fill your raw materials
store with short lead-time items that you do not have the capacity to
utilise. Also this leads to frustration, false expediting and a breakdown
of the planning system.
- When a new product is launched
the lead-times are in fact longer than they will be later,
because later, the learning curve will have been climbed, supplier
relationships established, snags removed from the design etc. It
is interesting to note that this reduced lead-time is often
not later, reflected in the sales process.
(Scheduling of individual functions, cells or process areas)
- In the mid 1970's the commercial
availability of computers also spawned capacity planning tools,
whose models were very sophisticated even by comparison with
today's systems. It is mathematically possible to create a
comprehensive model of the manufacturing or supply chain processes run on powerful computers,
which use a variety of optimising techniques, in recently created
"Advanced Scheduling Systems", in order
to schedule work. (Previous Technique T020: "Close
Scheduling" provides an introduction to scheduling.)
- Also MRP2
Systems took the MRP1 plan and scheduled
operations to create a "work-to" list at operational level in the early
1980's.
- However it is difficult to justify the additional cost and administration that these
systems require, if:
- Less sophisticated processes such as an effective master production
scheduling process supported by a rough-cut capacity
model is implemented first.
- Simple scheduling systems such as "Level
Scheduling" (See Previous Best Practice T005: "Level Scheduling") based on
good work sequencing is employed.
- Simple loading / planning boards are adequate. (See Previous
Technique T017: "Loading Boards")
- Work-In-Process is kept small by
the use of Input / Output Control (as shown below) or "Pull / Kanban" systems (see
Materials Management & Stock Control).
- Actual input should not normally
exceed actual output to avoid work in process building up and
complicating the process
- Planned and actual output should be
equal (On Time In Full) (see Previous Best Practice B046: "OTIF Measuring On-time Delivery")
- Planned input should not normally
exceed planned output unless you are going through a period of priming,
ramp up, or ramp down
- There are a number of mechanisms which can be employed to manage
workflow at level 3
before considering scheduling systems including:
- Pull Systems (see
Materials Management & Stock Control) or
Kanban systems
- Input / Output control / TAKT control
- Out Tray Management (See Previous Best Practice B035: "Out Tray Management")
- Queue management (checking the length of a queue and acting on
out-of-tolerance queues) (Future article)
- Measuring Operational Effectiveness (OTIF)
Finite material and capacity planning
(including OPT, and
Advanced Scheduling Systems, and PERT networks)
There is no doubt that mathematical
approaches to scheduling are both valid and precise. You should bear in mind
though that you can be precisely wrong!, and
there are some practical problems. Businesses are complex, uncertain
places. So to be accurate the mathematical models must reflect
the complexity and statistical uncertainty of reality. This leads
to a number of practical problems.
- It requires a specialist to run it.
- Potentially very large computer models are
required, which are unstable if there is uncertainty e.g. Absenteeism,
quality problems, process breakdowns / unreliability etc.
- It is very difficult to understand
why the "work to"
list says what it says, and the plan is imposed not agreed.
- Administration of the data is very high which means:
- It is labour intensive
- It becomes inaccurate very easily
These systems were widely used before the
implementation of processes formed around natural groups (cells) and
Kanban systems,
which have proved far simpler and in many cases superior.
"Drag & Drop" electronic
loading boards have some utility in resolving scheduling problems
where a manual loading board has reached its limits, but they
suffer the same disadvantages above.
There are a number of issues relating to the
maintenance of valid computer capacity models:
- The continuity of support
- The validity of models with uncertain processes
- The ownership of the resultant plan
- The understanding of the resultant plan
- The lack of stakeholder participation in the process
There is a further issue also relating to the
documentation of the process, which can become a barrier to change. For example
in the pharmaceuticals industry, process control documentation is of paramount
importance as a quality assurance and control mechanism. However the
documentation of the capacity planning parameters can create similar significant
administration.
You need to take a staged approach to implementing sophisticated
scheduling tools of any description. What you need to do is:
- Remove complexity
from your operation by Organisational Redesign
techniques
- Remove variability
from your processes
- Increase the agility of your processes
- Evaluate advanced systems with a view to
redesigning your operational planning and scheduling
- Redesign your planning process to
take into account the remaining variables
- Select the degree of sophistication you now
require to deal with the remaining complexity
- And then postpone
spending the £100,000 or more on the computer-scheduling tool by
implementing the simple methods first and then justifying the next level
of sophistication a stage at a time
These arguments are still valid in the context of infinite capacity plans contained in
many MRPII systems. We describe this process in detail in our courses
M02 Advanced Scheduling Systems &
M23 Capacity Management.
(E.g. individual settings, speeds, feeds, skills, set / make ready times etc.)
At level four we have been involved in some interesting & lively debates about:
- What is the best method (running speeds, feeds, process
settings, least waste, shortest lead-time etc.)? This is where Taguchi
methods (Design Of Experiments) is particularly useful. (In one recent
example we showed that by reducing
conveyor speed, more throughput could be achieved.)
- Identifying and then driving
skills development (versatility / mobility) using skills matrices (See
Previous Best Practice B006: "Scarce Skills
Management")
- Processing frequency / batch size, & in particular why work must be done
in large batches, which "Level
Scheduling" and "SMED" (below) specifically address.
- The worst case changeover time we have encountered so far is 9
hours for a single "efficient" process. This was accompanied by significant
run down and run up materials losses, inhibiting flexibility significantly.
The best result we have seen so far is 2 minutes for changeover of a large,
vehicle body panel, press die. It is this area that "SMED" (Single Minute Exchange of Die) techniques ("A
revolution in Manufacturing: The SMED System" by Shigeo Shingo) has much to
offer.
- How to measure process effectiveness & what are the real influences on
process effectiveness. (See below.)
- The degree of automation which is appropriate in particular
circumstances.
We deal with these issues in courses M11
Simple Ways to Maximise Output & Workflow &
OM02 Managing & Improving Individual Skills & Overall Skill Levels.
Firstly we believe that the 3 dimensional approach of Overall Equipment
Effectiveness (OEE) is inadequate, and the six big losses of OEE incomplete. In
fact we have identified 21 so far, each of which needs to be resolved
individually. (See Previous Technique T007:
"CARAP" (Process effectiveness measurement, or why OEE / OME is for the birds)") Secondly much is made of the process of capacity planning
and in particular in the availability of sophisticated re-planning tools. A
university professor recently stated that all of their post graduate research
projects in manufacturing systems engineering were dedicated to seeking the holy
grail of the ideal scheduling algorithm. However if as much attention was paid
to meeting the plan instead of
constantly changing it we think the process
would be significantly more productive and
also constantly improving.
Thirdly much is also made of "sweating
the assets" or "maximising productivity".
In fact there is only one asset in your business that needs to be operationally
sweated & that is the bottleneck. Often this bottleneck is a service area or
sometimes, if the order book is low, the sales department. (See
Malpractice M006: Hitting the numbers.)
Sweating a non-bottleneck will produce unwanted output!
To illustrate of this point, answer the following question:
How much output should operations ideally produce if the order book is empty?
The answer
of course is zero and of course ideally they should incur zero cost (a zero
capacity floor) in doing so. So why are operations measured on maximising output?
The key question is how can we de-bottleneck, perhaps by reassigning
underutilised resources. We have developed a new way of defining resource
capability, de-bottlenecking and getting more output from them which we teach in
M05 Simple Capacity Planning & Control.
Capacity control operates at all four levels and between the levels:
- Strategic / Business Planning (where typically
budgetary type controls operate) but this plan must be "do-able"
(established by modelling it using the level 2 Rough
Cut Capacity Planning tools)
- Development, Sales and Operations
Management / Master Production Schedule, where
the overall plan is measured and performance against the
plan analysed and actions taken to bring output into line
with demand, but any conflict between the business plan and what
customers want has to be reconciled at this level, not passed to level 3
unresolved.
- Workflow which is typically short term, which can be minutes,
hours or days depending on the lead-time, where short
term actions are taken to bring the plan and achievement
into line. There is a particular phenomenon called "interference" well
known to methods study practitioners many years ago, which states that
simultaneous variety may result in one job's progress being in conflict with
another delaying one or the other. This means that the level 2 plan when
scheduled at level 3 may be impossible. Therefore this plan's aim is always
to deliver the level 2 plan or report back where interference prevents this,
for resolution at level 2 and, if substantial, has become the justification
for the more sophisticated scheduling tools mentioned earlier.
- Process Management conformance to
requirements. (E.g. Why everyone is not using the same "best"
method.) Ultimately these resources have to deliver the level 3 plan but in
gross terms have to deliver the levels 1-2 plans. This therefore forms the
development priority (and plan) for this level.
The difference is really the level in
the organisation where the decisions need to be taken, which
depends on the impact. This tends to be strategic & long term at business level,
but tactical & short term where the horizon also tends to be
shorter for local decision making. However the feed forward revised plans and
feedback loops between levels on performance should be timely!
The timeliness of control is a key element, which can be illustrated as follows:
In the left hand diagram if action is
taken in a timely way to respond to a required increase in output, the deviation can be corrected fairly easily. If the
action is delayed the shortfall / backlog (in this case) in the right
hand diagram has accumulated and recovery is much more difficult. In one case we
were involved in, a 28 week recovery plan was needed to remove a 3 week backlog.
There needs to be a mechanism to exercise the
control involving the stakeholders. This implies a meetings structure to discuss the issues
and to resolve the problems. These may include:
- Programme management at level 1
- The Master Production Schedule meeting at level 2
- And perhaps a start of shift / sunrise team meeting at a lower level.
In the case of a food manufacturer with 8-hour
customer required lead-times, a meeting was held between the production
supervisor and the production planner every hour.
Conclusions
You may not be short of capacity. You may be
short of a capacity planning process at any of these four levels.
In particular a "Strategic Capacity Management Process"
may be the most valuable asset you do not have! You may
also be short of a capacity control process which should ensure that these plans
are met, and which does not cause conflicts by employing faulty measurement
giving rise to local optimums. For example a
local control system which encourages output may simply produce
unwanted inventory!
In preference to applying sophistication, you could
employ simplicity as a means of improving output & workflow!
___________________________________________________________
Follow the links below to
training and further reading
on this and related
topics:
Training Courses and Workshops
(All our training courses can be
readily tailored to suit your in-house workshop needs.):
The following 8 training courses cover best practice capacity management:
Level 1: Business Planning
S04 Strategic Capacity Management provides a guide to Business Planning using modern capacity strategy best practice.
Level 2: Development, Sales & Operations Management
M04
Participative Master Production Scheduling describes high level
capacity planning processes of sales and operations planning, but focused
on operations and master production scheduling rather than sales planning. (This
course is designed in conjunction with M05 below.)
M05
Simple Capacity Planning and Control describes how to design,
implement and operate simple Capacity Planning & Control Systems. (This course is
designed in conjunction with M04 above.)
SSC08 Participative
Development, Sales & Operations Management takes an holistic view of
development planning, sales planning & operations planning processes, and
applies the principles of capacity management to non-manufacturing &
manufacturing businesses.
Level 2 / 3: Workflow Management / Scheduling
M09 Manufacturing Resources Planning describes the
MRP2 approach to
capacity management (M08
"MRP1" is a prerequisite for this course.)
M02
Advanced Scheduling Systems describes scheduling theory & APS systems in detail
Level 3/ 4: Simple Scheduling / Process Settings / Speeds / Set Up / Make Ready
M11 Simple Ways To Maximize Output & Workflow describes detailed ways of
maximizing throughput at an operational level.
Guide to Capacity Management
M23 Capacity
Management provides a guide to capacity management for
beginners, drawing on key aspects from all of the above capacity
planning & control courses.
Also you may be interested in our range of:
operations management training including
OM02 Managing
& Improving Individual Skills & Overall Skill Levels,
or the creation of simple, effective, processes in:
S02 Business Process Reengineering,
or an executive overview of key aspects of world class organisations in:
S03 Vision of a "World Class" Organisation
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