Slides for Chapter 10. Strategic Capacity.
Honda on July 18 announced two new plants. In Argentina, Honda will spend $100 million on a new compact-car plant. The facility will be located in Buenos Aires and initially have a capacity of around 30,000 units. In Thailand, Honda will add a second plant that, from the second half of 2008, will double production to 240,000 units. Meanwhile, in India, Honda will triple auto production, to 150,000 units, by 2009. And in China, where Honda will produce 530,000 cars this year, the company announced it and partner Guangzhou Auto have established a new research and development venture to launch a new vehicle in 2010.
Even in Japan, where the auto market is shrinking, Honda has new production facilities in the pipeline. Among them, a new auto plant in Yorii, outside Tokyo, will be Honda\'s most advanced plant anywhere when it opens in 2010. Honda says the plant will be used as a testing ground for new technologies that will eventually filter through to overseas plants.
Source: “Honda Hits the Gas on Capacity”
Business Week 19th July 2007
Source: “Honda to expand automobile production capacity in China” Published by Datamonitor on 26 May 2010
Carmakers are expanding at home, where nimble, high-tech plants offer more flexibility. In the midst of a dramatic earnings slump, Toyota, Nissan, and Honda are ramping up production fast. Not in the U.S., their most profitable market, but back in Japan, where domestic auto sales just hit a 25-year low.
Every major Japanese automaker is building plants at home or adding capacity to existing ones. A Toyota subsidiary is constructing a 120,000-car plant in Miyagi, north of Tokyo. It\'s Toyota\'s first such plant in Japan since 1993. Nissan, which not so long ago was slashing production in the country, is expanding capacity by 22% at its Kyushu factory. Honda is spending $1.5 billion on a new factory and engine plant in Saitama, just outside Tokyo. "The time has come for our Japan operations to once again take the initiative," Honda President Takeo Fukui told reporters on May 21.
Business Week; 9th June 2008 p64
Volkswagen (VOWG.DE) has selected Chattanooga as the site for a new U.S. assembly plant ….. For Volkswagen, the Tennessee plant is the cornerstone of an audacious plan to build up to 1 million in U.S. sales by 2018 [the figure covers both the VW and Audi brands]. The Chattanooga operation will have an initial capacity of 150,000 vehicles and will include body production, a paint shop, and assembly operations, Volkswagen said. Most plants are built to expand to between 200,000 to 300,000.
Volkswagen Waltzes Into Tennessee.Business Week 16th July 2008
Source: “The Top 10 Consumer Electronics Manufacturers”
Business Insights 21 September 2010
Source: Datamonitor June 2010
What the Chinese want now are more bottles of Mountain Dew. At least that is the hope of PepsiCo, which says it plans to spend $150 million to expand bottling capacity by a third. That will mean 100 million more cases of Pepsi, 7 Up, and the caffeine-charged Mountain Dew. While the company\'s annual sales in China have grown at around 10 percent in recent years, it still has only about half the penetration of rival Coca-Cola. PepsiCo executives say they are determined to increase their beverage presence in China, despite the threat of severe acute respiratory syndrome (SARS).
Business Week, 6th Sept. 2003
The article reports on Boeing, in light of the Paris air show. The popularity of its new 787 twin-aisle airliner has helped Boeing open up a big lead over Airbus in orders this year, with 245 planes sold vs. 145. Less noticed is that Boeing…… has maneuvered Airbus into a strategic cul-de-sac that could handicap the European consortium for years. Boeing\'s rise represents the latest phase of an epic dispute between the two companies about what airline customers want. Boeing is betting passengers will opt for more frequent trips in smaller planes that fly direct between less-traveled city pairs like Seattle--Seoul. Both Boeing and Airbus forecast sales of some 2,600 planes, with capacity between 300 and 450 passengers, over the next 20 years
Fortune 13th June 2005
When we hire somebody, we have to pay them 52 weeks X 40 hours
BUT the maximum capacity is vastly different to the actual capacity
We need to deduct:
20 X 8 hours (vacation): 160
5 X 8 hours (sick allowance) 40
8 X 8 hours (public holidays) 64
So we have 2080 less 264 = 1816
THEN we must add the International Labor Organization’s
estimate of 70% utilisation so 1816 X 70% = 1271
The Importance of Understanding Capacity – a simple example (cont.)
Recall: When we hire somebody, we have to pay them 52 weeks X 40 hours =2080 hours
BUT we only have 1271 hours to recover this. We need to understand the multiplier here:
1271 (actual) gives us 1.64
If we hire somebody for 150,000 Dollars per annum we are paying them 150,000/2080 = 72.12 Dollars per hour
BUT we need to CHARGE OUT at 72.12 X 1.64 = 118.28 per hour as a BASIC charge (NB: there are no overtime, pensions and other costs listed here!)
OrganizationMeasure Of Capacity
Automobile Plant Number Of Autos/Hour
Law Firm Number Of Cases Handled/Week
Oil Refinery Barrels Of Oil/Day
Electric Company Megawatts Of Electricity/Hour
Paper Producer Tons Of Paper/Week
OrganizationMeasure Of Capacity
Jet Engine Plant Machine Hours/Month; Labour Hours/Month
Airline Number Of Seats/Flight
Hotel Number Of Rooms, Number Of Beds
Grocery Store Number Of Checkout Lines
Warehouse Cubic Feet Of Space
Tennis Club Number Of Courts
Department Store Number Of Square Feet
“DON\'T LET HOTELS \'WALK\' ON YOU!”
"You\'re never going to believe this," a top executive from a major hotel chain told me, "but I just got walked from our hotel to this dump near Central Park." It seems even hotel executives aren\'t immune from the recent surge of travelers showing up at hotels and being told there\'s no room for them. (Hotel folks call it "getting walked.") It happens because, like airlines, hotels tend to overbook their rooms when demand is high for fear of not achieving full occupancy. Sometimes big-city hotels can overbook by as much as 20% (the average is about 10%). That means even with a confirmed reservation, the front-desk clerk will send you to another hotel at the first one\'s expense--a headache for a busy traveler. So how do you avoid this? Besides checking in early and being a member of the hotel\'s loyalty program, ask for a written or e-mailed confirmation when you book and bring it with you. Then call to confirm two or three days before you arrive, get the agent\'s name, and ask to have your call noted in the reservation. And ask for a better room while you\'re at it--you have nothing to lose.
Source: Fortune 7th August 2006, p102
2 streams or lanes of operations – not a problem
The bottleneck – a BIG PROBLEM
4 streams or lanes of operations – not a problem
Flow of Operations – people, information, inventory etc
An Operations System like this is almost DESIGNED (!) to be a problem – and is very common in both manufacturing and services!!
One strategy that organisations use to match demand and supply is to produce and store outputs in advance of demand. These strategies rely on building inventory. Other types of operations -- such as service operations -- have only limited recourse to inventory-building strategies. In many service organisations, mismatches between supply and demand will result in queues.
A level capacity strategy
Organisations that use chase strategies adjust their activity levels to reflect the fluctuations in demand
A chase capacity strategy
Demand Management Strategies. Organisations that use demand management try to change demand to smooth high and low periods.
Business Planning (years)
Type of Plans
Yearly Sales Forecasts
Master Operations Schedule (MPS) - monthly
"GOOD IDEAS ...."
* Schedule First Those Jobs With The Shortest First Operation Or
* Schedule First Those Jobs With The Shortest Last Operation Or
* Schedule Jobs According To Their Total Work Content Or
* Schedule Jobs According To Their Date Of Receipt Or
* Prioritise Jobs By Customer
If the RED line is the shortest FIRST operation, what would be the sequence of jobs??
If the BLUE line is the shortest LAST operation, what would be the sequence of jobs??
On the basis of the Total Work Content, what would you chosse as the sequence of jobs??
More "GOOD IDEAS ...."
Even More "GOOD IDEAS ...."
Even More "GOOD IDEAS ...."
A good idea is to schedule operations based upon dependencies –
and try to ‘decouple’ operations as much as possible.
E A, B, C, D
A Machine Engine Parts
B Machine Transmission Parts
C Assemble Engine
D Assemble Transmission
E Assemble transmission and engine into one unit
F Mount unit in car frame
G Make front-wheel drive connection to transmission
H Connect fuel lines
I Make electrical connections
The Critical Path
If The Shortest Time For A Job Is On The First Facility,
Schedule The Job As Early As
If It Is On The Second Facility,
Schedule It As Late As Possible.
Delete That Job And Repeat The Procedure