Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

5.3.3 Basic Principles of Scheduling and Capacity Management Concepts

Intended learning outcomes: Present the objectives of the tasks as well as the overall objective of scheduling and capacity management. Describe the vicious circle caused when capacity bottlenecks prolong the planned production lead-time. Disclose to which extent capacity can be stored.

The type of business or company makes no difference when it comes to time management and scheduling and capacity management. Industrial and service companies alike face essentially the same challenges:

  • How can individual order processing tasks be synchronized in time?
  • What capacities must be available to realize master planning?
  • Where and when must special shifts and overtime (or short-time work or part-time work) be put in place? What jobs, or whole orders, must be turned over to subcontractors (due to overload) or taken over from them (due to underload)?
  • Where can the rhythm of production be brought into balance? Can short-time work in one area be compensated for by overtime in another?
  • When and where can capacity or orders be shifted? For example, what shifts can be made from one shop, production line, office group, team, and so on to another?
  • Can lead times and the number of orders in process be reduced?

The objectives of the tasks of time management and scheduling and capacity management are similar to the objectives of materials management (see Section 1.2.1):

  1. High service level, short delivery times, high delivery reliability rate, and, at the same time, flexibility to adapt to customer requests
  2. Low invested capital, that is, minimal inventory of work in process; optimization of wait times
  3. Efficient use of available capacity through good utilization at a constant level; prediction of bottlenecks
  4. Flexibility and adaptability of capacity to changing conditions
  5. Minimal fixed costs in production administration and in production itself

Finding solutions for these issues requires consideration of large bodies of data from various open or planned orders. IT-supported handling of the problem is often necessary. The planning problem becomes more complicated because some of the above objectives, such as the first and the third, contradict each other.

Figure shows the consequences of not planning capacity. If capaci­ty is inadequate (here, too low) to begin with, a vicious circle of actions results. To gain an understanding of how this can arise, begin with “in­creased number of orders in the factory” at the bottom right of the figure.

  1. If the number of customer orders increases, the number of orders released to production also increases, thus increasing the load on capacity.
  2. If the number of orders exceeds capacity, queues will form behind the work centers.
  3. In consequence, orders must wait and their actual lead times lengthen. Orders cannot be met at their due date, that is, not within the customer tolerance time.
  4. Standard lead times, particularly the inter­operation times, are prolonged to gain more realistic planning.
  5. As a consequence, orders are released earlier, which in turn causes additional load in the form of released orders. The “game” begins all over again at point 1.

In this example, increasing the capacity could be a way to break out of the vicious circle.

Fig.        A vicious circle caused when capacity bottlenecks prolong the planned production lead time. (From [IBM75]).

The overall objective of scheduling and capacity management is to balance load arising through orders with capacity available to process those orders. Figure shows a chance-produced situation through the course of time (above) and, in contrast, an idealized conception of the possible result of planning (below).

The problem to be resolved is basically the same in any of the temporal ranges of planning & control. However, the measures taken for capacity planning — such as procuring additio­nal capacity — are very different in master planning and detailed planning and scheduling.

  • In long-term planning, the company can procure additional production means, such as production facilities or persons. In addition, it can make comprehensive arrangements to subcontract to the outside. Or, if capacity must be reduced, this can all be accomplished in reverse.
  • In medium-term planning, on the other hand, a company will attempt to gain at least some measure of elasticity of capacity through scheduling overtime or arranging rush subcontracts to the outside. Medium-term planning, however, cannot correct major errors in long-term planning. These planning errors result in late deliveries.

Capacity is a potential factor. Can capacity be stored? A firm may think that this can be accomplished by producing ahead, thus creating inventory. However, inventory cannot be reconverted into capacity. Therefore, the firm has to be very sure to produce ahead only items that will be used within a reasonably short time frame. There are capacity management techniques that use this strategy, such as Corma. In other cases, however, producing ahead in order to “store capacity” may simply be a manifestation of a “just in case” mentality. As a result, the wrong items will be produced, and eventually the capacity is lost.

Fig.        Objective of time management and scheduling and of capacity management: balancing load with capacity available.

Somewhat “storable” is capacity in the form of personnel — if employees’ presence along the time axis is somewhat flexible. For instance, say that an employee has to work only five hours instead of the usual eight on a specific day. If she or he is willing to go home but to work the three hours on another day where there is overload, you could say that three hours of capacity were stored. While this strategy is quite common, it is very limited with regard to the total capacity. Moreover, a company normally has to pay the worker for her or his (quantitatively) flexible capacity.

Generally, capacity cannot be stored effectively. Because this is so, planning must address two dimensions simultaneously; capacity (quantity axis in Figure and dates (time axis) must be planned together.

Course section 5.3: Subsections and their intended learning outcomes

  • 5.3 Introduction to Detailed Planning and Execution

    Intended learning outcomes: Disclose basic principles of materials management, scheduling and capacity management concepts. Produce an overview of materials management, scheduling and capacity management techniques. Differentiate between available-to-promise and capable-to-promise.

  • 5.3.1 Basic Principles of Materials Management Concepts

    Intended learning outcomes: Present the objectives of materials management. Differentiate between deterministic materials management and stochastic materials management. Differentiate between independent demand and dependent demand. Produce an overview on quasi-deterministic materials management, fill rate, cumulative fill rate, stockout, backorder.

  • 5.3.2 Overview of Materials Management Techniques

    Intended learning outcomes: Disclose the basic classification of detailed planning techniques in materials management. Explain the additional classification for unique demand or demand for high-cost items with a discontinuous demand pattern. Produce an overview on techniques such as Kanban, order point technique, CPFP (cumulative production figures principle), and MRP (material requirements planning).

  • 5.3.3 Basic Principles of Scheduling and Capacity Management Concepts

    Intended learning outcomes: Present the objectives of the tasks as well as the overall objective of scheduling and capacity management. Describe the vicious circle caused when capacity bottlenecks prolong the planned production lead-time. Disclose to which extent capacity can be stored.

  • 5.3.4 Infinite Loading and Finite Loading — Overview of Scheduling and Capacity Management Techniques

    Intended learning outcomes: Differentiate between infinite loading and finite loading. Explain the classification of techniques for capacity management in dependency upon flexibility of capacity and flexibility of order due date. Produce an overview on order-oriented infinite loading, order-wise infinite and finite loading, operations-oriented and order-oriented finite loading, constraint-oriented finite loading, load-oriented order release (Loor), capacity-oriented materials management (Corma).

  • 5.3.5 Available-to-Promise (ATP) and Capable-to-Promise (CTP)

    Intended learning outcomes: Explain available-to-promise (ATP) and the determination of ATP quantities. Produce an overview on the techniques of multilevel available-to-promise (MLATP) and capable-to-promise (CTP).