29/10/2011

CAPACITY PLANNING AND LITTLE'S LAW

Capacity

Why is capacity important to management?

All companies have a capacity but what is it? Can it be measured? Does it have a unit of measure?

What is the capacity of Coca Cola bottling plant?

University? Met Police? Bank branch?

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Real capacity issues

days to offer 60 50 40 30 20 10 0 days days to offer
3000 applications 2500

2000

1500

applications

1000

500

2002-2005

date

2002-2005

loan to value 80

200 people

70 60 50 40 30 20 10 0 date loan to value

2002-2005

Working out capacity

apps/tto/ltv
140 120 100 80 60 40

applications (/20)

loan to value

Series1 Series2 Series3

Days to offer
20 0

days

11

13 15

17 19

21

23 25

27 29

31 33

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What is capacity?

Capacity is the potential ability of a system to produce output of a given quality, according to attributes promised to customers, over a given time period.
Ng, Maull, Godsiff

Capacity limits

Companies operate at below maximum

Reason; Insufficient demand or policy, seasonality

Some parts work at capacity ceiling

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Capacity decisions affect

Cost: under utilised assets means higher unit costs Revenue: if cant meet demand have lost revenue (football stadium) Working capital: might build up finished goods but.. Quality: hiring temporary staff meets demand but. Speed: have surplus capacity to avoid queues Dependability: closeness of demand level to capacity Flexibility: volume flex enhanced by excess capacity

QUEUING THEORY

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Basic Issues

Queuing theory applies primarily to the transformation of customers.

Also applies to information processing operations but the implications are not so immediate. Why?

If customers have to wait too long in a queue they baulk.

Baulking/reneging, customers leaving a queue, examples include retail checkouts, call centres etc.

If the queue is too long then revenue is lost, what is the penalty for a call centre?

Calculating Capacity

Assumptions
Applies to stable system
No consideration of arrival and service rates Lots of people turn up together eg dinner queue at a school, Limited opening hours Batch production, crucially no slack time

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Throughput time is time available eg opening hours Cycle time is time available per job, Work content is time needed per job

Example

At the London Palladium the interval of a performance of Thomas the Tank Engine lasts for 20 minutes and in that time 86 women need to use the toilet. On average, a woman spends three minutes in the cubicle. There are 10 toilets available. Does the London Palladium have sufficient toilets?

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Calculation

We want to calculate the number of servers (toilets) required So need to know cycle time, Throughput time = 20 mins Work in progress is 86 woman Cycle time is 0.233 minutes per woman. Number of toilets is 3/0.233 = 12.9 toilets Do we have enough?

What can we do to help?

What are the alternatives?

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LITTLES LAW

Poisson distribution

Random processes have bursts of action () is the average, (k) is the number of events

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Example

Assume we have on average 2 people arriving per hour () what is the chance we will get 6 (k). Plugging into formula

The formula can be re-arranged for use with the Microsoft scientific calculator as,

/(

x !) = p

The numerical value of e is approximately 2.71 /( x !) = p

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What does this mean? About once every 80 hrs (fortnight) we will get six customers turning up. What are the chances of having one customer in an hour?

Chances of 1 customer an hour?

1. 2. 3. 4.

25% 27% Over 50% None of the above

25%

25%

25%

25%

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Other uses of Queuing theory

Queues form when a customer arrives and a server is busy A denotes the distribution of arrival times B denotes the distribution on the service rate m denotes the number of servers at each station b denotes the maximum number of items allowed in the system

A/B/m/b represents a queueing system The most common distribution to represent A B is an exponential or Markovian (M) distribution The most common type of queues are M/M/1 or G/G/1 (where G represents a general or normal distribution)

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Littles law
Arrival rate
Service rate

4 people per hour arrive What is the average queue? Nurse is busy 24 minutes per hour 40% of her time.

6 minutes per injection 10 people per hour

Simple Derivation
60% of people arriving have no queue 40% people arriving have to queue How long do 40% queue? If arrive when no-one else is already waiting then It could be between 0..6 mins average waiting time is treatment time. SO.40% of 4 people (per hr) wait on average 3 mins 0.4*4*3 = 4.8 minutes per hr Some will have to wait 6 mins (ie someone is already in waiting room and) + average of 3 mins. (someone in treatment room)

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Capacity and wait time

tl / ( )
Calculate the remaining wait times, for arrival rate of 30, 40, 45, 50, 55, 56, 57, 58, (customer per hour) Draw graph (approximately)

10/60 (60-10) = 0.003 20/60 (60-20) = 0.008

Relationship between Capacity Utilization and Waiting Time

Exhibit S11.8

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See for yourself

as the arrival rate increases relative to the service rate the proportion finding someone already waiting increases and we observe an exponential rise.

http://archive.ite.journal.informs.org/Vol7No1/DobsonShumsky/

Importance of CV

Need to know co-efficient of variation for

Arrival Task Cv= standard deviation/mean CV of greater than 1 is a long tail.

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Klassen & Menor Process Triangle

High

High Inventory
(or long lead time)

(or lead time)

Low

Inventory

0.0

0.2

0.4

0.6

0.8

1.0
Kasra Ferdows, Jose M.D. Machuca, Michael Lewis

Capacity Utilization

Summary

Queues are important in service systems particularly customer processing operations Stable systems have simple equations Poisson distribution for random arrival rates Once arrival rates become close to 80% choking occurs.

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