PLANNING AND

CONTROLLING OPERATIONS
CAPACITY DECISION, LAYOUT, JIT AND
LEAN OPERATIONS, SCHEDULING
CAPACITY DECISIONS

Q1. What is
capacity planning Q2. What is
and why need to capacity decisions?
plan capacity?

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IN OPERATIONS MANAGEMENT, CAPACITY
DECISIONS ARE CRUCIAL FOR DETERMINING
THE LEVEL OF RESOURCES (SUCH AS
MACHINERY, EQUIPMENT, LABOR, AND
FACILITIES) NEEDED TO MEET THE DEMAND
FOR PRODUCTS OR SERVICES EFFECTIVELY.

CAPACITY DECISIONS INVOLVE SELECTING

THE APPROPRIATE LEVEL OF CAPACITY TO
SUPPORT CURRENT AND FUTURE DEMAND
WHILE CONSIDERING FACTORS LIKE COST,
FLEXIBILITY, AND STRATEGIC OBJECTIVES.
THESE DECISIONS HAVE LONG-TERM
IMPLICATIONS FOR AN ORGANIZATION'S
COMPETITIVENESS, PROFITABILITY, AND
ABILITY TO RESPOND TO MARKET CHANGES.
CAPACITY DECISIONS PLANNING
Strategic capacity planning
Tactical Capacity Planning
Operational Capacity Planning
Economies of Scale
Flexibility and Agile Capacity
Outsourcing and Offshoring
STRATEGIC CAPACITY PLANNING

Strategic capacity planning involves making long-term decisions about the overall level of resources an organization
will commit to meet future demand.

Real-life example: An automobile manufacturer decides to build a new factory in anticipation of increasing demand for
its vehicles in a particular region. This decision involves significant investment in land, buildings, and equipment to
increase production capacity over the next decade.

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TACTICAL CAPACITY
PLANNING
Tactical capacity planning involves making mid-
term decisions to adjust capacity to meet
fluctuating demand while balancing costs and
efficiency.
Real-life example: A hotel chain adjusts its room
capacity by managing the number of available
rooms during peak and off-peak seasons. During
peak tourist seasons, the hotel may hire temporary
staff and increase the number of available rooms,
while reducing capacity during slower periods to
minimize costs. 6
OPERATIONAL CAPACITY PLANNING

Operational capacity planning focuses on short-term decisions to optimize resources and meet
immediate demand requirements efficiently.

Real-life example: A call center adjusts its staffing levels throughout the day based on anticipated call
volumes. During peak hours, more customer service representatives are scheduled to handle the
increased call volume, while fewer staff members are scheduled during slower periods to avoid
unnecessary labor costs.

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ECONOMIES OF SCALE

Capacity decisions often involve considerations of economies of scale, where the average cost per unit decreases as
production volume increases.

Real-life example: A food manufacturing company invests in larger production facilities to take advantage of
economies of scale. By producing larger quantities of food products, the company can spread its fixed costs (such as
machinery and facilities) over more units, resulting in lower average production costs per unit.

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FLEXIBILITY AND AGILE
CAPACITY

Real-life example: A clothing

manufacturer invests in flexible
manufacturing equipment that can
Capacity decisions should also quickly switch between different
consider the need for flexibility to product lines to respond to changing
adapt to changing market conditions fashion trends. This flexibility allows
and customer demands. the manufacturer to adjust production
capacity and product mix based on
consumer preferences, reducing the
risk of overcapacity or undercapacity.

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OUTSOURCING AND
OFFSHORING​
•Capacity decisions may involve outsourcing or offshoring
certain activities to external vendors or overseas locations to
optimize costs and focus internal resources on core
competencies.
•Real-life example: A software development company
outsources its customer support operations to a call center
located in a lower-cost country. By doing so, the company
can scale its customer support capacity more efficiently
while reducing labor costs and focusing its internal
resources on software development.
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LEAN OPERATIONS AND
JUST IN TIME (JIT)

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 KEY PRINCIPLE OF LEAN
OPERATIONS
• The key principle of lean operations is relatively straightforward to
understand it means moving towards the elimination of all waste in
order to develop a operation that is faster, more dependable,
produces higher-quality products and services and, above all,
operates at low cost.
• To achieve this lean state are les easily explained and sometimes
illogical. This is why it is best to start developing an understanding
of lean operations through the phrase that is often used
interchangeably with ‘lean’ – just-in-time or sometimes lean
synchronization.

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• It means producing goods and services exactly when they are
needed: not before they are needed so that they wait as inventory,
nor after they are needed so that it is the customers who have to
wait.

• JIT aims to meet demand instantaneously, with perfect quality

and no waste.

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 JUST IN TIME (JIT)
• Just-in-time (JIT) is a disciplined approach to improving overall
productivity and eliminating waste. It provides for the cost-effective
production and delivery of only the necessary quantity of parts at the right
quality, at the right time and place, while using a minimum amount of
facilities, equipment, materials and human resources. JIT is dependent on
the balance between the supplier’s flexibility and the user’s flexibility. It
is accomplished through the application of elements which require total
employee involvement and teamwork.

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HOW A JIT APPROACH DIFFERS FROM
MORE TRADITIONAL APPROACHES
TO MANUFACTURING?

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• The traditional approach assumes that each stage in the process
will place the items it produces in an inventory which ‘buffers’
that stage from the next one downstream in the process.
• The next stages down will then (eventually) take the items from
the inventory, process them and pass them through to the next
buffer inventory. These buffers are not there accidentally; they are
there to insulate each stage from its neighbor.
• The buffers make each stage relatively independent so that if, for
example, stage A stops producing for some reason (say a machine
breakdown), stage B can continue working, at least for a time.
Stage C can continue working for even longer because it has the
contents of two buffers to get through before it runs out of work.
• The larger the buffer inventory, the greater is the degree of
insulation between the stages and therefore the less is the
disruption caused when a problem occurs. This insulation has to be
paid for in terms of inventory (working capital) and slow
throughput times (slow customer response), but it does allow
each stage to operate in what seems to be an uninterrupted, and
therefore efficient, manner.
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• The main argument against this traditional approach lies in the
very conditions it seeks to promote, namely the insulation of
the stages from one another. When a problem occurs at one
stage, the problem will not immediately be apparent elsewhere
in the process. The responsibility for solving the problem will
be centered largely on the staff within that stage and the
consequences of the problem will be prevented from
spreading to the whole process.
• Here items are worked on and then passed directly to the next
stage ‘just-in-time’. Problems at any stage have a very
different effect in such a process. For example, now if stage A
stops working, stage B will notice immediately and stage C
very soon after. Stage A’s problem is now quickly exposed to
the whole process, all of which is affected by the problem.
One result of this is that the responsibility for solving the
problem is no longer confined to the staff at stage A but is now
shared by everyone. This considerably improves the chances
of the problem being solved, if only because it is now too
important to be ignored. In other words, by preventing
inventory from accumulating between stages, the operation
has increased the chances of the intrinsic efficiency of the
plant being improved.

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• Although simplified, this example highlights the differences between
a traditional and a JIT approach. Although they both seek to
encourage high efficiency, they take different routes to doing so.
Traditional approaches seek to encourage efficiency by protecting
each part of the operation from disruption. Long, uninterrupted
runs are its ideal state. The JIT approach takes the opposite view.
Exposure of processes (although not suddenly, as in our simplified
example) to problems can both make them more evident and
change the ‘motivation structure’ of the whole system towards
solving the problems.
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 ELIMINATE WASTE

The most significant part of the lean philosophy is its focus on the
elimination of all forms of waste.

Waste can be defined as any activity which does not add value. Two
simple devices are commonly used in lean improvement. One, ‘the
seven forms of waste’, is concerned with identifying waste as the first
step towards eliminating it; the other, ‘the 5S’s’,is a simple set of
principles for reducing waste.

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THE SEVEN FORMS OF WASTE
Toyota has identified seven types of waste, which have been found to
apply in many different types of operations – both service and
production – and which form the core of lean philosophy.

1. Transportation: Any unnecessary movement of materials or

products.

Example: Transporting goods between different locations within a

factory unnecessarily, leading to increased time and cost.

2. Inventory: Excess raw materials, work in progress (WIP), or

finished goods beyond what is required for immediate use or demand.
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Example: Stockpiling large amounts of inventory in anticipation of
3. Motion: Unnecessary movements by employees or machinery.
Example: Excessive bending, reaching, or walking to retrieve tools or
materials during assembly processes.

4. Waiting: Idle time during which workers, equipment, or materials are

waiting for the next step in the process. Example: Operators waiting for
machinery to be repaired or for instructions from supervisors before
proceeding with their tasks.

5. Overproduction: Producing more goods than are needed or before

they are needed. Example: Manufacturing products in large batches
without considering actual demand, leading to excess inventory and
storage costs. 21
6. Overprocessing: Performing unnecessary or overly complex steps in
the production process. Example: Using high-precision equipment to
perform tasks that could be adequately handled by simpler machinery,
resulting in higher costs without adding value.

7. Defects: Products or services that do not meet quality standards,

requiring rework, repair, or scrap. Example: Manufacturing defects that
require additional time and resources to correct, such as faulty
components or errors in assembly.

Identifying and minimizing these forms of waste is crucial for

improving efficiency, reducing costs, and enhancing overall quality in
manufacturing and other industries. 22
 THE 5S’S PRINCIPLE
• The 5-S terminology comes originally from Japan and although the
translation into English is approximate, they are generally taken to
represent the following:

• 1 Sort (Seiri). Eliminate what is not needed and keep what is needed.

• This step involves going through all items in the workspace and
removing unnecessary items or materials. Only essential items are
kept, while redundant or unused items are discarded or relocated.
Example: In a manufacturing facility, sorting involves removing
obsolete tools or equipment from the production area, leaving only
the necessary tools for the tasks at hand. 23
• 2 Straighten (Seiton). Position things in such a way that
they can be easily reached whenever they are needed.

• Once unnecessary items have been removed, the next step

is to organize the remaining items in a logical and
efficient manner. Everything should have a designated
place, and tools or materials should be arranged for easy
access and retrieval. Example: In an office setting, setting
in order could involve arranging files and documents in
labeled folders or cabinets, ensuring that commonly used
items are easily accessible and neatly organized.
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• 3 Shine (Seiso). Keep things clean and tidy; no refuse or
dirt in the work area.

• This step focuses on cleanliness and regular maintenance

of the workspace. It involves cleaning all surfaces,
equipment, and tools thoroughly to ensure a safe and
hygienic environment. Example: In a restaurant kitchen,
shining would involve daily cleaning of cooking surfaces,
equipment, and utensils to maintain food safety standards
and prevent contamination.

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• 4 Standardize (Seiketsu). Maintain cleanliness and order –
perpetual neatness.

• Standardization ensures that the procedures established in the

previous steps are consistently applied throughout the
organization. It involves creating standardized procedures, visual
controls, and checklists to sustain the improvements made.

• Example: In a warehouse, standardizing could involve

implementing visual cues such as colored lines on the floor to
indicate specific storage areas for different types of products,
ensuring that everyone follows the same storage and retrieval
procedures
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• 5 Sustain (Shitsuke). Develop a commitment and pride in
keeping to standards

• The final step involves maintaining the improvements achieved

through the 5S methodology over the long term. It requires
ongoing commitment from all employees to uphold the
standards established and continuously improve processes.

• Example: In a retail store, sustaining involves regular training

sessions for employees on maintaining cleanliness and
organization standards, along with periodic audits to ensure
compliance with the 5S principles.
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