Module 3 - SLP3 Example
Capacity & Forecasting
NOTE: This is an example of identifying and discussing the issues of capacity. Your paper may or may not take on the same form or format depending on the business you choose and the nature of the issues you identify. I have generated this business from my experience. THIS EXAMPLE IS INCOMPLETE - IT HAS NOT USED ANY REFERENCES. You, however, should use at least three references (more is better) and citations to back-up your discussion about productivity and process improvement, as well as any information about the nature of your company that you may have obtained from the literature.
SLP3 Example, Excellent Ford, Inc. continued
Capacity management is an important aspect of operations at Excellent Ford, Inc. The General Manager reviews capacity on a regular basis and makes it a priority of his focus once each year. At this time, the GM spends some time and effort doing a five year forecast of demand for vehicles and service. Then with this forecast, the analysis includes looking at capacity from the standpoint of the container or maximum levels and the standpoint of flow of volume. These are inter-related.
The traditional view of capacity as in a manufacturing company does have some relevance at Excellent Ford. This manufacturing view looks at the amount of flow of a component part through a production process. One factor that is an issue is the speed of the machines and the number of machines. Yield is another factor. At Excellent Ford, this model fits in the Service Department and in the sales department.
In the Service Department, capacity can be calculated based on the number of technicians employed. The more technicians, the more capacity is available to repair vehicles. Another factor is the specific equipment that is available. If there is only one type of equipment that is needed for a specific repair or operation, for example, front wheel alignment, then the capacity is restricted to one repair being completed at a time. And the average time to do that repair will determine the overall capacity for doing that process, again, front wheel alignment. For example, if a front wheel alignment takes 2.2 hours, then the maximum capacity is 20 alignments per 44 hour week. If we consider that we want to maintain a normal capacity of 85% of maximum, then the normal capacity would be 17 alignments per 44 hour week. This is in contrast to the capability of the technicians each being able to perform the same repair operation, say a brake repair. If there are five technicians that can repair brakes, and if the time to repair or replace a front brake pad is 1.5 hours, then the maximum capacity for doing front brake pad repairs is 44*5/1.5 = 146 front brake repairs per 44 hour week. Of course this assumes that all five technicians are available for front brake repairs all week.
The difficulty in determining capacity for the Service Department is that different repairs require different amounts of time and skill. The best way to determine capacity is to use some standard unit like hours. If there are nine technicians who work at Excellent Ford, and there are 44 hours per week, the total clock hours available are 9*44 = 396 clock hours. Technicians are given two paid 15 minute breaks each day of .5 hours. And there are occasional delays such as waiting for work or waiting for parts. If the average delay per day is another .5 hours, then there are only 43 productive hours. This reduces the available max capacity in clock hours to 9*43 = 387 hours. Suppose that average efficiency of performing repair work measured by flat rate (standard) time is 110%. Now the maximum capacity in flat rate hours is 1.10 * 387 = 425.7 f.r. hrs. Now, the Service Department manager has determined that the average amount of flat rate time per repair is 3.6 f.r. hrs. Now the capacity is determined to be 425.7 / 3.6 = 118 Repair Orders per week.
What the General Manager is concerned about in the Service Department is three things: 1) maintaining nine full time technicians to man the 10 repair bays. The extra bay is sometimes necessary to hold over a repair that needs to be set aside; 2) maintaining the right equipment in the right number of duplicates to move the flow of repairs; and 3) having a big enough facility. It appears that sales, and therefore repairs, are slowing growing and the physical facility will soon become too small to handle the demand. This will mean delays to the customer in getting their cars repaired. The General Manager and the Service Department manager have recently begun to discuss the possibility of adding a second shift of technicians. But this has issues to consider in the auto repair business.
Some of the same issues that are occurring in the Service Department are occurring in the Vehicle Sales Department. The selling process takes a certain amount of time depending on how through the process each prospective customer goes. And there are just seven sales people on staff at this time. There is an eighth office so there is room for one more. The question is when to add this eighth person. And the answer is being determined by the Sales Manager based on the demand of prospects coming to the dealership. So space constraints for salespeople determine the maximum capacity constraint based on serving customers and keeping customer wait time to a minimum.
The other concern in the Sales Department is flow of new cars and used cars. Getting new cars from Ford Motor takes time. And so does buying and selling used cars. And the physical lot can hold only so many cars. Given the size of the property, the area of buildings and driveways, the maximum vehicle capacity is 155 vehicles. The current number of vehicles in inventory is 130. That means that the vehicle physical capacity is at 84% of max capacity. Increasing the number of turns of vehicle inventory would increase flow capacity, but it is unlikely that this can process can become more productive. And adding a shift to the sales department is not an option, since the sales department stays open to 8:30pm five days per week and until 6pm on Saturday.
One option to increase capacity is to obtain additional land adjacent to or near to the dealership. This could be used for the used car business. But there is hesitation to separate the used car operations from the rest of the business. The Sales Manager and the General Manager are concerned about losing the Excellent brand identity, which could impede used car sales. Another option of increasing vehicle sales capacity is by use of the Internet and Excellent’s website. This was partially discussed in the inventory paper. New vehicle sales can be generated via ordering the new vehicle from Ford rather than from inventory. Providing incentives to new car buyers to buy this way will hold off the need to increase physical vehicle capacity. The same is true of used cars. Excellent is working to include a large data base of information on its used vehicles including videos of each used car showing its exterior and interior and its important features and functions. There is also an appointment feature on the web for customers to make an appointment to go to the dealership to test a used car. And incentives are also offered to used car customers to use these online features. Overall, this can increase sales without increasing inventory and sales staff.
It is for these reason that the General Manager is engaged in forecasting. His forecasting model uses regression analysis to find correlations between other variables and sales demand. The General Manager collects data about the city and surrounding county such as population growth, aging, changing demographics from farming to industry, competition from other dealerships, etc. The approach is to first determine the total demand for buying cars and trucks, both new and used. Then market share of Excellent is determined based on past trends of its market share in its market area. From the salse forecast, the demand for parts and service is determined. The GM is continually trying to hone his forecasting expertise. The current five year forecast shows that current capacity is adequate, given the current trends, capacity will soon become stretched. In perhaps seven or eight years, there will be capacity issues that will force Excellent to make some changes. The GM is attempting to plan ahead for these changes now rather than be caught “behind the 8 ball” in the future.