Tag: capacity planning

OM in the News: What Went Wrong in Airline Operations?

Airlines are struggling through one of the most severe and persistent mass-cancellation events of the past decade, reports The Wall Street Journal ( Jan. 8-9, 2022). Covid-19 infections surged too quickly for carriers to manage without upending holiday travel, wreaking havoc on already-stretched airline workforces. Now carriers are assessing how to better manage what could continue to be a difficult period, at least for the next few weeks.

A packed Miami International Airport on Jan. 3.

Airlines have canceled more than 1,000 daily U.S. flights for 13 straight days, including over 2,600 on January 7, as another winter storm brought snow to Boston and New York. Flights scrubbed from Christmas Eve through Jan. 6 exceeded 24,000, roughly 7% of the number airlines had planned to fly.

For airlines, the upheaval of the pandemic is heading into a new phase. Unlike in early 2020, when terrified passengers canceled trips in droves, new variants dent but don’t decimate appetite for travel. But airlines are still rebuilding their operations. The twin challenges of rising numbers of employees calling out sick after being infected or exposed to Covid-19, and a series of severe winter storms that hit major hubs, created the perfect conditions for travel chaos.

The trouble spiraled as more workers became infected. Entire crews were testing positive–and when they’re out of the country, there’s no way to get that aircraft back.  In December, airlines asked the Centers for Disease Control (CDC) to consider halving its recommended 10-day isolation period for fully vaccinated people who come down with Covid-19, citing potential workforce shortages.

“What we learned is you might need a little more resources to fly that same schedule because of all the other things that are in play,” said American’s COO. Airlines operate under strict safety rules that can leave them little recourse but to cancel flights when they are short of staff in the right places. Pilots aren’t always trained to fly multiple aircraft types, for example. Regulations dictate how much rest crews must get between shifts. And employees such as flight dispatchers and mechanics can take on only so much extra work safely.

Recall that we open Chapter 15 (Short Term Scheduling) with the story of how Alaska Airlines deals with weather delays. This WSJ article makes a good complement, with the Covid addition.

Classroom discussion questions:

  1. What could operations managers have done to prepare for the current crisis?
  2. Which of the options for managing capacity noted in Supp. 7 apply to airlines today?

OM in the News: Capacity Problems for Chip Makers

Semiconductor companies are asking their customers for patience as the industry works through a sharp increase in demand from makers of everything from cars to consumer electronics. But there is no quick fix to the situation. As we point out in Supp. 7, Capacity and Constraint Management, adding new chip-making machinery is expensive and slow. And some of the deepest supply problems are taking place with older production lines that are less lucrative for manufacturers. In the whole semiconductor industry there is very little spare capacity right now, reports The Wall Street Journal (Jan. 15, 2021).

Demand for laptops has skyrocketed, and remote work during the Covid-19 era has increased appetite for cloud-computing and their data centers. Plus a surge in demand for chips that go into new 5G phones has put a squeeze on capacity. This chip shortage will likely last through 2022.

Ford said it was idling a factory in Kentucky because of chip shortages

With chip plants effectively running all out already, auto makers and consumer-electronics manufacturers are competing for every bit of limited manufacturing capacity. The car industry was among the first to be hit. VW is reducing production at its factories in China, Mexico, Tennessee and Germany. And in the face of the shortages, GM just asked suppliers to stockpile a year’s worth of chips.

The auto industry bears some responsibility for failing to place orders early enough in anticipation of the demand recovery. Over the past 2 decades it has become one of the largest consumers of computer chips, rivaling the PC industry, as cars become increasingly powered by software. Chips now power everything from engines and emissions control to brakes, A/C, windows, and a growing array of sophisticated safety features such as automatic lane control and crash avoidance.

The production cycles for chips are long, and the development cycles are even longer. Lead times across the chip industry have risen to 6-10 months, from 8-10 weeks before the pandemic.

Classroom discussion questions:

  1. Which time horizon in Figure S7.1 is impacting the chip industry’s capacity options?
  2. What tactics might the industry employ to adjust capacity to demand? (Hint: see p. 312 in your Heizer/Render/Munson text).

Video Tip: Demand and Capacity Management in the Air Cargo Industry

The COVID-19 pandemic is a health and humanitarian crisis, and it is also an economic shock, reports Accenture (May 8, 2020). The aviation and air cargo sectors have mobilized in a big way to help supply personal protective equipment (PPE), hand sanitizer, ventilators and other desperately needed items for combating COVID-19. The crisis is shining a light on the importance of logistics and supply chain management for helping save lives, but also for bringing staples and food to populations sheltering in place. Air transport is being heavily relied on because many emergency supplies are located overseas, or across the country, and air is the fastest mode for getting them to where the outbreak is spreading.

This 12 minute video provides a fascinating glimpse how the world’s airlines have had to prepare for shocks in capacity and demand management, the topic of Supplement 7 in your Heizer/Render/Munson text.

 

OM in the News: The COVID-19’s Effect on Flight Capacity

It’s not an exaggeration to say that the COVID-19 pandemic has thrown the travel world into a tailspin, with a staggering impact on the $880 billion global airline industry. The earliest pains were felt in February, as flight capacity in and out of China dropped 71% compared to 2019. Flight capacity for Hong Kong went down by 92%. Flights to and from Italy plummeted 89%, while Germany and Spain have 93% less capacity as of this month.

So it is no surprise that airlines have been forced to ground a significant portion of their fleets, reports Forbes (April 4, 2020). Large aircraft like the superjumbo A380 were some of the first to be grounded, with diminished demand for the seats. However, whether it’s widebodies or narrowbodies, airlines still have the issue of where to store these planes. Delta and American are each parking about half of their fleets – or more than 1,200 aircraft. Tulsa Airport has been able to close a seldom-used runway to fit about 50 American Airlines planes, charging them about $150 a day to store. American also parked 100 planes in New Mexico, 50 in Pittsburgh, and more in Mobile and Greensboro. In addition to the cost of parking, a facility may charge maintenance costs that begin at about $2,000 per plane a month. Every day, each plane needs to have its engine run, has to taxi far enough for the tires to rotate fully, and has to have its hydraulics, avionics, and electronics checked.

A grounded fleet of British Airway planes sit on the runway at Glasgow

Capacity planning, the topic of Supplement 7, is difficult enough during normal times. But look at the capacity cuts made these 6 airlines: Ryaniar, Flydubai, and Spice Jet, 100%; American, 80%; United, 65%; Southwest, 60%. And on Sunday, April 12th, 122,029 travelers flew through U.S airports–compared to 2.5 million on the same day a year ago!

Classroom discussion questions:

  1. What is the difference between demand management and capacity management?
  2.  How does this differ from the capacity issues faced in the recession (2008-2010) and the 9-11 terrorist attacks?

OM in the News: Capacity Planning Issues at Disney

Disney makes billions of dollars by persuading people to watch its movies and TV shows, play with its toys and games, and visit its theme parks. Yet the entertainment titan did its best to discourage fans from visiting the new Star Wars area in Disneyland, California last quarter, pushing attendance at its domestic parks down 3%. (Disney had been expecting a surge in guests to visit the new attraction).

A second Star Wars themed land opened Aug. 29th at the Disney park here in Orlando. But this time, Disney hopes it learned from the May opening at its California version, reports the Orlando Sentinel (Aug. 30, 2019). There, guests had to be staying at one of the company’s hotels or sign up for online reservations that quickly filled up. Fans in California may also have stayed away because they thought Disneyland would be too crowded. Local hotels raised prices. (Both new lands are opening with only one of the two main rides finished, something that may have further discouraged guests).

Restrictions that limit access for many annual-pass holders are ending this week, allowing more guests to enter the Florida attraction without paying extra. That wasn’t the case in California, which opened at the start of the peak summer season when many annual-pass holders couldn’t use them. Fans in Florida were able to come inside the park as early as 4:45 a.m., 3 1/4 hours earlier than the regular opening time. Crowds were at capacity, with some Star War loyalists lined up at 3:30am, only to face lines that reached 5 hours for new rides. Discounted ticket prices were offered for guests to wait until noon to enter. Orlando-area hotels are also offering discounts timed to the Star wars opening.

Disney took a big bet on Star Wars this year, whose expansions cost $1 billion at each of the two parks. But for theme park devotees, Thursday was the equivalent of Black Friday shopping — a controlled chaos that was enjoyable nonetheless.“I’m still on the high,” said a New Jersey guest who hadn’t slept in 24 hours.

Classroom discussion questions:

  1. What tactics discussed in Supplement 7 did Disney employ to impact capacity in California?
  2. In Orlando?

OM in the News: Manufacturing Capacity Can’t Be Turned Off and On Easily

A typical high-rise office building can require 100's of thousands of square feet of metal-framed glass panels
A typical high-rise office building can require 100’s of thousands of square feet of metal-framed glass panels

A shortage of glass is taking a toll on the nation’s commercial building boom, adding millions of dollars to the cost of new skyscrapers and halting some projects midway through construction, reports The Wall Street Journal (Sept. 8, 2015). Demand is soaring for the metal-framed glass panels, or curtain wall, used to sheath skyscrapers. Those buildings need a lot of glass. But glass manufacturers and fabricators can’t keep up. Many mothballed their operations or went out of business during the 2008 recession, which hit the construction industry hard.

Now, however, apartment buildings and office towers are sprouting up at their briskest pace in decades. Restarting idled glass factories is a costly and time-consuming process, a perfect example of capacity planning in Supplement 7. In the meantime, curtain-wall prices, which have risen more than 30% in the past 18 months, are setting records. Glass accounts for 1/4 of a construction project’s budget, so the extra expense can add tens of millions of dollars to a building’s cost.

The glass that ends up on the outside of an office building is manufactured in giant tanks in which sand is melted at 2,000 degrees Fahrenheit. Long ribbons of raw glass are floated down a river of molten metal. This “float glass” is then cut into pieces, customized to order, and the panels are sent to contractors who fit them into metal frames to produce panels that meet the builder’s specifications.

Producers shut 11 out of 47 float-glass manufacturing plants in North America between 2007 and 2014. Building a new plant can cost hundreds of millions of dollars, and restarting an idled line can take months because workers have to jackhammer thousands of pounds of hardened glass to remove it from melting tanks. “Once you take one of those tanks out of commission, you can’t just turn it back on,” said a PPG exec.

Classroom discussion questions:

  1. Why is the lead time so long in adding glass capacity?
  2. Which of the tactics for matching capacity to demand (See Supp. 7, p. 302) apply in this situation?

OM in the News: German Auto Makers’ Major Capacity Expansion Outside of Europe

For a bit of good news regarding manufacturing jobs in North America, The Wall Street Journal (Nov.26, 2012) writes that VW, BMW and Mercedes are all  ratcheting up capacity investments beyond the troubled European market.

vw plantTaking the lead, Volkswagen announced last week that it would invest $65 billion in its global operations over the next three years; this as Germany’s robust auto industry seeks to limit its exposure to  Europe. The move cuts a contrast to the belt-tightening of cash-strapped rivals such as France’s Peugeot and Italy’s Fiat which have shed assets or shelved model and technology changes this year as plummeting European sales push those companies deeper into the red. VW’s plan marks its efforts to step on the gas in its bid to dethrone Toyota as the world’s largest auto maker. Billions will go to a new Audi plant in Mexico. VW is likewise pouring money into Russia and China.

“Despite the challenging economic environment, we are investing more than ever before to reach our long-term goals,” says Volkswagen’s CEO.

BMW, which opened a second plant in China this year, is investing an additional €500 million with its Chinese joint-venture partner to boost production there. Meanwhile, it is spending $900 million to expand capacity at its plant in Spartanburg, S.C., and last month finalized plans to build a $261 million plant in Brazil.

Mercedes, which expanded into China later than rivals BMW and Audi, made plans last year to invest €2 billion in its venture with Chinese partner and a further $2.4 billion in expanding its Alabama plant.

Discussion questions:

1. Referring to Chapter 8’s discussion of Mercedes’ selection of Alabama for its 1st overseas plant, what are the benefits to the US of these expansions?

2. What are the dangers of major capacity expansions?

Video Tip: Capacity Planning at Arnold Palmer Hospital

This is the 3rd  blog I am making about the series of 7 Arnold Palmer Hospital  video cases we filmed a few years ago. The 1st two were: The Quality of Culture (10/13/10) and Flowcharting Processes (11/2/10). If you plan to teach either Supp. 7, Capacity and Constraint Management, or Chapter 4, Forecasting, you may want to show this third  film (8.5 min.) and assign the accompanying case study.

I like this video because there just aren’t many videos available on the subject and  because this is such an interesting scenario. When the hospital decided to expand some years ago, it had already far exceeded its capacity. It had tried everything to increase throughput, including moving certain surgical procedures to a sister facility a mile away, having staff drive patients home as soon as they were ready for discharge….anything to free up a bed in a more timely manner.

When all else failed, the new building plan was put in place, but the issue of capacity planning continued. This time it was whether to build for forecast demand,  or actual demand. Using  Figure S7.6, the hospital used a lead stategy which allowed for major portions of the new building to be left in concrete shell form until a build-out was needed.

Although annual births had been on a constant increase for 15 some years, this turned out to be a good choice for capacity planning. As you may know, the economy in Central Florida (Orlando) has absolutely tanked, with less newcomers, and less births, in the area than was ever expected.

I usually present this video case when I teach Forecasting, as it presents an excellent integration of the topics of trend projection/regression analysis and capacity.