11/3/10

Capacity Management

A new way to do utilization (ILP)

and considerations of profitability.

BUS 351 Thomas

Integer Linear Programming

(ILP)

•  If we can setup a binary matrix

representing a set of capacity
constraints (options) with a single
outcome measure, we can
algorithmically solve the problem to find
the best outcome.

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Suppose we are trying to

solve a staffing problem in
which staff have schedule
constraints.
•  Laws enforce constraints such as minimum
days off per week for physicians or
mandatory rest breaks for airline pilots, etc.
•  Norms in an industry or through contracts
may also dictate schedule constraints.

The following comes from the

Excel file in FirstClass.
•  Consider a bank, which closes on the
weekends and schedules employees
every two weeks.
–  Employees get two
consecutive days off for every
two 5-day periods worked.

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How do we best staff our needs during

the week given our constraints?
•  We set this
up in Excel
and use
the Solver
to solve the
problem.
•  Open the
sample xls
file.

It would be hard to get this all

right by hand…

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Setup the problem in the

Solver.

Check and interpret the

results.
•  We have 6
specialists. We
need 2 more.

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Ok, let’s try a hands-on

example.

•  Get the file from First Class.

Now, let’s talk about

lemonade…

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Should we prepare extra

if it is relatively more
profitable to have extra
preparations?
•  Critical Fractile Analysis

Critical Fractile Step 1: find

the probability
Cu = Cost of underestimating
demand
Co = Cost of overestimating demand
Cu
Prob(d < x) =
(Cu + Co )
145
= = .967
145 + 5

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Critical Fractile Step 2: Find

the z-score

Critical Fractile Step 2: Calculate

the Number to Prepare
•  Need to know about the typical
demand in terms of its mean
and standard distribution.
N t = µ + z"
= 200 + 1.83(45)
= 282

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2 Big Ideas
1.  We can use linear programming to
solve complex problems that seem
impossible. (for example, utilization
optimization for staffing)
2.  Capacity management is not just about
utilization optimization. It is also about
profitability.

So where does this all go?

•  You can
simulate a whole
system and
imagine the
effect of changes
before
implementing
them, potentially
avoiding
disastrous
consequences!

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