Chapter 03

Chapter 3
Process &
Capacity
Analysis
Process & Capacity Analysis

Context
Decisions taken with respect to

The amount of capacity that an operating unit has
The manner in which the existing capacity is put to
use
Basic building block of capacity analysis is

Process analysis
Mahadevan (2010), Operations Management: Theory & Practice, 2nd Edition Pearson Education
Issues in Process Analysis

Do I have adequate number of resources to meet
the demand?
If I need to add some extra resources where should I add?
What is the utilization of my resources?

If I need to increase the capacity of my system how
should I modify the process?
Should I add some more resources?
What will the cost of my operation?
One can find answers to the above questions by

process analysis
Process Analysis
Definition & Scope
Process analysis utilizes some

analytical mechanism to understand
the impact of
process design on output, cost or any
other performance metric
alternative process configurations on the
chosen performance metric
Process Flow Charting

Design & Analysis of process begins with identification of
activities that constitute the process

time taken for each of the activity
nature of flow of materials/information in the process.
A pictorial representation of all these information could

be developed using process flow charting.
Process flow charting employs a set of standard symbols
and graphical tools to represent all the information
pertaining to the process
The symbols used are
A step in the Process

Transportation (Move)
Storage or Inventory
A Simplified Process Flow Chart

for Shirt Manufacturing
Inventory of
Cloth & Other
materials
WIP
Inventory
Stitching 1
Spreading
Cutting
Stitching 2
Pressing &
Inspection
Inventory of
Shirts
Assembly
Planning Premises in Process

Design
Three generic planning modes are in use in
operations management
Make-to-Stock (MTS): more amenable for systems
with fewer product varieties and high production
volume as in the case of continuous and streamlined
flow systems
Assemble-to-order (ATO): useful for intermittent flow
systems catering to the mid-volume mid-variety
situations
Make-to-order (MTO): organizations typically belong
to manufacturer of high product variety (jumbled
flow process systems) use this planning methodology
Capacity Planning using MTS,

ATO & MTO: The case of services
Peak Hour
Assemble to order
Service Portfolio
(narrow)
Demand Mgmt.
Reservations
Exploiting
Multi-skill labour
Flexible work force
Non-Peak Hour
Made to order
Service Portfolio
(wide)
Demand Mgmt.
Special Tariffs,
offers
Process Analysis issues for MTS

From a process and capacity analysis
perspective MTS is related to mass production
systems. Therefore the relevant questions for
process and capacity analysis are:
What is the productive capacity of my process per
shift or per day?
Where is the bottleneck for this process?
If I need to increase the capacity of the process at
which stage of the process should I invest?
Can I improve the productive capacity by other
means than investing in new resources?
Process Analysis
Performance Metrics
Throughput time: Throughput time (TPUT) is the

elapsed time from the first stage of the process to the
last stage of the process. It is also known as lead
time.
Cycle Time: Cycle time is the elapsed time between
two successive output from a process that is
continuously operating in a given period of time.
Bottleneck: That stage of the process that dictates
the output of a process is the bottleneck.
TPUT is a relevant measure for MTO systems.
Measures such as Cycle Time and Bottleneck are
relevant in the case of MTS systems.
Process Analysis
Toy Manufacturing (Example 3.1)

Prepare
8 minutes
Pre-treat
Paint
Dry
12 minutes 20 minutes 45minutes
Inspect &
Pack
5 minutes
The throughput time for the process is 55 minutes

The spray painting is the bottleneck in the process
Cycle time is 20 minutes. The implication of this is that when
the process operates in a continuous manner, a pallet of
finished toys come out every 20 minutes.
Process Analysis (Example 3.1)
A graphical representation with start and end times
Every batch of four toys come out exactly in an interval of 20 minutes

which is the cycle time for the process

Production Capacity of the system
Prepare
Pre-treat
Paint
7.5 pallets/hr 5 pallets/hr 3 pallets/hr
Dry
Inspect &
Pack
12 pallets/hr
The system can produce at the rate of 3 pallets per hour (12 toys)
For a 8 hour operation the daily production is 24 pallets (72 toys)
Capacity is unbalanced across different stages of the process
Production Capacity under varying batch sizes

(Example 3.2)
Existing Scenario: Batch Size of the Process = 1 pallet
Prepare
Pre-treat
Paint
(8 minutes) (12 minutes)(20 minutes)
Dry
Inspect &
Pack
(5 minutes)
12 pallets/hr
Dry
Inspect &
Pack
(5 minutes)
12 pallets/hr
Dry
Inspect &
Pack
(5 minutes)
12 pallets/hr
Scenario 1: Batch Size of the Process = 2 pallets
Prepare
Pre-treat
Paint
(4+ (2*4) =
(12 minutes)(20 minutes)
12 minutes)
5 pallets/hr 6 pallets/hr
10 pallets/hr
Scenario 2: Batch Size of the Process = 3 pallets
Prepare
Pre-treat
Paint
(4+ (3*4) =
(12 minutes)(20 minutes)
16 minutes)
5 pallets/hr 6 pallets/hr
11.25 pallets/hr
Production Capacity under varying

resource availability (Example 3.2)
Existing Scenario: Batch Size of the Process = 1 pallet, 1 painting booth
Prepare
Pre-treat
Paint
(8 minutes) (12 minutes)(20 minutes)
Dry
Inspect &
Pack
(5 minutes)
12 pallets/hr
Scenario 1: Batch Size of the Process = 1 pallet, 2 painting booths
Paint
(20 minutes)
Prepare
Pre-treat 3 pallets/hr
(8 minutes) (12 minutes)
7.5pallets/hr 5 pallets/hr
Paint
Dry
(20 minutes)
3 pallets/hr
Inspect &
Pack
(5 minutes)
12 pallets/hr

Some important observations
Batch sizes play a crucial role in determining

the bottleneck of a process
As several choices are made with respect to the
resources and batch size bottleneck shifts from
one stage of the process to another. This is
referred to as wandering bottleneck.
A process analysis exercise often leads to the
issue of improving the process
Business Process Engineering

Some guidelines to identify scope
Extensive information exchange, data redundancy and

re-keying of data points to arbitrary fragmentation of a
natural process
Large investment in inventory, buffers and other assets
indicates that the existing process is unable to cope up
with uncertainty
High proportion of checking, control and progress
monitoring implies too much fragmentation of the
process
Inadequate feedback in the process results in excessive
rework and iteration
Increase in complexity of operations, exceptions and
special cases also indicate the need for simplifying the
process by revisiting the process fundamentals
Implementing BPR
A three-step methodology
Understand
the existing
Process
Simplify the
Process by
eliminating NVA
Automate
the Process
Tools used in each step
Process Mapping
Brainstorming
As-is analysis
NVA Analysis
Should-be
analysis
EDI
ERP
Internet tools
Process or Value Stream Mapping

Some alternatives
Customer order walk through

Collaborative brainstorming/charting
Bottom-up approach Interviews of
staff in functional departments
Executive judgment
Process Improvement
NVA Analysis
Categorize activities
Value Added (VA)
Non-value added (NVA)
Necessary but non-value added (NNVA)
Obtain measures to assess the process

Distance, Time, Staff deployed, categories of NVA
Brainstorm improvement opportunities

Low hanging fruits
Medium term solutions
Longer term solutions
Activity Analysis
From Raw Material to Finished Component

Sl.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Description of the activity
Performed Category
by
Progress generates MR for R. matrl
CENT PC
WT
MR given to shop production control
CENT PC
WT
Search for MR for 375 MF 12963
SHOP PC
WT
Enter MR details in register
SHOP PC
WT
Take MR to purchase for co-ordination SHOP PC
WT
Check stock of item in stock bal. list
PURCH
WT
Enter MR details in bin card
PURCH
WT
Waiting for progress to collect MR
PURCH
WT
Hand over MR to stores
SHOP PC
WT
Check balance and enter particulars
STORES
WT
Update bin card and issue material
STORES
WT
Progress waits for fork lift
SHOP PC
WT
Move material from RM yard to 754
SHOP PC
MV
Progress generates job card
CENT PC
WT
Activity Analysis

Sl.
No.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Job cards given to shop Progress

Enter job card details in register
Issue job card & Route card to shop
Wait for fork lift truck
Move Raw Matrl. to work centre
Issue job card to operator
Load template and set up machine
Wait for crane
Load plate on machine
Flame cut
Unload flame cut part & move to
dressing area
26. Dress and hand grind edges
27. Wait for completion of batch
28. Inspection
Performed Category
By
CENT PC
WT
SHOP PC
WT
SHOP PC
WT
SHOP PC
WT
SHOP PC
MV
SHOP
WT
SHOP
WT
SHOP
WT
SHOP
MV
SHOP
AV
SHOP
MV
SHOP
SHOP
INSPN
AC
WT
WT
Activity Analysis

Sl.
No.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.

Wait for crane
Move to shot blast
Shot blast operation
Unload from machine
Wait for completion of batch
Inspection
Wait for fork lift
Move to sheet metal (727)
Release Job card to shop
Wait for crane
Load on straightening machine
Straightening operation
Unload & stack
Performed Category
by
SHOP
WT
SHOP
MV
SHOP
AC
SHOP
MV
SHOP
WT
INSPN
WT
SHOP PC
WT
SHOP PC
MV
SHOP PC
WT
SHOP
WT
SHOP
WT
SHOP
MV
SHOP
AC
SHOP
MV
Activity Analysis

Sl.
No.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.

Inspection
Wait for crane
Move to Press brake
Set up machine for forming
Forming operation
Unload
Inspection
Wait for fork lift
Move to machine shop (721)
Wait for crane
Move to layout table
Performed Category
by
SHOP
WT
INSPN
WT
SHOP
WT
SHOP
MV
SHOP
WT
SHOP
WT
SHOP
AV
SHOP
MV
SHOP
WT
INSPN
WT
SHOP PC
WT
SHOP PC
MV
SHOP
WT
SHOP
MV
Activity Analysis

Sl.
No.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.

Issue job card to shop
Layout operation
Inspection
Wait for crane
Move to radial drilling machine
Drilling operation
Unload from machine
Deburring operation
Inspection
Wait for fork lift
Move to painting shop (758)
Performed Category
by
SHOP
WT
SHOP
WT
SHOP
AC
SHOP
WT
INSPN
WT
SHOP
WT
SHOP
MV
SHOP
AV
SHOP
MV
SHOP
AC
SHOP
WT
INSPN
WT
SHOP PC
WT
SHOP PC
MV
Activity Analysis

Sl.
No.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.

Issue job card to shop
Spread all parts for painting
Spray paint primer
Reverse the plate
Spray paint primer
Wait for drying
Stack for movement
Inspection
Wait for fork lift
Move to fabrication area (789)
Summary of NVA Analysis

Waiting (WT)
= 53
Adding Cost (AC) = 5
Performed Category
by
SHOP PC
WT
SHOP
WT
SHOP
WT
SHOP
AV
SHOP
MV
SHOP
AV
SHOP
WT
SHOP
WT
INSPN
WT
SHOP PC
WT
SHOP PC
MV
Moving (MV)
= 18
Adding Value (AV) = 5
Capacity Planning
Capacity denotes in general the extent of availability of
these resources for use by various processes
It also denotes the maximum output of products and
services one can achieve using these resources
Capacity planning is a systematic approach to
Estimate the amount of capacity required,

Evaluation of alternative methods of augmenting capacity
Devise methods to use capacity effectively
Capacity planning is important
It has a significant impact on the cost of operation of the

system due to large fixed costs associated with capacity
Economies of scale is an concept in economics related to

capacity
Economies of Scale
Average unit cost of output
An illustration
2000 units
per month
5000 units
per month
10,000 units
per month
Units of output
Capacity buildup
Alternative modes
Typical mode
U n its
Capacity
Demand
Proactive mode
U nits
U nits
Reactive mode
Time
Time
Time
Input measures of capacity

Firms operating in low volume, high variety
situation find it relevant
Refining capacity of BPCL refinery in Mumbai is
260,000 barrels of crude per day
Television manufacturer often measures its
capacity by millions of picture tubes that it
produces
Tool room facility will measure its capacity in
terms of machine hours
A hospital will measure the capacity in terms of
number of beds.
Output measures of capacity

When the volume of production is high and the
variety is relatively low output measures are useful
Toyota Kirloskar Auto Parts measures it capacity in
terms of number of transmission gear boxes it can
produce
Tata Bearings, a division of Tata Steel, has a capacity
of 25 million pieces per annum
MICO Bosch has an installed capacity of one lakh
distributor pumps at its Jaipur plant
An automated car wash facilitys capacity can be
measured in terms of number of cars serviced per
day
Japanese notion of capacity

Capacity = Work + Waste
Nine types of waste according to Canon
production system:
Waste
Waste
Waste
Waste
Waste
Waste
Waste
Waste
in
in
in
in
in
in
in
in
Operations
Startup
Equipment
Defects
Materials
Indirect Labour
Human Resources
expense
Nine Source of Waste
An illustration (Ideas at work 3.2)

Source of waste
Waste due to human resources
Waste due to materials
Waste due to operations
Waste due to start up
Waste due to equipment
Under utilisation of machines
Unused machine capacity
Not maintaining specifications
Total of the above

Divisional turnover
Waste as a percent of turnover
Amount (in INR million)

1.96
21.53
1.47
5.24
12.90
9.75
2.50
0.65
43.10
135.92
31.70%
Capacity Planning
Time Horizon
Criterion
Time Horizon for planning

Long term
Medium term
Short-term
Time frame
2 - 5 years
Typically 1 year
1 week to 3 months
Planning premise
Augmenting
capacity for
projected growth
Balancing demand supply
Maximising availability;
Efficent use of resources
Capacity
Augmentation;
Capital Budgeting
Exercises
Adjusting demand
and supply
attributes to balance
available capacity to
requirement
Resource deployment
strategies, Maintenance
routines, Improvement
projects to be
undertaken
Investment
planning; Breakeven analysis,
Discounted cash
flow techniques;
Decision Trees
Aggregate
Production Planning;
Make or Buy
Planning & Scheduling,

Total Productive
Maintenance, Waste
elimination by
continuous
improvement;
Simulation; Heuristics;
Waiting line models
Key decisions
made
Tools &
Techniques used
Capacity Planning Framework

Estimate the capacity
requirements for the
planning horizon
Compute the available
capacity & identify
quantum of capacity to be
augmented
Identify available
alternatives & select the
best one for capacity
augmentation
Capacity Planning
Computational steps
Step 1: Estimate the total requirement

for the planning horizon
Step 2: Estimate Labour and Machine
requirements
Step 3: Compute Capacity Availability
Step 4: Compare availability with
Requirement
Step 5: Evaluate alternative methods for
capacity augmentation
Capacity requirements
Projected demand per unit time during the planning
horizon = D
Standard labour hours required per unit of product = S L
Efficiency of labour = EL
D*SL
Capacity requirements (Labour) =
EL
Capacity requirements (Machine) =
D * SM
EM
Capacity Availability
System availability
Number of working days in the planning horizon: Nd

Number of working hours per day: h
System availability (Hours) = Nd * h
Resource availability
Number of machines available: Nm

Machine: Time lost in breakdowns & maintenance = b %
Number of workers available: NL
Labour: Absenteeism of the workers = a %
Capacity available in the system (Hours)
Machine: Nd * h * Nm * (1 b/100)
Labour: Nd * h * NL * (1 a/100)
Capacity Augmentation
Alternatives
Waste Elimination
Multi-skilling of workforce
Sub-contracting/Outsourcing
De-bottlenecking
Addition of new capacity
Example 3.5
A product is manufactured in a shop using a five-stage process. The first step

in the process is to cut the sheet metal to required shapes and sizes using a
shearing process. After the shearing process, the components are subjected
to pressing operations to alter the shape of the flat sheet as per the design. In
the third stage of the process welding is done to join the components. The
next step in the process is a painting operation. After painting, the
components are packed and kept ready for dispatch.
The time take for each of these operations are 20, 30, 15, 12 and 6 minutes
respectively.
Presently, each stage has only one machine for operation.
Map the process and analyse the capacity with respect to the following
scenarios:
If the shop works for an 8-hour shift with an effective available time of 450 minutes,
what is the production capacity of the shop?
Where is the bottleneck in the system? If we want to add one machine, where
should we make the investment?
Identify the additional capacity required for a daily production target of 25 units.
Compute the utilisation of the machines as per the revised capacity calculations.
Solution to example 3.5

Shearing
(20 minutes)
Pressing
(30 minutes)
Welding
(15 minutes)
Painting
(12 minutes)
Packing
(6 minutes)
The production capacities are:
Shearing: 450/20 = 22.50

Welding: 450/15 = 30.00
Packing: 450/6 = 75.00
Pressing: 450/30 = 15.00

Painting: 450/12 = 37.50
The smallest number in the above calculation limits the production

capacity for the shop. Therefore, the current production capacity is 15
units per day.
Pressing
(30 minutes)
Shearing
(20 minutes)
Pressing
(30 minutes)
Welding
(15 minutes)
Painting
(12 minutes)
Packing
(6 minutes)
Bottleneck
Solution to example 3.5
The production target is 25 per day now. Since a day has 450 minutes, the
maximum time that the process can take in each stage is 18 minutes.
Packing, Painting and Welding sections have timings less than 18. Therefore,
they do not need any more investment in capacity.
By adding one more machine at the pressing stage, the effective time will be
less than 18 minutes.
Similarly, by adding one more machine at the shearing stage, the effective time
will be 10 minutes.
Utilisation of Shearing =
Daily ofproduction
*
Utilisation
Pressing =
Utilisation of Welding =
Utilisation of Painting = 66.67%
process time
25 * 20
55.56%
number of machines * available time 2 * 450
25 * 30
83.33%
of Packing = 33.33%
2Utilisation
* 450
25 * 15
83.33%
1 * 450
Bottleneck & Capacity Analysis

The Wandering Bottleneck
Shearing
(20 minutes)
Pressing
(30 minutes)
Welding
(15 minutes)
Painting
(12 minutes)
Packing
(6 minutes)
Welding
(15 minutes)
Painting
(12 minutes)
Packing
(6 minutes)
Pressing
(30 minutes)
Shearing
(20 minutes)
Pressing
(30 minutes)
Hierarchies in capacity
estimation
First
operation
Fabrication
Shop
Paint
Shop
Shearing
Unit
Pressing
Unit
Welding
Unit
Electrical &
Wiring
Hydraulic
Press
CNC Turret
Press
63 Tonne
ECC Press
NC Press
Brake
Assembly
& Testing
Denotes bottleneck
in the process
Capacity Planning
Decision tree analysis (Example 3.6)

Demand Moderate Revenue: Rs. 400,000 per year
ew
n
d c ity 0 )
d
A apa 0,00
c 75
s.
R
(
Expand
(Rs. 275,000)
Su G
b- o f
co or
ntr
ac
tin
g
Demand High
Revenue: Rs. 850,000 per year
Demand Moderate
Demand High
Demand Moderate
Demand High
Denotes the best option
at each decision point
Add new capacity

(Rs. 787,500)
Continue with
sub-contracting

Solution to Example 3.6
Decision point 2
Revenue from adding new capacity = Rs. 850,000 x 4 = Rs. 34,00,000.00

Cost of adding new capacity
= Rs. 7,87,500.00
Net revenue from this option
= Rs. 26,12,500.00
Revenue from sub-contracting option= Rs. 350,000 x 4 = Rs. 14,00,000.00
Therefore the best option at this stage is to go for adding new capacity
Node A
Revenue in the case of high demand = Rs. 850,000 x 5 = Rs. 42,50,000.00

Revenue (moderate demand) = Rs. 400,000 x 5
= Rs. 20,00,000.00
Expected revenue at node A
E[A] = (42,50,000 * 0.40 + 20,00,000 * 0.60)
= Rs. 29,00,000.00
Cost of adding new capacity
= Rs. 7,50,000.00
= Rs. 21,50,000.00
Solution to Example 3.6
Node B
Revenue in the case of high demand = Rs. 550,000 x 5

= Rs. 27,50,000.00
= Rs. 15,00,000.00
Expected revenue at node B
E[B] = (27,50,000 * 0.40 + 15,00,000 * 0.60)
= Rs. 20,00,000.00
Cost of expanding the capacity
= Rs. 2,75,000.00
= Rs. 17,25,000.00
Node C
In the case of high demand, it is better to add new capacity after I year than continuing with
the sub-contracting option. This will fetch a net revenue of Rs. 26,12,500.00 during the last
four years. Moreover, in the first year, it would have fetched a revenue of Rs. 3,50,000.00.
Therefore,
Revenue in the case of high demand
= Rs. 29,62,500.00
= Rs. 9,00,000.00
Expected revenue at node C
E[C] = (29,62,500 * 0.40 + 9,00,000 * 0.60)
= Rs. 17,05,000.00
Cost of sub-contracting is none.
= Rs. 17,05,000.00
Capacity Planning
Chapter Highlights
Process analysis is the mechanism to understand the

impact of the process design on output, cost or any
other performance metric using some analytical tools
A pictorial representation of all process related
information could be developed using process flow
charting
Process flow charting employs a set of standard symbols
and graphical tools to represent all the information
pertaining to the process
Three generic planning premises are in use in operations
management: make-to-stock, make-to-order and
assemble-to-order
Capacity Planning
Chapter Highlights
The basic approach to planning in made-to stock system

is to schedule production for the purpose of replenishing
stock to some predetermined level
MTO planning methodology is used by organizations that
manufactures high product variety in low volumes
Organizations use input and output based measures for
defining capacity
High volume low variety manufacturers use output bases

measures for defining capacity.
Capacity = Work + Waste. Therefore, one way of

augmenting capacity in organizations is to eliminate
waste from the system.
Capacity Planning
Chapter Highlights
The capacity planning framework changes with the time

horizon
The emphasis in the short term is to maximize capacity

availability through efficient use of resources.
On the other hand, in the medium term the emphasis is on
matching the supply with the demand on a period by period
basis.
The capacity planning framework consists of a three step

process:
Estimate the capacity requirement for the planning horizon

Identify the quantum of capacity to be augmented
Select an appropriate alternative for capacity augmentation
Selection of an appropriate alternative for capacity

augmentation could be done using a decision tree model

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Chapter 3

Process & Capacity Analysis

Decisions taken with respect to

Basic building block of capacity analysis is

Issues in Process Analysis

What is the utilization of my resources?

One can find answers to the above questions by

Process analysis utilizes some

Process Flow Charting

activities that constitute the process

A pictorial representation of all these information could

A step in the Process

A Simplified Process Flow Chart

Planning Premises in Process

Capacity Planning using MTS,

Process Analysis issues for MTS

Throughput time: Throughput time (TPUT) is the

Toy Manufacturing (Example 3.1)

The throughput time for the process is 55 minutes

Process Analysis (Example 3.1)

A graphical representation with start and end times

Every batch of four toys come out exactly in an interval of 20 minutes

Process Analysis (Example 3.1)

Production Capacity under varying batch sizes

Scenario 1: Batch Size of the Process = 2 pallets

Production Capacity under varying

Scenario 1: Batch Size of the Process = 1 pallet, 2 painting booths

Process Analysis (Example 3.2)

Batch sizes play a crucial role in determining

Business Process Engineering

Extensive information exchange, data redundancy and

Tools used in each step

Process or Value Stream Mapping

Customer order walk through

Obtain measures to assess the process

Brainstorm improvement opportunities

From Raw Material to Finished Component

Description of the activity

From Raw Material to Finished Component

Description of the activity

Job cards given to shop Progress

From Raw Material to Finished Component

Description of the activity

From Raw Material to Finished Component

Description of the activity

From Raw Material to Finished Component

Description of the activity

From Raw Material to Finished Component

Description of the activity

Summary of NVA Analysis

Estimate the amount of capacity required,

Capacity planning is important

It has a significant impact on the cost of operation of the

Economies of scale is an concept in economics related to

Input measures of capacity

Output measures of capacity

Japanese notion of capacity

Nine Source of Waste

An illustration (Ideas at work 3.2)