The document discusses capacity planning and measurement. It defines key terms like capacity, utilization, effective capacity, and peak capacity. It also discusses measuring and matching capacity to demand through various strategies like flexing capacity, shifting demand, and process flowcharting. The document provides examples to demonstrate how to calculate capacity, utilization, efficiency, and identify bottlenecks.
The document discusses capacity planning and measurement. It defines key terms like capacity, utilization, effective capacity, and peak capacity. It also discusses measuring and matching capacity to demand through various strategies like flexing capacity, shifting demand, and process flowcharting. The document provides examples to demonstrate how to calculate capacity, utilization, efficiency, and identify bottlenecks.
The document discusses capacity planning and measurement. It defines key terms like capacity, utilization, effective capacity, and peak capacity. It also discusses measuring and matching capacity to demand through various strategies like flexing capacity, shifting demand, and process flowcharting. The document provides examples to demonstrate how to calculate capacity, utilization, efficiency, and identify bottlenecks.
The document discusses capacity planning and measurement. It defines key terms like capacity, utilization, effective capacity, and peak capacity. It also discusses measuring and matching capacity to demand through various strategies like flexing capacity, shifting demand, and process flowcharting. The document provides examples to demonstrate how to calculate capacity, utilization, efficiency, and identify bottlenecks.
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Capacity Planning
Capacity • The maximum rate of output for a process/facility. • Capable of meeting current and future demand. • Capacity planning – - Short term (< 2years) - Long term (> 2 years)
Challenges : I. Should the capacity be expanded before the demand or after the demand. II. How much cushion is needed to handle variable/uncertain demand? Capacity Planning 1. Capacity measurement : • Different for different situations: Ex- Theatre measure capacity as number of seats. Job shop measure in number of machine hours. • In general capacity measured in two ways: I. Output measure – Automobile company- No. of vehicle per year II. Input measure – Xerox shop – machine-hr • Utilization : The degree to which equipment, space or labor is currently being used.
Utilization = (Actual Output ) x 100%
Peak Capacity
• Peak capacity: The maximum output that a process
or facility can achieve under ideal condition. • Peak capacity is sustained for short time such as few hours in a day, few days in a month. • It could be achieved by marginal method of production like, overtime, overstaffing, extra shift etc. • Effective capacity: The maximum output that a process or firm can economically sustain under normal conditions. • In some organization it could be one shift or two shift operations, depends upon demand.
• Census Bureau Survey: defines capacity as the
greatest level of output the firm can sustain by using realistic employee work schedule and equipment currently in place. • Operating at peak capacity sometime results in loss of sales. Efficiency/Utilization Example for a Trucking Company Design capacity = 50 trucks/day available Effective capacity = 40 trucks/day, because 20% of truck capacity goes through planned maintenance Actual output = 36 trucks/day, 3 trucks delayed at maintenance, 1 had a flat tire Actual Output 36 units / day Efficiency 90% EffectiveCapacity 40 units / day Actual Output 36 units / day Utilizatio n 72% Design Capacity 50 units / day Expansion strategy in Capacity One of the most important capacity strategy is to decide when to expand and by how much.
I. The expansionist (Proactive) strategy- which stays
ahead of the demand, minimizes the chance of sales lost to insufficient capacity.
II. The wait-and-see (Reactive) strategy lags behind
demand, relying on short term options. Matching Supply and Demand
Steps for matching demand and supply:
i. Determine demand pattern. ii. Assess causes of demand variations. iii. Develop methods for managing capacity. iv. Develop methods for managing demand. Strategies for Shifting Demand to Match Capacity
Demand Too High Shift Demand Demand Too Low
• Use signage to communicate • Use sales and advertising to
busy days and times increase business from current • Offer incentives to customers market segments for usage during non-peak times • Modify the service offering to • Take care of loyal or regular appeal to new market segments customers first • Offer discounts or price • Advertise peak usage times and reductions benefits of non-peak use • Modify hours of operation • Charge full price for the • Bring the service to the service--no discounts customer Strategies for Flexing Capacity to Match Demand
Demand Too High Flex Capacity Demand Too Low
• Stretch time, labor, facilities and equipment • Perform maintenance renovations • Cross-train employees • Hire part-time employees • Schedule vacations • Request overtime work from • Schedule employee training employees • Lay off employees • Rent or share facilities • Rent or share equipment • Subcontract or outsource activities Process Flowcharting • Process flowcharting is the use of a diagram to represent the major elements of a process. – The basic elements can include tasks or operations, flows of materials or customers, decision points, and storage areas or queues – Technically, it is used to identify the bottleneck operations, determine the system capacity and making improvement as required. Important Terminology • Workstation is any area that requires one worker or one machine. • Cycle Time is the average time for the completion of a unit at production process. • Bottleneck is the process step that limits production, usually the slowest operation. • Capacity is a measure of output per unit time when fully busy. • Capacity Utilization is a measure of how much output is actually achieved with existing system. • Throughput Rate is the average number of units processed over a time interval. Process Analysis: Performance measures
Assume a process is in place. What do we need to
measure in order to understand how efficient it is?
Task 1 Task 2 Task 3
• What is its capacity? How many units per unit time go
through each task? The process as a whole? • What is the bottleneck? Which production step limits the process capacity? • What is the throughput Rate? How many units are processed over a period of time? How do we measure capacity? Capacity of a process is the physical limitation in terms of “how much can be processed at this process”
Cycle Time: Average time for completion of a unit at a production step or
process. Does not include waiting. Measured as time/unit
Throughput Rate: Average number of units processed over a time interval.
Measured as units/time
1 Key Throughput rate = Relationship Cycle Time
Capacity = throughput rate
How do we measure throughput time?
Throughput Time: Average time that a unit takes to go through
the entire process (including waiting time). Measured as time
Work in Process(WIP): Average number of units in system
over a time interval. Measured as units
WIP Throughput time = Key Throughput rate Relationship (Little’s Law) What is Capacity Utilization?
• Capacity Utilization: The degree to which equipment, space
or labour is being used. • It is expressed in percentage. • The utilization rate indicates the need for extra capacity or eliminating unneeded capacity.
Utilization = Avg. output Rate = Throughput Rate
Max. Capacity Peak Capacity
Efficiency = Avg. output Rate
Effective Capacity Bottleneck An operation that has the lowest effective capacity of any operations in the process and thus limits the system’s output.
Bottleneck Operation limited by bottleneck Example-1 Q. An insurance company processes policies recording activities through four centres (A,B,C,D) sequentially. The individual work centre capacity and actual output are shown below. Find system’s capacity and efficiency.
Q. The design capacity for engine repair shop in a
company is 80 trucks per day. The effective capacity is 40 engines per day and actual output is 36 engines per day. Calculate the utilization and efficiency of the operation. If the efficiency for the next month is expected to be 82%, what would be the expected output? Example-3 Q. Dr. Practo dentistry has been cleaning customer’s teeth for decades. The process flow is given below: Step-5
Step-1 Step-2 Step-3 Step-6 Step-7
Step-4
Process Description Time/Patient
Step-1 Customer check-in 2 min Step-2 X-Ray (Lab Technician) 2 min Step-3 X-Ray Development (Lab Technician) 4 min Step-4 X-Ray Exam (Dentist) 5 min Step-5 Tooth Cleaning (Assistant) 24 min Step-6 Dentist discuss problems 8 min Step-7 Customer pays and move out 6 min Answer the following i. Identify the bottleneck operation ii. Calculate system’s capacity iii. Calculate throughput time iv. Is there any scope of improvement in the process? Where is the bottleneck? Customer No
3. Check for 5. Is Yes credit rating loan (15 minutes) approved? (5 min)
1. Check loan 2. Categorize 6. Complete
documents and put loans paperwork for new them in order (20 minutes) loan (10 minutes) (10 minutes)
4. Enter loan application data into the system (12 minutes) Where is the Bottleneck?
Customer No
3. Check for 5. Is Yes
credit rating loan (15 minutes) approved? (5 min) 1. Check loan 2. Categorize 6. Complete documents and loans paperwork for put them in order (20 minutes) Bottleneck new loan (10 minutes) (10 minutes)
4. Enter loan application data into the system (12 minutes)
What is the throughput time?
What is the cycle time? What is the throughput rate? What is the utilization rate of each station? Ques: A subway outlet makes customized sandwiches to order. The process flow is given below. A different person is working at each of the steps in the process.
Slice the bun. Add toppings
Take order Add and Bag the order cheese/meat condiments
1 min/order 3 min/order 4 min/order 2 min/order
The manager wants to figure out the following for a typical 8-hr work day:
a) What is the current maximum output of the process?
b) If we add another person, where do we add him and what is the benefit? c) Is there a benefit if we can shift 1 min from Bun and meat to order taking? d) Is there a benefit if we shift 1 min of work from condiment to bagging? Example- 4 Q. The owner of a company is considering new oven for baking pizzas. Oven type A can handle 20 pizzas an hour. The fixed cost associated with oven-A are $ 20,000 and the variable costs are $ 2 per pizza. Oven B is larger and can handle 40 pizzas an hour. The fixed cost associated with oven-B are $ 30,000 and the variable cost are $ 1.25 per pizza. The pizzas sell for $14 each. a) What is the break even point for each oven? b) If the owner expects to sell 9000 pizzas, which oven should be purchased? c) If the owner expects to sell 12000 pizzas, which oven should be purchased? d) At what volume should owner switch ovens?
