Process Capacity

Capacity Planning
Operations Corporate strategy

Strategy Model
Business strategy

Operations Strategy
Internal
Mission Functional strategies in
analysis
marketing, finance,
Distinctive engineering, human
Competence resources, and
information systems
External Objectives
analysis (cost, quality, flexibility, delivery)
Policies
(process, capacity,
inventory and quality systems)

Consistent pattern of decisions

Results
 Capacity

The Maximum Rate of Output for a Process

Capacity Plans

Long Term Short Term

 Capacity Planning is Essential for
Long-Term Success

Capacity must meet current and future

demand.
 Measures of Capacity
• Hospital Patients treated/day
• Retailer Annual sales/m2
• Airline Available seat miles/month
• Theater No. of seats
• Job shop No. of machine hours
• Car Manufacturer No. of autos/month
• Photocopy Shop No. of machines
Two Ways of Expressing Capacity

Standard Product Customized Product

Output Measures Input Measures

 Capacity Planning requires the
knowledge of current capacity of a
process and its utilization.
 Utilization
Average output rate
Utilization = x 100%
Maximum capacity
 Capacity Bottlenecks

To
Inputs 1 2 3
customers
200/hr 50/hr 200/hr

(a) Operation 2 a bottleneck

 Capacity Bottlenecks

To
Inputs 1 2 3
customers
200/hr 200/hr 200/hr

(b) All operations bottlenecks

How Can We Increase Our
Capacity?
 Capacity Bottlenecks

To
Inputs 1 2 3
customers
200/hr 50/hr 200/hr

(a) Operation 2 a bottleneck

 Theory of Constraints
1. Identify the system bottleneck(s)
2. Exploit the bottleneck(s)
3. Subordinate all other decisions to
Step 2
4. Elevate the bottleneck(s)
Manufacturing garden rakes involves the
attachment of a bow to the head. Rake heads
must be processed on the blanking press, welded
to the bow, cleaned, and attached to the handle to
make the rake, which is packed and finally shipped
to the customers according to a specific delivery
schedule.
Suppose that the delivery commitments for all
styles of rakes for the next months indicate that the
welder is loaded at 105 % of its capacity, but the
other processes will be used at only 75 – 85 % of
their capacities.
Transparency Masters to accompany Heizer/Render – © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Principles of Operations Management, 5e, and Operations 1-14
Management, 7e
 Economies of Scale
It costs less per unit to produce high levels of output
• fixed costs can be spread over a larger number of units
• production or operating costs do not increase linearly
with output levels
• quantity discounts are available for material purchases
• operating efficiency increases as workers gain
experience
 Diseconomies of Scale
Occur above a certain level of output
• Diseconomies of Distribution
• Diseconomies of Bureaucracy
• Diseconomies of Confusion
• Diseconomies of Vulnerability
Best Operating Level for a Hotel
 Capacity Strategies
Three Dimensions
• Sizing capacity cushions
• Timing and sizing expansions
• Linking process capacity and other
operating decisions
 Capacity Cushions

Capacity Cushion = 100% - Utilization Rate (%)

 Capacity Strategies
Timing and Sizing Expansions
Planned unused Forecast of capacity
capacity required
Capacity

Capacity
increment

Time between
increments

Time
(a) Expansionist strategy
 Capacity Strategies
Timing and Sizing Expansions
Planned use of short- Forecast of capacity
term options required
Capacity

Capacity
increment
Time between
increments

Time
(b) Wait-and-see strategy
Capacity leading demand and capacity lagging demand

Capacity leads demand Capacity lags demand

Capacity
Volume

Volume
Demand Demand
Capacity

Time Time
Smoothing with inventory

Smoothing with inventory

Capacity
Volume

Demand

Time
 Capacity Expansion Strategies

Copyright 2006 John Wiley & Sons, Inc. 6-24

Linking Process Capacity and
Other Decisions
• Competitive Priorities
• Quality
• Process Design
 The Systematic Approach to
Capacity Decisions

1. Estimate future capacity requirements.

2. Identify gaps by comparing requirements
with available capacity.
3. Develop alternative plans for filling the
gaps.
4. Evaluate each alternative, both qualitatively
and quantitatively and make a final choice.

Transparency Masters to accompany Heizer/Render – © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Principles of Operations Management, 5e, and Operations 1-26
Management, 7e
A Systematic Approach to
Capacity Decisions
 Estimating Capacity
Short Term

forecast of product demand

Long Term

f (future products, their demand, technology)

 Demand and Capacity
Management in the Service
Sector
 Demand management
 Appointment, reservations, FCFS rule
 Capacity
management
 Full time,
temporary,
part-time
staff
 Estimating Capacity
Requirements
A process serves 50 customers per day, utilization is about 90%, and demand
is expected to double in five years. Management wants to increase the
capacity cushion to 20%.

50
M= = 62.5 customers per day
[1.0 – .20)]

In 5 years if demand doubles,

M = 2 x 62.5 or 125 customers per day
 Estimating Capacity
Requirements
Processing hours required for year’s demand
Capacity requirement =
Hours available from a single capacity unit per year, after
deducting desired cushion

Dp
M=
N[1 – (C/100)]

D = demand forecast for the year

p = processing time
N = total number of hours per year during which the process operates
C = desired capacity cushion
Capacity Decisions
Estimate Capacity Requirements

Item Client X
Annual demand forecast (copies) 2000.00
Standard processing time (hour/copy) 0.50
Capacity Cushion 0,15

250 days / year, 1 shift / year, 8 hrs / shift

 Estimating Capacity
Requirements
[Dp + (D/Q)s]product 1 + ... + [Dp + (D/Q)s]product n
M=
N[1 – (C/100)]
Capacity Decisions
Capacity Decisions
Estimate Capacity Requirements

Item Client X Client Y

Annual demand forecast (copies) 2000.00 6000.00
Standard processing time (hour/copy) 0.50 0.70
Average lot size (copies per report) 20.00 30.00
Standard setup time (hours) 0.25 0.40
Capacity Decisions
Estimate Capacity Requirements

Item Client X Client Y

Annual demand forecast (copies) 2000.00 6000.00
Standard processing time (hour/copy) 0.50 0.70
Average lot size (copies per report) 20.00 30.00
Standard setup time (hours) 0.25 0.40

[Dp + (D/Q)s]product 1 + ... + [Dp + (D/Q)s]product n

M=
N[1 – (C/100)]
Capacity Decisions
Estimate Capacity Requirements

Item Client X Client Y

Annual demand forecast (copies) 2000.00 6000.00
Standard processing time (hour/copy) 0.50 0.70
Average lot size (copies per report) 20.00 30.00
Standard setup time (hours) 0.25 0.40

[2000(0.5) + (2000/20)(0.25)]client X + [6000(0.7) + (6000/30)(0.4)]client Y

M=
(250 days/year)(1 shift/day)(8 hours/shift)(1.0 – 15/100)
Capacity Decisions
Estimate Capacity Requirements

Item Client X Client Y

Annual demand forecast (copies) 2000.00 6000.00
Standard processing time (hour/copy) 0.50 0.70
Average lot size (copies per report) 20.00 30.00
Standard setup time (hours) 0.25 0.40

[2000(0.5) + (2000/20)(0.25)]client X + [6000(0.7) + (6000/30)(0.4)]client Y

M=
(250 days/year)(1 shift/day)(8 hours/shift)(1.0 – 15/100)
Capacity Decisions
Estimate Capacity Requirements

Item Client X Client Y

Annual demand forecast (copies) 2000.00 6000.00
Standard processing time (hour/copy) 0.50 0.70
Average lot size (copies per report) 20.00 30.00
Standard setup time (hours) 0.25 0.40

5305
M= = 3.12  4 machines
1700
Sara James bakery has a plant for processing
breakfast rolles. Last week the facility
produced 148,000 rolls. The effective
capacity is 175,000 rolls. The production line
operates 7 days per week with three-8 hour
shifts per day. The line was designed to
process rolls at a rate of 1,200 rolls per hour.
Determine the maximum (design) capacity,
utilization, and efficiency of the plant.
 Bakery Example

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

 Bakery Example

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

 Bakery Example

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

 Bakery Example

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

 Bakery Example

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

 Bakery Example

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7 x 3 x 8) x (1,200) = 201,600 rolls

Utilization = 148,000/201,600 = 73.4%

Efficiency = 148,000/175,000 = 84.6%

The manager of Sara James Bakery now needs
to increase the production the increasingly
popular rolls. To meet this demand, the
operations manager will be adding a second
production line. The manager must determine
the expected output of this second line for the
sales department. Effective capacity for the
second line is the same as on the first one. But
output on the second line will be less than the
first line because the crew will be primarily
new hires. So the efficiency cannot be
expected to be more than 75%. What is the
expected output?
 Bakery Example

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Efficiency = 84.6%
Efficiency of new line = 75%

Expected Output = (Effective Capacity)(Efficiency)

= (175,000)(.75) = 131,250 rolls
 Bakery Example

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts
Efficiency = 84.6%
Efficiency of new line = 75%

Expected Output = (Effective Capacity)(Efficiency)

= (175,000)(.75) = 131,250 rolls
An airline company must plan its fleet capacity
and its long-term schedule of aircraft usage. For
one flight segment, the average number of
customers per day is 70, which represents a 65
percent utilization rate of the equipment
assigned to the flight segment. If demand is
expected to increase to 84 customers for this
flight segment in three years, what capacity
requirement should be planned? Assume that
management deems a capacity cushion of 25
percent appropriate.
Up, Up, and Away is a producer of kites and wind socks.
Relevant data on bottleneck operation in the shop for upcoming
fiscal year are given in the following table:

ITEM KITES WIND SOCKS

Demand Forecast 30.000 unit/year 12.000 units/year
Lot Size 20 units 70 units
Standard Processing 0,3 hour/unit 1,0 hour/unit
Time
Standard Set Up Time 3,0 hours/lot 4,0 hours/lot

The shop works two shifts per day, eight hours per shift, 200 days
per year. There currently are four machines, and a 25 percent
capacity cushion is desired. How many machines should be
purchased to meet the upcoming year’s demand without resorting
to any short-term capacity solutions?
 Estimating Capacity
Requirements
[D p + (D/Q)s]product 1 + ... + [D p + (D/Q)s]product n
M=
N[1 – (C/100)]
Up, Up, and Away is a producer of kites and wind socks.
Relevant data on bottleneck operation in the shop for upcoming
fiscal year are given in the following table:

ITEM KITES WIND SOCKS

Demand Forecast 30.000 unit/year 12.000 units/year
Lot Size 20 units 70 units
Standard Processing 0,3 hour/unit 1,0 hour/unit
Time
Standard Set Up Time 3,0 hours/lot 4,0 hours/lot

The shop works two shifts per day, eight hours per shift, 200 days
per year. There currently are four machines, and a 25 percent
capacity cushion is desired. How many machines should be
purchased to meet the upcoming year’s demand without resorting
to any short-term capacity solutions?