Capacity and

SUPPLEMENT
Constraint
Management

PowerPoint presentation to accompany

Heizer, Render, Munson
Operations Management, Twelfth Edition
Principles of Operations Management, Tenth Edition

PowerPoint slides by Jeff Heyl

Copyright © 2017 Pearson Education, Inc. S7 - 1

 Outline
► Capacity
► Bottleneck Analysis and the Theory
of Constraints
► Applying Expected Monetary Value
(EMV) to Capacity Decisions

Copyright © 2017 Pearson Education, Inc. S7 - 2

 Learning Objectives
When you complete this supplement
you should be able to:
S7.1 Define capacity
S7.2 Determine design capacity,
effective capacity, and utilization
S7.3 Perform bottleneck analysis
S7.4 Determine the expected monetary
value of a capacity decision
Copyright © 2017 Pearson Education, Inc. S7 - 3
 Capacity
► The throughput, or the number of units
a facility can hold, receive, store, or
produce in a period of time
► Determines
fixed costs
► Determines if
demand will
be satisfied
► Three time horizons
Copyright © 2017 Pearson Education, Inc. S7 - 4
 Planning Over a Time Horizon
Figure S7.1
Options for Adjusting Capacity
Time Horizon
Design new production processes
Long-range
planning Add (or sell existing)
long-lead-time equipment *
Acquire or sell facilities
Acquire competitors
Intermediate-
range Subcontract Build or use inventory
planning Add or sell equipment More or improved training
(aggregate Add or reduce shifts Add or reduce personnel
planning)
Schedule jobs

*
Short-range Schedule personnel
planning Allocate machinery
(scheduling)
Modify capacity Use capacity
* Difficult to adjust capacity as limited options exist
Copyright © 2017 Pearson Education, Inc. S7 - 5
 Design and Effective Capacity
► Design capacity is the maximum
theoretical output of a system
► Normally expressed as a rate
► Effective capacity is the capacity a firm
expects to achieve given current
operating constraints
► Often lower than design capacity

Copyright © 2017 Pearson Education, Inc. S7 - 6

 Design and Effective Capacity
TABLE S7.1 Capacity Measurements
MEASURE DEFINITION EXAMPLE
Design capacity Ideal conditions exist Machines at Frito-Lay are designed to
during the time that produce 1,000 bags of chips/hr., and the
the system is plant operates 16 hrs./day.
available Design Capacity = 1,000 bags/hr. × 16 hrs.
= 16,000 bags/day

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 Design and Effective Capacity
TABLE S7.1 Capacity Measurements
MEASURE DEFINITION EXAMPLE
Effective capacity Design capacity Frito-Lay loses 3 hours of output per day
minus lost output (= 0.5 hrs./day on preventive maintenance,
because of planned 1 hr./day on employee breaks, and 1.5
resource hrs./day setting up machines for different
unavailability (e.g., products).
preventive Effective Capacity = 16,000 bags/day
maintenance, – (1,000 bags/hr.)
machine (3 hrs./day)
setups/changeovers, = 16,000 bags/day
changes in product – 3,000 bags/day
mix, scheduled = 13,000 bags/day
breaks)

Copyright © 2017 Pearson Education, Inc. S7 - 8

 Design and Effective Capacity
TABLE S7.1 Capacity Measurements
MEASURE DEFINITION EXAMPLE
Actual output Effective capacity On average, machines at Frito-Lay are not
minus lost output running 1 hr./day due to late parts and
during unplanned machine breakdowns.
resource idleness Actual Output = 13,000 bags/day
(e.g., absenteeism, – (1,000 bags/hr.)
machine breakdowns, (1 hr./day)
unavailable parts, = 13,000 bags/day
quality problems) – 1,000 bags/day
= 12,000 bags/day

Copyright © 2017 Pearson Education, Inc. S7 - 9

 Solve this
▶ An executive conference center has the
physical ability to handle 1,100
participants. However, conference
management personnel believe that only
1,000 participants can be handled
effectively for most events. The last event,
although forecasted to have 1,000
participants, resulted in the attendance of
only 950 participants. What is design,
effective capacity and actual output?
Copyright © 2017 Pearson Education, Inc. S7 - 10
 Answer
▶ Design Capacity = 1,100 participants
▶ Effective Capacity = 1,000 participants
▶ Actual Output = 950 participants
 

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 Utilization and Efficiency
Utilization is the percent of design
capacity actually achieved
Utilization = Actual output/Design capacity

Efficiency is the percent of effective

capacity actually achieved
Efficiency = Actual output/Effective capacity

Copyright © 2017 Pearson Education, Inc. S7 - 12

 Design
Bakery Example Capacity
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

Copyright © 2017 Pearson Education, Inc. S7 - 13

Bakery Example Utilization

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%

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Bakery Example Efficiency

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%

Copyright © 2017 Pearson Education, Inc. S7 - 15

 Design
Bakery Example Capacity
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600 x 2 = 403,200 rolls

Copyright © 2017 Pearson Education, Inc. S7 - 16

 Effective
Bakery Example Capacity
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600 x 2 = 403,200 rolls

Effective capacity = 175,000 x 2 = 350,000 rolls

Copyright © 2017 Pearson Education, Inc. S7 - 17

 Actual
Bakery Example Output
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600 x 2 = 403,200 rolls

Effective capacity = 175,000 x 2 = 350,000 rolls
Actual output = 148,000 + 130,000 = 278,000 rolls

Copyright © 2017 Pearson Education, Inc. S7 - 18

 Utilization
Bakery Example Efficiency
Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600 x 2 = 403,200 rolls

Effective capacity = 175,000 x 2 = 350,000 rolls
Actual output = 148,000 + 130,000 = 278,000 rolls
Utilization = 278,000/403,200 = 68.95%
Efficiency = 278,000/350,000 = 79.43%

Copyright © 2017 Pearson Education, Inc. S7 - 19

 Solve this
▶ An executive conference center has the
physical ability to handle 1,100
participants. However, conference
management personnel believe that only
1,000 participants can be handled
effectively for most events. The last event,
although forecasted to have 1,000
participants, resulted in the attendance of
only 950 participants. What are the
utilization and efficiency of the conference
facility?
Copyright © 2017 Pearson Education, Inc. S7 - 20
 Answer
▶ Design Capacity = 1,100 participants
▶ Effective Capacity = 1,000 participants
▶ Actual Output = 950 participants

▶ Utilization = = = 86.4%
 
▶ Efficiency = = = 95.0%

Copyright © 2017 Pearson Education, Inc. S7 - 21

 Capacity and Strategy

► Capacity decisions impact all 10

decisions of operations management
as well as other functional areas of
the organization
► Capacity decisions must be integrated
into the organization’s mission and
strategy

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 Capacity Considerations

1. Forecast demand accurately

2. Match technology increments and
sales volume
3. Find the optimum operating size
(volume)
4. Build for change

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 Economies and Diseconomies of
Scale
Figure S7.2
(sales per square foot)
Average unit cost

1,300 sq ft 8,000 sq ft
store 2,600 sq ft store
store

Economies Diseconomies
of scale of scale
1,300 2,600 8,000
Number of square feet in store
Copyright © 2017 Pearson Education, Inc. S7 - 24
 Managing Demand
► Demand exceeds capacity
► Curtail demand by raising prices, scheduling
longer lead times
► Long-term solution is to increase capacity
► Capacity exceeds demand
► Stimulate market
► Product changes
► Adjusting to seasonal demands
► Produce products with complementary
demand patterns

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 Complementary Demand
Figure S7.3
Patterns
Combining the
two demand
patterns reduces
the variation
4,000 –
Sales in units

Snowmobile
3,000 – motor sales

2,000 –
Jet ski
1,000 – engine
sales

JFMAMJJASONDJFMAMJJASONDJ
Time (months)

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 Tactics for Matching Capacity
to Demand
1. Making staffing changes
2. Adjusting equipment
► Purchasing additional machinery
► Selling or leasing out existing equipment
3. Improving processes to increase throughput
4. Redesigning products to facilitate more throughput
5. Adding process flexibility to meet changing product
preferences
6. Closing facilities

Copyright © 2017 Pearson Education, Inc. S7 - 27

 Service-Sector Demand
and Capacity Management
► Demand management
► Appointment, reservations, FCFS rule
► Capacity
management
► Full time,
temporary,
part-time
staff

Copyright © 2017 Pearson Education, Inc. S7 - 28

 Bottleneck Analysis and the
Theory of Constraints
► Each work area can have its own unique
capacity
► Capacity analysis determines the throughput
capacity of workstations in a system
► A bottleneck is a limiting factor or constraint
► A bottleneck has the lowest effective capacity in a
system
► The time to produce a unit or a specified
batch size is the process time
Copyright © 2017 Pearson Education, Inc. S7 - 29
 Bottleneck Analysis and the
Theory of Constraints
► The bottleneck time is the time of the
slowest workstation (the one that takes
the longest) in a production system
► The throughput time is the time it takes
a unit to go through production from start
to end, with no waiting Figure S7.4

A B C

2 min/unit 4 min/unit 3 min/unit

Copyright © 2017 Pearson Education, Inc. S7 - 30

 Capacity Analysis
► Two identical sandwich lines
► Lines have two workers and three operations
► All completed sandwiches are wrapped
First assembly line

Bread Fill Toaster

15 sec/sandwich 20 sec/sandwich 40 sec/sandwich
Wrap/
Order
Deliver
30 sec/sandwich
Bread Fill Toaster 37.5 sec/sandwich

15 sec/sandwich 20 sec/sandwich 40 sec/sandwich

Second assembly line

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 Capacity Bread
15 sec
Fill
20 sec
Toaster
40 sec

Analysis
Order Wrap
30 sec
Bread Fill Toaster 37.5 sec
15 sec 20 sec 40 sec

► The two lines are identical, so parallel

processing can occur
► At 40 seconds, the toaster has the longest
processing time and is the bottleneck for
each line
► At 40 seconds for two sandwiches, the
bottleneck time of the combined lines = 20
seconds
► At 37.5 seconds, wrapping and delivery is
the bottleneck for the entire operation
Copyright © 2017 Pearson Education, Inc. S7 - 32
 Capacity Bread
15 sec
Fill
20 sec
Toaster
40 sec

Analysis
Order Wrap
30 sec
Bread Fill Toaster 37.5 sec
15 sec 20 sec 40 sec

► Capacity per hour is 3,600 seconds/37.5

seconds/sandwich = 96 sandwiches per
hour
► Throughput time is 30 + 15 + 20 + 40 + 37.5
= 142.5 seconds

Copyright © 2017 Pearson Education, Inc. S7 - 33

 Capacity Analysis
► Standard process for cleaning teeth
► Cleaning and examining X-rays can happen
simultaneously

Hygienist
cleaning

Takes Develops 24 min/unit Check

Check in Dentist
X-ray X-ray out

2 min/unit 2 min/unit 4 min/unit X-ray 8 min/unit 6 min/unit

exam

5 min/unit

Copyright © 2017 Pearson Education, Inc. S7 - 34

 Capacity Check
in
Takes
X-ray
Develops
X-ray
Hygienist
cleaning

24 min/unit
Dentist
Check
out

Analysis 2 min/unit 2 min/unit 4 min/unit X-ray

exam

5 min/unit
8 min/unit 6 min/unit

► All possible paths must be compared

► Bottleneck is the hygienist at 24 minutes
► Hourly capacity is 60/24 = 2.5 patients
► X-ray exam path is 2 + 2 + 4 + 5 + 8 + 6 = 27
minutes
► Cleaning path is 2 + 2 + 4 + 24 + 8 + 6 = 46
minutes
► Longest path involves the hygienist cleaning
the teeth, patient should complete in 46
minutes
Copyright © 2017 Pearson Education, Inc. S7 - 35
 Theory of Constraints
► Five-step process for recognizing and
managing limitations
Step 1: Identify the constraints
Step 2: Develop a plan for overcoming the constraints
Step 3: Focus resources on accomplishing Step 2
Step 4: Reduce the effects of constraints by offloading
work or expanding capability
Step 5: Once overcome, go back to Step 1 and find
new constraints

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 Bottleneck Management
1. Release work orders to the system at the
pace of set by the bottleneck’s capacity
► Drum, Buffer, Rope
2. Lost time at the bottleneck represents lost
capacity for the whole system
3. Increasing the capacity of a nonbottleneck
station is a mirage
4. Increasing the capacity of a bottleneck
increases the capacity of the whole system

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 Applying Expected Monetary
Value (EMV) and Capacity
Decisions
► Assign probability values to states
of nature to determine expected
value

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EMV Applied to Capacity Decision

▶ Southern Hospital Supplies capacity

expansion
EMV (large plant) = (.4)($100,000) + (.6)(–$90,000)
= –$14,000
EMV (medium plant) = (.4)($60,000) + (.6)(–$10,000)
= +$18,000
EMV (small plant) = (.4)($40,000) + (.6)(–$5,000)
= +$13,000
EMV (do nothing) = $0

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Printed in the United States of America.

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