SUPPLEMENT

Capacity Planning

Week 7 & 8

© 2014
© 2014
Pearson
Pearson
Education
Education S7 - 1
 Capacity
▶ Capacity is the upper limit or ceiling on the load that
an operating unit can handle.
▶ Capacity also includes:
▶ Equipment
▶ Space
▶ Employee skills
▶ The basic questions in capacity handling are:
▶ What kind of capacity is needed?
▶ How much is needed?
▶ When is it needed?

© 2014 Pearson Education S7 - 2

 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
© 2014 Pearson Education S7 - 3
 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

© 2014 Pearson Education S7 - 4

 Various Capacities
▶ Design capacity: Maximum obtainable output

▶ Effective capacity, expected variations

Maximum capacity subject to planned and expected variations
such as maintenance, coffee breaks, scheduling conflicts.

▶ Actual output, unexpected variations and demand

Rate of output actually achieved--cannot exceed effective
capacity. It is subject to random disruptions: machine break
down, absenteeism, material shortages and most
importantly the demand.

© 2014 Pearson Education S7 - 5

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

Efficiency = Actual output/Effective capacity

Defining and Measuring Capacity

Design capacity
The maximum output rate or service capacity an
operation, process, or facility is designed for

Effective capacity
Design capacity minus allowances such as personal time
and maintenance
© 2014 Pearson Education S7 - 6
▶ Ex1
The Academic Computing Center has five trainers
available in its computer labs to provide training
sessions to students. Assume that the design
capacity of the system is 1900 students per
semester and that effective capacity equals 90%
of design capacity. If the number of students
who actually got their orientation session is
1500, what is the efficiency of the system?

© 2014 Pearson Education S7 - 7

▶ Trainers = 5
▶ Design Capacity = 1,900
▶ Effective Capacity = 90%*1900 = 1710
▶ Actual Output = 1,500
▶ Efficiency = ?
▶ Solution:
▶ Efficiency = (Actual Output/Effective) *100
▶ = (1500/1710)*100
▶ = 87.72%

© 2014 Pearson Education S7 - 8

 Example 2

▶ The efficiency of a factory is 75% and its

utilization 50%. If effective capacity is 1000
find design capacity

© 2014 Pearson Education S7 - 9

 Solution
▶ Efficiency = 75%, Utilization = 50%,
▶ Effective Capacity = 1,000
▶ Utilization = (Actual Output/ Design Capacity) ------(1)
▶ Efficiency = (Actual Output/ Effective Capacity) ----(2)
▶ Substitute given data into equation----- (2)
▶ 75% = (Actual Output/1000)
▶ This implies that Actual Output = 75%* 1000= 750
▶ Substitute actual output and given data into equation ----(1)
▶ 50%=750/ Design Capacity
▶ Design Capacity = 750/50% = 1,500

© 2014 Pearson Education S7 - 10

▶ A fleet repair facility has the capacity to repair 800 trucks per
month. However, due to scheduled maintenance of their
equipment, management feels that they can repair no more
than 600 trucks per month. Last month, two of the employees
were absent several days each, and they repaired only 20
trucks per day for 20 days in the month. What are the
utilization and efficiency of the repair shop?

© 2014 Pearson Education S7 - 11

 Answer
▶ Design Capacity = 800 trucks
▶ Effective Capacity = 600 trucks
▶ Actual Output = 20 trucks/day for 20 days
▶ =20*20= 400 trucks
▶ Utilization = Actual Output/ Design Capacity
▶ = 400 trucks/ 800 trucks = 50%
▶ Efficiency = Actual Output/ Effective Capacity
▶ = 400 trucks/ 600 trucks = 66.7%

© 2014 Pearson Education S7 - 12

 Importance of Capacity
Decisions
▶ Impacts ability to meet future demands
▶ Affects operating costs
▶ Major determinant of initial costs
▶ Involves long-term commitment
▶ Affects competitiveness
▶ Affects ease of management

© 2014 Pearson Education S7 - 13

 Capacity Strategies

1. Leading: Build capacity in anticipation of

future demand increases
2. Following: Build capacity when demand
exceeds current capacity
3. Tracking: Similar to the following strategy,
but adds capacity in relatively small
increments to keep pace with increasing
demand

© 2014 Pearson Education S7 - 14

 Think about this statement
▶ Ghana’s Chief Problem Diagnosed - “Waakye No Asa”
▶ You are in the waakye line. Just when it’s your turn to be served,
with about 20 people behind you in line, the seller announces
almost proudly, “waakye no asa,” ie “the waakye is finished.” And
it’s true. The seller has run out of waakye. Then the seller adds,
“me waakye no ɛnso tɔ,” ie “my waakye sells like hot cakes.”
▶ Right there, the seller has lost the money of 21 people. But no
biggie. No capacity for growth and development and expansion.
There’s happiness and satisfaction with little. Tomorrow, the seller
will cook for the same amount of people, and this “history will
repeat itself.”
▶ As long waakye keeps running out, Ghana will sooooo not be
Beyond Aid.
▶ Ace Anan Ankoma – 2018
(https://www.facebook.com/AceAnanAnkomah/)

© 2014 Pearson Education S7 - 15

 Managing Demand
► Demand exceeds capacity
► Curtail demand by raising prices, scheduling
longer lead time
► Long term solution is to increase capacity
► Capacity exceeds demand
► Stimulate market
► Product changes
► Adjusting to seasonal demands
► Produce products with complementary
demand patterns
© 2014 Pearson Education S7 - 16
 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

© 2014 Pearson Education S7 - 17

 Service-Sector Demand
and Capacity Management
► Demand management
► Appointment, reservations, First Come
First Serve rule
► Capacity
management
► Full time,
temporary,
part-time
staff
© 2014 Pearson Education S7 - 18
 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

© 2014 Pearson Education S7 - 19

 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 Figure S7.4

A B C

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

© 2014 Pearson Education S7 - 20

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

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

15 sec/sandwich 20 sec/sandwich

© 2014 Pearson Education S7 - 21

 Capacity Bread
15 sec
Fill
20 sec Wrap/

Analysis
Order Toaster
Deliver
30 sec 20 sec
Bread Fill 37.5 sec
15 sec 20 sec

► The two lines each deliver a sandwich every

20 seconds
► At 37.5 seconds, wrapping and delivery has
the longest processing time and is the
bottleneck
► Capacity per hour is 3,600 seconds/37.5
seconds/sandwich = 96 sandwiches per
hour
► Throughput time is 30 + 15 + 20 + 20 + 37.5
= 122.5 seconds
© 2014 Pearson Education S7 - 22
 Capacity Analysis
► Standard process for cleaning teeth
► Cleaning and examining X-rays can happen
simultaneously

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

© 2014 Pearson Education S7 - 23

 Capacity Check
in
Takes
X-ray
Develops
X-ray
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
© 2014 Pearson Education S7 - 24
 Theory of Constraints
 Five-step process for recognizing and
managing limitations
Step 1: Identify the constraint
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

© 2014 Pearson Education S7 - 25

 Bottleneck Management
1. Release work orders to the system at the
pace of set by the bottleneck
2. Lost time at the bottleneck represents lost
time for the whole system
3. Increasing the capacity of a non-bottleneck
station is a mirage
4. Increasing the capacity of a bottleneck
increases the capacity of the whole system

© 2014 Pearson Education S7 - 26

 THANK YOU

© 2014 Pearson Education S7 - 27