Universidad del Turabo
MANA 705 DL - Workshop Eight

8.6 Design Capacity, Effective Capacity, Utilization and Efficiency Capacity Planning (CP), and Capacity Requirement Planning (CRP)

Capacity is the throughput or number of units a facility can hold, receive, store, or produce in a period of time. Design capacity is the theoretical maximum output of a system in a given period under ideal conditions. For many companies designing capacity can be straightforward, effective capacity is the capacity a firm expects to achieve given its current operating constraints. It is often lower than design capacity because the facility may have been designed for an earlier version of the product or a different product mix than is currently being produced.

Capacity available is the capacity of a system or resource to produce a quantity of output in a given time period. It is affected by (1) product specifications change, the work content (work required to make the product) will change, thus affecting the number of units that can be produced,(2) product mix where the product has its own work content measured in the time it takes to make the product. If the mix of products being produced changes the total work content (time) the mix will change, (3) plant and equipment which relates to the methods used to make the product, and (4) work effort, which relates to the speed or pace at which the work is done; if the workforce changes pace, perhaps producing more in a given time, the capacity will be altered.

To measure capacity we need units of output. If the variety of products produced at a work center or in a plant is not large, it is often possible to use a unit common to all products. We also need standard time which is expressed as the time required for making the product using a given method of manufacturing. Utilization is the available time that is the maximum hours we can expect from the work center; the percentage of time that the work center is active. Efficiency is how the work center is used in comparison with standard.

Available time is the number of hours a work center can be used.

Available time = the number of machines x the number of workers x the hours of operations.

The other measures:

  1. Utilization = Actual output / Design capacity, this is a percent of design capacity. Also measured as:
    Utilization = (Hours actually worked / available hours) x 100%
  2. Efficiency = Actual output / Effective capacity, this is an actual output as a percent of effective capacity. Also measured as:
    Efficiency = (Actual rate of production / Standard rate of production) x 100%

These measures are important for an operations manager, but they often need to know the expected output of a facility or process. Also referred to as rated capacity:
Rated Capacity = (Available time) x (Utilization) x (Efficiency)
Capacity considerations for a good capacity are:

  1. Forecasts demand accurately
  2. Understand the technology and capacity increments
  3. Find the optimum operating level (volume)
  4. Build for change

Even with good forecasting and facilities built in to the forecast, there may be a poor match between the actual demand that occurs and available capacity. There are some options for managing demand:

  1. Demand exceeds capacity by raising prices, or scheduling long lead times.
  2. Capacity exceeds demand by price reductions or aggressive marketing.
  3. Adjusting to seasonal demands or cyclical pattern of demands.
  4. Tactics for matching capacity to demand by
    1. Making staffing changes (increasing or decreasing the number of employees or shifts)
    2. Adjusting equipment (purchasing additional machinery or selling or leasing out existing equipment)
    3. Improving processes to increase throughput
    4. Re-designing products to facilitate more throughput
    5. Adding process flexibility to better meet changing pr5oduct preferences
    6. Closing facilities