Capacity Measurement

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

• product specifications change, the work content (work required to make the product) will change, thus affecting the number of units that can be produced
• 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
• plant and equipment which relates to the methods used to make the product
• 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:

• Utilization = Actual output / Design capacity, this is a percent of design capacity. Also measured as:
• Utilization = (Hours actually worked / available hours) x 100%
• 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

• Forecasts demand accurately
• Understand the technology and capacity increments
• Find the optimum operating level (volume)
• Build for change

Determinants of Effective Capacity

• Facilities: The size and provision for expansion are key in the design of facilities. Other facility factors include locational factors (transportation costs, distance to market, labor supply, energy sources). The layout of the work area can determine how smoothly work can be performed.
• Product and Service Factors: The more uniform the output, the more opportunities there are for standardization of methods and materials. This leads to greater capacity.
• Process Factors: Quantity capability is an important determinant of capacity, but so is output quality. If the quality does not meet standards, then output rate decreases because of need of inspection and rework activities. Process improvements that increase quality and productivity can result in increased capacity. Another process factor to consider is the time it takes to change over equipment settings for different products or services.
• Human Factors: the tasks that are needed in certain jobs, the array of activities involved and the training, skill, and experience required to perform a job all affect the potential and actual output. Employee motivation, absenteeism, and labor turnover all affect the output rate as well.
• Policy Factors: Management policy can affect capacity by allowing or not allowing capacity options such as overtime or second or third shifts
• Operational Factors: Scheduling problems may occur when an organization has differences in equipment capabilities among different pieces of equipment or differences in job requirements. Other areas of impact on effective capacity include inventory stocking decisions, late deliveries, purchasing requirements, acceptability of purchased materials and parts, and quality inspection and control procedures.
• Supply Chain Factors: Questions include: What impact will the changes have on suppliers, warehousing, transportation, and distributors? If capacity will be increased, will these elements of the supply chain be able to handle the increase? If capacity is to be decreased, what impact will the loss of business have on these elements of the supply chain?
• External Factors: Minimum quality and performance standards can restrict management’s options for increasing and using capacity.
• Inadequate planning can be a major limiting determining of effective capacity.