Capacity Planning and Analysis
1
Introduction
This chapter describes the basics of a business process and the business mapping process. The
chapter demonstrates how to develop process maps (or blueprints), how to analyze the capacity of
activities and processes which define how much output can a transformation process generate, the
relation between forecasting and capacity, and some important factors that affect the capacity of
processes.
2
A System Perspective
An organization creates products through multiple transformation processes. These processes
require resources which are typically constrained. Therefore processes have a limited output
capacity. To understand the capacity of a process it is useful to adopt a 'systems perspective'. The
principles of a system perspective are:
- a system boundary
- identification of customers and outputs
- identification of suppliers and inputs
- identification of system flows
- identification of measures of performance
What is a system boundary? Who decides on a system boundary? A system boundary is a decision
on the scope and components of the systems being investigated. Business organizations can be
extremely large and complex, and trying to map and analyze every business process will require an
immense amount of time. Determining the boundaries is a decision of the business analyst/team
and depends on the objectives of the project or activity. If an accounting company is having
problems with their paperwork being lost during tax preparation, a process map of the activities
required during tax preparation will do as shown in Figure 1, while if the objective is to determine the
points of customer contact, a broader, but less detailed map (in comparison to the tax preparation
process) will be required as shown in Figure 2. Thus the system boundary will determine the level of
details and the starting point(s) and ending point(s) of the process.
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Figure 1
Tax Documents Arrive
Attach Document
to work package
Review that
all required documents
are in the package
B
Documents Missing
All is OK
Request documents
from the customer
Prepare all
tax forms
A
Documents
Missing
Wait for materials
Review of
forms
A
Forms Missing
or incorrect
B
All OK
Take to
main office
Partner reviews the
forms
Documents
Missing
A
B
Notify Customer
End
Forms Missing
or incorrect
The identification of customers, outputs, inputs, and suppliers is directly related to the system
boundaries. Is the customer internal or external? Mapping should clearly define the point where the
customer is involved and what is created in the process. The customer of a process can be another
station in the business system, a customer waiting at a window, or a computer system waiting for
data. The outputs can be a physical product, a service, even undesired things as waste materials or
noise. The suppliers to a system can be outside vendors or another process in the same business.
Finally, the inputs can include materials purchased by vendors, forms, or information.
A system flows model is based on characterizing the transformation activities and the entity or
entities that flow through the system. The process maps must identify these activities in terms of
inputs/suppliers, resources required, transformation events, outputs/suppliers, and time
requirements. There are many types of activities but some basic classifications have been
developed including; action/operation, quality inspection, transportation, wait, and decision. This will
be further discussed later on the chapter.
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Every organization has objectives, businesses want to maximize stockholder value while not-forprofit organizations may want to maximize the number of people they help, given budget limits. A
process flow also must be measured by one or more objectives for example the cost of the process
and/or the time required to finish a process. Process improvement cannot occur unless a measure
of current performance is established. Different measures of performance typically used in practice
will be discussed throughout the next few chapters.
Figure 2
Customer Calls for
Appointment
Must customer be
contacted again (need
additional documents/
clarifications)
Appointment is
scheduled
No
Customer
is contacted
and documents
requested
Yes
Customer is contacted to
schedule a review
meeting
Customer Arrives
A
Wait for interviewer
Customer Arrives
Customer is interviewed
and documents placed
in a folder
Wait for interviewer
Forms and fees
presented to customer
Customer Leaves
A
Customer satisfied
with work
Forms prepared
No
Fix-up
process
Yes
Customer Leaves
3
End
Basic Flowcharting Elements
Flowcharts are used for many purposes in industry, government, and academia. Due to this variety,
and given several business and engineering fields use flowcharts, several flowcharting standards
exist. This text will not discuss this variety and instead will present one method that borrows from
several flowcharting methods used in a variety of business, programming, and engineering
applications. The blocks shown in Figure 3 are explained next.
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3
Figure 3
ACTION/
OPERATION
QUALITY
ACTION
WAIT
CONNECTOR
MOVE
DECISION
Action/Operation: Steps of the process that transform the inputs. Several actions can be
combined into one depending on the scope of the mapping.
Quality Action: Process steps related to inspection, testing, or evaluation of performance.
Given a failure in a quality process may require a different flow, several paths can follow a
rounded rectangle.
Wait: These are either planned (for example, the time required for paint to dry) or a result of
resources not being available (for example, the time in line at a supermarket).
Move: Process steps where the entity is moved in order to get to the next operation. This
could be done by a resource (for example a truck moving parts from a factory in Atlanta to a
warehouse in Boston) or by the entity itself (for example a person moving from station to
station on a government office.
Connector: This element will be used to begin, end, or connect sections of a flowchart. It
can also be use to represent the transfer of a product of the process to another process or
customer.
Decision: These are process steps where if-then type flows are represented. Given a
question may have more than 2 answers, several out-flows can be represented.
Basic Process Mapping-What Flows Through the System
In addition to mapping the processes, it is important to recognize the entity or entities that
flow thought the process being mapped. In manufacturing, typical process entities are the
products being manufactured, or maybe the customer order that calls for the manufacture of
an item. In service systems, customers are a typical entity, but so too are customer phone
calls, purchase orders, forms, and other documents. It is common for processes to be
“used” by several types of entities. Part of determining a system’s boundary is determining
what entities are important (should be considered in the mapping process) and which can
be ignored.
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Determining the entities that will flow through the process is important, as some steps in a
process can be simplified if the selected entity does not interact with that action. If multiple
entities need to be mapped, it is important that those steps where these entities interact be
clearly labeled and explained. An example will be illustrated throughout this chapter.
4
Determining Process Capacity
The creation of a process map allows us to understand the activities required to transform one or
more inputs into one or more outputs. The next step in the analysis of the transformation system is
the determination of the capacity of a process. Given a process is made up of multiple activities, the
capacity of each activity must be determined. Finally, where multiple products are made, the
capacity of each activity for each product type must be determined.
The capacity of an activity is typically based on one of two factors: the time required to complete the
activity (given all the necessary inputs are available) and the space required. Time requirements are
established for activities performed by people, for example a person filling out a form or person
drilling a hole, automated “machine” processes, for example a robot drilling a hole on a metal piece,
transportation processes, for example a conveyor belt, and inspection processes, such as verifying
the dimensions of the hole.
Examples of the space capacity constraint include the number of seats in a theater, the number of
bins in a warehouse storage system, or the number of jetways in an airport. A step of a process may
be a waiting or staging area, constrained by the number of entities that can fit in the resource.
Space constraints can also be combined with time constraints, for example the time to burn floor
tiles, where the oven can fit 1,000 tiles and it takes 2 hours to burn.
Estimating Time Requirements
Remember Taylor? He proposed the concept of one best way to do a job. Based on
Taylor’s principles and ideas, most companies in the world have “work standards” or a
“standard time”. This is the expected time to complete a job. For example, if the standard
time to process a check is 21 seconds, then a “typical” check processing worker is expected
to process about 1370 checks per day (8 work hours). Taylor was not completely "evil", and
he designed allocations for breaks and bathroom use (typical 15% of the work time), thus
the typical check processing worker should complete about 1165 per day.
This principle is more prevalent in manufacturing environments, where time standards are
widely used to plan capacity, measure employee performance, and determine who will
receive incentives. The use of time standards has been widely criticized and has lost some
favor by companies worldwide. However, a majority of manufacturing companies still use
this, and a high percentage of service companies are adopting it.
This text will describe some of the basic details of calculating a time standard. In general
terms it requires:
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5
1.
2.
3.
4.
The definition of a clearly bounded action/operation.
The repetitive measurement of the required time to complete the task. Hundreds of
measurements from several subjects are typically used to determine the
appropriate standard. The observer must use judgment to determine if the subject is
working at an acceptable level, or if the worker is trying to work at a slow pace in
order to reduce the standard.
Analysis of all the measurements to determine anomalies.
Determine the average of all measurements, called the Normal Time (NT) then
calculate the Standard time (ST) by: ST = NT/(1-Allowances), where the
allowances is the percentage of time allocated for breaks and other “non
productive” time. The allowance is typically 15% and can be increased depending
on the job environment (large percentage if there are many interruptions, machine
setups, etc).
If a process consists of multiple tasks, then the time to complete a process will be defined
by the sum of the standard times for all the tasks required in the process.
Example of the Time Standard Process
An example is the revision of accounts payable forms in an accounting office. First, we must
clearly define the task (as there may be multiple tasks in the revision process); the review of
all bills in the record/bill. Second, an analyst (with a stopwatch) must observe an employee
perform this task multiple times and write down the actual time for each observation (see a
reduced data example in Table 1). This should be repeated for several employees and on
several dates. Third we must analyze the data to determine if there are any “strange”
measurements (see Figure 4).
Date
Employee
Measurements
(minutes)
4/6/97
D. Edison
7.3
4.6
8.1
6.8
Table 1
4/6/97
R. Ford
8.4
7.6
5.6
7.5
4/8/97
R. Ford
8.3
7.8
8.7
6.9
4/9/97
J. Taylor
7.2
6.3
8.1
15.2
4/11/97
D. Edison
7.2
6.9
7.5
8.1
The average for the date is 7.71 minutes. By looking at the graph two outlier points can be
“selected for exclusion”: 4.6 and 15.2. These points do not seem to fall within the norm, and
are then eliminated from the data. However, this elimination process should be performed
carefully and may require some process knowledge in order not to eliminate common
occurrences (maybe some forms do take 15.4 minutes). The revised data is presented in
the Figure 5. The average for this data is 7.46, thus NT = 7.46.
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Figure 4. Graph of the data.
16
14
12
10
8
6
4
2
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20
Figure 5. Graph of Revised Data Set
16
14
12
10
8
6
4
2
0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18
Selecting the typical allowance of 15%, the standard time (ST) for this process is then 8.78
minutes, thus 6.8 forms should be completed in an hour and about 55 in a single day (if no
other tasks are assigned to this employee). A larger allowance will result in larger ST, and
thus a smaller daily output standard.
Other Standards
In cases where jobs are complex (no simple tasks), baseline standards are often used.
These standards are based on system knowledge (the typical case) or a limited number of
measurements. For example, a baseline standard for a customer service process may be 5
customers per day (1.6 hours/customer). While in most days, 3-7 customers may be
assisted in a single day, the baseline can be used by the firm’s management to determine
how busy will the firm be on a given month based on an increasing number of customers
(forecast).
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5
Capacity Analysis
Capacity is defined as the amount of output that a system can achieve over a specified amount of
time. Back to the time standard example, the output per person per day is about 55 forms per day,
thus the capacity of that process is 55 per day. Capacity analysis is not only concerned with how
much output can be generated in a task or a complete process, but the relationship between inputs
and outputs. If an office has contracts that will require the processing of about 70 forms per day, and
there is only one employee processing account payable forms, the process is out of capacity: input
70 forms per day, output 55 forms per day. If no overtime is used, the first day 15 forms will remain
in “queue”, 30 the next day, 45, 60,… until additional capacity is added (or the customers take their
business somewhere else).
However, capacity analysis is often complex as employees typically perform multiple tasks, and
processes may require different amounts of time for different types of entities. Back to the example,
if there are two types of records, where the standard for one is 55/day, and for the other is 35/day,
we must combine the inputs into time based on the forecasts. Assuming 40 of type 1 and 10 of type
2, the total input (employee hours) can be determined as follows.
Time per type 1
= 8 hours / 55 record type 1
= 0.1454 hours / record type 1
= 8.73 minutes /record type 1
Time per type 2
= 8 hours / 35 record type 2
= 0.2286 hours / record type 2
= 13.71 minutes /record type 1
Total time required for 40 of type 1 and 10 of type 2 is then:
40 type 1 (0.1454 hours / record type 1) + 10 type 2 (0.2286 hours / record type 2) = 8.10 hours
Capacity Measures of Performance
The analysis of capacity for a process is measured by several variables. The first is
utilization; the ratio of capacity required (output required) over estimated capacity (output).
In the above case (assuming a single employee that works 8 hours) the utilization is 8.10/8
= 1.0125. Having a planned utilization greater than one is a clear signal that there is a need
for additional resources. Adding a part time person, maybe 4 hours per day will reduce the
utilization to 0.675, a low utilization number, but better than an utilization above 1.
The second measure of performance is efficiency. Efficiency is defined as the ratio of actual
output over estimated capacity (output).. For example, lets say that the one processor
worked 40 hours in a week and completed 150 records of type 1 and 40 of type 2. Using the
time per items we can determine the expected number of hours for this work
125 type 1 (0.1454 hours / type 1) + 89 type 2 (0.2286 hours / type 2) = 38.52 hours
Efficiency = 38.52/ 40 hours = 96.3%.
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Example
Equipment management is an important process at hospitals and other healthcare facilities.
IV pumps, carts, and other equipment are used throughout the facility and are expensive,
thus only a limited number of each can be purchased to meet the demand for all the areas.
Given this limited supply of equipment, each piece must be quickly cleaned and prepared
for use once it is returned to the equipment management area. The generic process for all
equipment is shown in Figure 6and the data for four equipment types are presented in Table
2. Expected 24-hour use (arrivals to the equipment area) for the months of January and
February are also given in Table 2.
Table 2
Equipment
IV Pump
Emergency Cart
Single Pump
Critical Care Cart
Cleaning/move ST
2.5 min
4.2 min
1.4 min
3.8 min
Preparation ST
5.8 min
11.2 min
Jan
104
15
37
4
Feb
127
19
45
11
Figure 6
Used Equipment Arrives
Wait for equipment
personnel
Equipment is cleaned
Does this
equipment
need a preparation
process
Take to
clean area
No
Yes
Equipment is prep for use
End
The question then is, how many people do we need for each month to get all the equipment
ready for use. By analyzing the cleaning and the preparation process, daily capacity
requirements for the two months are:
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Cleaning/moving
January time requirement = 2.5 * 104 + 4.2 * 15 + 1.4 * 37 + 3.8 * 4 = 390 min
February time requirement = 2.5 * 127 + 4.2 * 19 + 1.4 * 45 + 3.8 * 11 = 502 min
Preparation
January time requirement = 5.8 * 15 +11.2 * 4 = 132 min
February time requirement = 5.8 * 19 +11.2 * 11 = 233 min
The daily requirement for cleaning is 6.5 hours and 2.2 for preparation. Given the 8.7 hours
daily requirement, a single person will be overwhelmed, but two will have an utilization close
to 50%, not very productive. The key here will be to have two people assigned to these
tasks and also to other tasks. During the month of February, the requirement for cleaning is
8.4 and 3.9 for preparation, a total for 12.3 hours. In this case, also two people will be
required. Given the combined utilization is close to 75%, and given the nature of hospitals
(lives are at stake), these people should be only assigned to the tasks of cleaning and
preparing equipment.
Levels of Capacity
Capacity analysis can be conducted at several levels of an organization. The example
previously discussed is at a basic operational level. Capacity analysis is also conducted at
the plant level (total number of units that can be produced given a “typical” product mix)
versus demand for the plant, and the organization level, total capacity for all the facilities vs.
total demand. While capacity decisions at the operational level relate to schedules,
overtime, and hiring new personnel, decisions at the plant level relate to buying additional
equipment or adding a second shift, decisions at the organization level relate to adding or
enlarging facilities.
Economies and Diseconomies of Scale
The concept of economies of scale should not be new to you; the larger the size of the
facility, the costs per unit should be lower. With higher volumes comes more expensive
equipment that is also faster (higher capacity) and has a lower per unit price (of whatever is
produced). Larger organizations also get the benefits of specialization for both people and
equipment, which results in higher capacity and efficiency.
On the other side of the coin, too big may not be a good idea. Diseconomies of scale are
the result of high levels of complexity and underutilized equipment due to changed in
customer preferences. For a large facility to be efficient, utilization levels must be high
(maintain low per unit costs). However, if demand decreases and the machines are not
highly utilized the cost per unit increases. Large facilities also require multiple levels of
management, detailed procedures, and consequently a heavily bureaucratic system. This
may lead to delays and errors in decision making, turnover, and unresponsive systems.
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Chapter 4
Learning/Experience Curve
Another well-known concept. Just as larger facilities benefit (up to a certain point) from
economies of scale, “older” organizations benefit from the experience of making/providing
the same product for a period of time. As an organization learns how to do the activities
required, they learn the best methods (find the shortest path between two points). While it
may have required 20 minutes to finish a process during the first year of operation, it only
requires 15 minutes at the fourth year. Typically, this levels off (very small increases) unless
major process changes are undertaken (has the organization just learned very well how to
do a non efficient process).
Managing Capacity in Small Businesses
In previous sections an example was illustrated were demand exceeded capacity. A
possible solution presented was to hire a part-time employee, which will then provide
enough capacity to serve the demand (input). Another way to balance inputs and outputs is
to control the input side (customer demand). This includes raising prices, setting long lead
times, and requiring some pre-processing (customer must fill out an application). On the
other hand if utilization is low, special discounts and offers are used to increase the input
side.
Capacity management is important for the small business. Small companies should focus
on managed growth; careful decision making on adding capacity. Why? Adding capacity
fast may lead to lower quality (not enough training or preparation time), increased
complexity, and depletion of supporting resources. Also, adding capacity too quickly may
result in a depletion of cash, which may just lead to bankruptcy (we saw it happen to a
company in Fort Myers). A mixture of increasing prices and capacity is a good strategy
when demand for products is quickly rising.
Day-to-Day Factors Affecting Capacity
Several factors, most of them controllable, have an effect on day to day system capacity.
Breakdown:
Setup:
Equipment failure or employees not coming to work.
Time that a resource is idle in order to be prepared (cleaned, reset, and
reconfigured) given there is a product change.
Starved:
Time that a resource is idle given it lacks one or more of the inputs required
for production.
Blocked:
Time that a resource is idle given it cannot produce any more as there is no
space to place the product.
Maintenance: Time that a resource is idle given is under a maintenance activity.
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Activities
1. Develop a detailed process flow-chart for how you would implement a system to take orders and
bill customers for an e-business.
2. Develop a flowchart which illustrates a process you did as an employee or in which you
participated as a customer
3. What could companies do when diseconomies of scale start appearing?
Exercises
1. Demand for hurricane shutters for 1998 and 1999 are in the table below. The owner believes
there is a strong seasonal effect and that the upwards trend will continue for 2000. The process
and standard times (in minutes) per station per unit type are in the figure below. There are 5
metal cutting machines, 3 paint stations, 2 motor assembly machines, 1 manual assembly
station, and 1 final assembly station.
Order Arrives
Both types
Metal Cut to Size
ST = 50 (Both)
High end
only
Motor Assembly
ST = 15 (HE)
Paint Operations
ST = 24 (Both)
Both types
Manual Assembly
ST = 8 (Both)
Final Assembly
ST = 10 (HE)
ST = 6 (LE)
End
a) Forecast demand for both products for the year 2000. Use a monthly seasonal index.
b) Calculate the monthly utilization per activity (area) if the facility operates for 16 hours a
day for 20 days a month.
c) How many additional resource per area are required to keep operating during two
shifts/20 days per month.
2.
A bank check processing center manager must schedule personnel based on daily
requirements of a maximum of 0.5 million checks. The process, including the standard times
and the percentages of checks on each path are illustrated in the figure below.
a) Determine the minimum number of people/machines in each activity given 8 work hours
per day.
b) What is the utilization of each operator/machine given that requirement?
c) How many people do you need in the Add scanning bar area to get an utilization
smaller than 80%?
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Checks Arrive
Automatic Read
15%
Scanning
Machine
Rate = 12,000/hr
Add scanning bar
Rate = 300/hr
Sorting Machine
Rate = 9,000/hr
Pack and Send
Rate = 4,000/hr
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End
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