Introduction to Capacity
Capacity: Basic Definition
• Capacity: the productive capability of a
facility, usually measured as a quantity of
output per unit time
• Why is capacity important?
• To meet demand in the short term
• Strategically
• Better service (surge capacity)
• Demand in the long term (timing)
What Is a Bottleneck?
The step in the production/service delivery process that:
Bottleneck
definition
a) Has the lowest capacity when measured using a
comparable unit of measure
b) And, therefore, limits the overall output of the system
How do you
find a
bottleneck?
a) On paper: determine the capacity—using a
comparable measure—of each step in the
process
b) Line of sight: find the place in the production
process that has the highest level of work-inprocess (WIP) inventory
Process Flow Diagrams
Process Flow Diagram
• Provides overview of process, including
key steps and flow of customers/jobs
through the process
• Depicts bird’s-eye view of activity
• Facilitates communication of process
details throughout organization
• Helpful in determining process capacity
Four Key Elements of
Process Flow Diagram
Boxes
Triangles
Diamonds
Arrows
Boxes represent key steps in the process,
where work (value added) is performed.
Triangles represent buffers, where
customers/jobs wait before processing.
Diamonds represent decisions or branching
points in the process.
Arrows represent flow of customers/jobs
through the processing network.
Process Flow Diagram:
Benihana
Arriving
Customers
Bar
Dining
area
Departing
Customers
Process Flow Diagram:
Integrated Steel Mill
Iron
ore
Blast
furnace
Iron
ingots
Coke
Scrap
steel
Basic
oxygen
furnace
Continuous
caster
Rolling
mill
Cold
rolled
coils
Application
Life Insurance Company
Life Insurance Process
Simplified example of a European life-insurance operation
Broker’s
office
(Germany)
Processing facility (Ireland)
Administration
department
Information chasing
team
Customer (in
Germany) fills
out application
with broker
Obtain missing
information
N
Broker e-mails
application
(app) to Dublin
processing
facility
App
complete?
App review team
Y
Data entry
Rate the policy
Print and mail
policy
Data entry team
Underwriting
department
Distribution
team
Processing Facility in Ireland
•
Review team (two people)
•
•
Information chasing team (three people)
•
•
All complete applications (both those originally complete and those completed by
information chasing) are sent to data entry. A data entry person can key in an
application in 12 minutes.
Underwriting (UW) department (seven people)
•
•
Incomplete apps are sent to the “information chasing” department. This department
contacts the applicant to get the missing information. A person spends 30 minutes
getting the missing information on an incomplete app.
Data entry team (five people)
•
•
Applications (apps) are reviewed for completeness. One person can review an app in
four minutes. On average, 25% of arriving apps are incomplete.
After data entry, the app is rated by the UW department. 83.333% of the apps are
simple cases, and 16.666% are complex cases. One underwriter can rate a simple
case in 20 minutes or a complex case in 40 minutes.
Distribution team (two people)
•
After an app has been rated, it is sent to the distribution team, where the policy is
printed and placed in an envelope. It takes one person five minutes to do this.
Answering Question 1
Life Insurance Calculations
Common unit of measure: applications/hour
Review
Information
chasing
Data entry
Underwriting
Distribution
Life Insurance Summary
Step
Review
Capacity (applications/hour)
1 app/4 min * 60 min/hr * 2P = 30 apps/hr
Information
chase
1 inc. app/20 min * 60 min/hr * 3p * 4 app/1 inc. app = 24 apps/hr
Data entry
1 app/12 min * 60 min/hr * 5p = 25 apps/hr
Underwriting
Distribution
1 app/23.33 min * 60 min/hr * 7p = 18 apps/hr
1 app/5 min * 60 min/hr * 2p = 24 apps/hr
Capacity of processing facility =
Opportunity for Practice
•
The company is considering a new web-based software product. The
software has the following benefits:
• Brokers can submit an online app, rather than filling out a paper app.
• Online apps are 100% complete (auto checks for unanswered questions).
• There is no need for the processing facility to enter data for online apps.
• Software comes with an expert underwriting system that can automatically
rate simple cases. The expert system can be used on both online and paper
applications. The processing facility will rate all simple cases using the
expert system and all complex cases using human underwriters. The expert
system effectively has an infinite capacity, so the underwriting department
only has to rate the complex cases.
•
If the company forecasts that 40% of the apps would be submitted online,
what would the capacity be?
• Assume that 25% of the paper apps still arrive incomplete and that 16.666%
of all apps (paper or online) are complex cases.
Answering Question 2
Life Insurance Summary
Step
Review
Capacity (applications/hour)
1 app/4 min * 60 min/hr * 2P = 30 apps/hr
Information
chase
1 inc. app/20 min * 60 min/hr * 3p * 4 app/1 inc. app = 24 apps/hr
Data entry
1 app/12 min * 60 min/hr * 5p = 25 apps/hr
Underwriting
Distribution
1 app/23.33 min * 60 min/hr * 7p = 18 apps/hr
1 app/5 min * 60 min/hr * 2p = 24 apps/hr
Capacity of processing facility =
Capacity Utilization
Capacity Utilization Definition
• Capacity utilization is defined as the
percent of time the process (or step in the
process) is busy.
• Ranges from 0–100%
• Higher number means heavier utilization
• Utilization above 100% would be problematic!
Flow rate
Capacity utilization =
Process capacity
Life Insurance Example
Assume that 15 applications/hour arrive at Dublin facility.
Capacity
Utilization
Step
Capacity
Review
30 apps/hr
15 apps/hr
30 apps/hr
= 50%
Information chase
24 apps/hr
15 apps/hr
24 apps/hr
= 62.5%
Data entry
25 apps/hr
15 apps/hr
25 apps/hr
= 60%
Underwriting
18 apps/hr
15 apps/hr
18 apps/hr
= 83.3%
Distribution
24 apps/hr
15 apps/hr
24 apps/hr
= 62.5%
Capacity utilization of processing facility = 83.3%
Process Metrics
Capacity Metrics
Flow rate
The rate at which customers/jobs actually
move through the processing system
Process
capacity
The maximum rate of flow that the process
can support (capacity of bottleneck step)
Capacity
utilization
The percent of time the process (or step) is
busy (flow rate/capacity)
Time Metrics
Cycle
time
Throughput
time
The average time between successive customer
(or job) completions
• Cycle time = 1/flow rate
• Cycle time is especially important for assembly
line because it indicates time spent at each
station in assembly line
The total elapsed time from when a customer (or
job) begins the process until the customer (or
job) has completed the process
• Throughput time = Wait time + Process time
• If the process has multiple steps, there will be
a wait time and process time at each step;
overall throughput time is the sum of wait time
and process time at each step
• Throughput time is also referred to as
manufacturing lead time or flow time
Inventory Metrics
WIP
inventory
Work-in-process (WIP) inventory measures
the number of customers or jobs that have
begun the process but not yet completed the
process.
WIP inventory will impact the throughput time because it
represents jobs or customers that must complete the
process before a newly introduced customer or job can
be finished.
Capacity of Steps
with Fixed Time
Complex Capacity Calculations
• Process steps that have both variable and
fixed time elements make capacity
calculations more complex.
• Variable time is time needed to process each
customer or job.
• Fixed time is independent of the number of
jobs or customers.
• Fixed time is often referred to as setup time
(but some setup times are variable!).
Complex Capacity Calculations
• When a fixed time is involved, we need to
know the batch size (how many customers
or jobs are processed whenever fixed time
is incurred).
Capacity =
Output/batch
Time/batch
Application
Electronics Manufacturing
Electronics Manufacturing Process
Final
assembly
Test
Package
20 people
1 machine
8 people
One person
can assemble
a device in
three minutes
Five minutes to
set up machine;
10 seconds to
test each device;
batch size of 90
devices
One person
can package a
device in one
minute
Answering Question 1
Electronics Manufacturing Process
Final
assembly
Test
Package
20 people
1 machine
8 people
One person
can assemble
a device in
three minutes
Five minutes to
set up machine;
10 seconds to
test each device;
batch size of 90
devices
One person
can package a
device in one
minute
Electronics Manufacturing Process
Final
assembly
Test
Package
20 people
1 machine
8 people
One person
can assemble
a device in
three minutes
Five minutes to
set up machine;
10 seconds to
test each device;
batch size of 150
devices
One person
can package a
device in one
minute
Application: Lucky Charms
Application: Lucky Charms
Lucky Charms breakfast cereal consists of a mixture of oat-based nuggets with
marshmallow charms that its maker (General Mills) claims is “magically
delicious.” To produce this cereal, General Mills utilizes separate production
processes for the oat-based nuggets and the marshmallow charms, blends
these two products together, dispenses the final product in 14-ounce boxes,
and seals the boxes. General Mills is able to produce 270 pounds of oat-based
nuggets each hour. The marshmallow-forming machine produces a sevenpound batch of marshmallow charms every six minutes. Nuggets and charms
are mixed together in a 6:1 ratio (i.e., six pounds of nuggets for every one
pound of charms) to create the final cereal. The box-filling machine is capable
of dispensing cereal at the rate of 340 pounds per hour. The final piece of
machinery can seal one box every eight seconds. (Note: There are 16 ounces
in a pound.)
What is the current production capacity (in boxes per hour) of the line, and
which step is the bottleneck?
Diagramming the Process
Oat-based
nuggets
270 pounds/hour
Box filling
Marshmallow
charm forming
7 pounds/6 minutes
340 pounds/hour
Box sealing
1 box/8 seconds
Answering Question 1
Question 1
Focusing on the production of oat-based
nuggets, what is the capacity of this step
measured in boxes of cereal per hour?
Calculating Capacity
Oat-based nuggets
Marshmallow
charm forming
Box filling
Box sealing
Answering Question 2
Question 2
What is the capacity of the sealing machine,
measured in boxes of cereal per hour?
Calculating Capacity
Oat-based nuggets
Marshmallow
charm forming
Box filling
Box sealing
270 lb nuggets/hr * 16 oz/lb * 7 oz cereal/6 oz nuggets *
1 box/14 oz = 360 boxes/hr
7 lb charms/6 min * 60 min/hr * 16 oz/lb *
7 oz cereal/1 oz charms * 1 box/14 oz = 560 boxes/hr
340 lb cereal/hr * 16 oz/lb * 1 box/14 oz = 389 boxes/hr
Answering Question 3
Question 3
What is the highest percentage of
marshmallow charms that you could allow
without affecting the overall capacity of your
production line?
Marshmallow Charm Capacity
Current process capacity is 360 boxes/hour.
Oat-based nuggets
270 pounds/hour
6
Box filling
Marshmallow
charm forming
Box sealing
1
340 pounds/hour
1 box/8 seconds
7 pounds/6 minutes
7 lb charms/6 min * 60 min/hr * 16 oz/lb * 7 oz cer./1 oz charms * 1 box/14 oz = 560 boxes/hr
Case Introduction
Executive Shirt