Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

14.1 Fundamentals of Capacity Management

Intended learning outcomes: Produce an overview on capacity, work centers, capacity determination, and capacity management techniques.

14.1.1 Capacity, Work Centers, and Capacity Determination

Section 1.2.4 already presented basic definitions around work center and capacity This chapter presents them in a more detailed way.

Depending on the type of work center, different capacities will be used as the primary basis for capacity management and for allocating costs:

  • Machine capacity (referred to as machine hours, when using hours as the capacity unit), that is, the capacity of machines and equipment to produce output, is frequently used for parts manufacturing.
  • Labor capacity (referred to as labor hours, when using hours as capacity unit), that is, the capacity of workers to produce output, is frequently used for assembly or stores.

These concepts are part of the capacity determina­tion, as shown in Figure

Fig.       Determination of capacity. Rated capacity is the product of theoretical capacity, capacity utilization, and work center efficiency.

Theoretical capacity is the maximum output capacity, with no adjustments for unplanned downtime, determined by the number of shifts, the capacity theoretically available for each shift, and the number of machines and workers. The value thus determined applies up to a given boundary date, after which the calculation factors may change.

Theoretical capacity can also vary from one week to the next in response to foreseen, overlapping changes that must be taken into account, such as

  • Scheduled downtime, that is, downtime due to individual workers’ vacations or for preventive maintenance, for example.
  • Scheduled overtime due to additional shifts, for instance.
Planned capacity utilization is a measure of how intensively a resource should be used to produce a good or service. Traditionally, it is the ratio of actual load to theoretical capacity. There are two distinct factors in capacity utilization:
 - Availability (in capacity): Downtime due to breaks, cleaning tasks, clearing up, un­plan­ned absences, breakdowns, etc., must be considered for each work center. These los­ses are considered by the availability factor (hours actually worked / hours available). 
-  Tactical underload or underutilization: To avoid long queue times (see Section 13.2.3) or for non-bottleneck capacities or nonconstraint work centers, the desired capacity utilization should generally be less than 100%. 

The measurement of actual capacity utilization cannot as a rule be broken down according to the two factors. This is the main reason for capturing availability and tactical underload in one factor, namely, capacity utilization.

The work center efficiency (or efficiency rate) is the ratio of “standard load to actual load,” “standard hours produced to actual hours worked,” or “actual units produced to standard units to produce” (see [APIC16]), averaged over all the operations performed at the center.[note 1401]
Rated capacity is the expected output capability of a work center. It is defined as theoretical capacity times planned capacity utilization times work center efficiency.

We should therefore consider standard load to be scheduled (that is, load on the basis of standard setup and run loads) to rated capacity, and not to theoretical capacity.

The overall equipment effectiveness (OEE) includes the achieved quality. OEE can be defined as planned capacity utilization times work center efficiency times the yield factor.

In principle, rough-cut planning uses the same attributes, usually applied to fully utilized work centers at the level of the department or entire plant. The capacity of a rough-cut work center is thus not necessarily equal to the sum of all the individual capacities concerned.

There are other capacity-related terms that are useful for capacity management.Figure shows possible relations among the terms. The definitions are based mainly on [APIC16]. Barry Firth, CPIM, Melbourne, contributed the figure and the explanations.

Fig.       Some capacity definitions and their relationship to each other.

Demonstrated capacity is proven capacity calculated from actual performance data, expressed in standard hours (for job shop) or production rate (for flow shop).
Maximum demonstrated capacity is the highest amount of actual output produced in the past, when all efforts have been made to optimize the resource. 

Demonstrated capacity is a practical measure of capacity available in job shop manufact­uring. The alternative of working with rated capacity (see below) is not as easy as it seems, because there are practical difficulties in measuring the utilization and efficiency factors.

Productive capacity is the maximum of the output capabilities of a resource (or series of resources) or the market demand for that output for a given time period.

Where the productive resource or system of linked resources is identified as the system constraint, its productive capacity is its maximum achievable output and should usually be based on 168 hours of available time per week (24*7; otherwise, TOC (theory of constraints) practitioners would say that this is not a true constraint. Where the system constraint is the market demand, pro­ductive capacity may be relative to a smaller number of hours per week.

Protective capacity is quantifiable capacity that is or can be made available at a nonbottleneck capacity to protect against fluctuation (idle time) of the bottleneck capacity. Technically, protective capacity provides contingency against unplanned events only, such as breakdowns and rework requirements.
Safety capacity is quantifiable capacity that is available over and above productive capacity that includes an allowance for planned events, such as on-shift plant maintenance and short-term resource contention (that is, simultaneous need from a common resource), and for unplanned events. It includes “protective capacity.” 
Excess capacity is defined as output capability at a non-constraint resource that exceeds the productive and protective capacity required. 
Idle capacity is defined as capacity that is generally not used in a system of linked resources. It consists of protective capacity and excess capacity. 
Activation is defined as the use of non-constraint resources to produce above the rate required by the system constraint, in this context a bottleneck capacity. 
Budgeted capacity is the volume and mix of throughput on which financial budgets were set, for the purpose of establishing overhead absorption rates for calculating standard costs of products, expressed in standard hours. This really should be called budgeted load. 

14.1.2 Overview of Capacity Management Techniques

If the (quantitatively) flexible capacity along the time axis is more important than the flexibility of the order due date (see Section 5.3.4), then infinite loading techniques should be used. In the reverse case, finite loading techniques are more appropriate.

If there is sufficient overall capacity planning flexibility, a computer algorithm can generally load all the orders in question with no regard to their sequence. The planner becomes involved only afterwards, to schedule capacities on a daily or weekly basis, for example. Exceptional situations will be brought to the planner’s attention selectively in lists or graphs. If there is little overall capacity planning flexibility, planning takes place “order for order” (order-wise). Each new order is individually integrated into existing scheduled orders. The planning process is thus “interactive”; that is, in extreme cases the planner may intervene after each operation and change set planning values (completion date or capacity). Existing scheduled orders may have to be replanned.

Section 14.2 discusses (order-oriented) infinite loading. For special techniques see Sections 6.3 (Kanban) and 6.4 (cumu­lative production figures principle, CPFP). Secti­on 14.3 discus­ses (operations-oriented, order-oriented, or constraint-oriented) finite loading. For special techniques see Section 15.1 (Loor, Corma). The techniques can all be used regardless of what organizational unit carries out planning & control. Thus, they can be found in all types of ERP and SCM software packages, electronic control boards (Leitstand), simulation soft­ware etc.). Entirely different techniques are possible for short-term and long-term planning.

It is becoming increasingly important to plan machine tool capacities due to the increasing use of CNC and robot-controlled production. The methods are the same as those used to manage machine and labor capacities. On the other hand, tools to be produced or procured should be regarded as goods and represent a position on the order bill of material.

Course sections and their intended learning outcomes

  • Course 14 – Capacity Management

    Intended learning outcomes: Present fundamentals of capacity management. Explain in detail load profile calculation and infinite loading. Disclose finite loading. Describe rough-cut capacity planning.

  • 14.1 Fundamentals of Capacity Management

    Intended learning outcomes: Produce an overview on capacity, work centers, capacity determination, and capacity management techniques.

  • 14.2 Infinite Loading

    Intended learning outcomes: Present load profile calculation and problems associated with algorithms for load profile calculation. Explain methods of balancing capacity and load. Describe order-wise infinite loading.

  • 14.3 Finite Loading

    Intended learning outcomes: Explain operations-oriented, order-oriented, and constraint-oriented finite loading.

  • 14.4 Rough-Cut Capacity Planning

    Intended learning outcomes: Describe rough-cut network plans and load profiles. Explain rough-cut infinite loading and rough-cut finite loading.

  • 14.5 Summary


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