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

14.1.1b Demonstrated Capacity, Productive Capacity, Excess Capacity, Idle Capacity

Intended learning outcomes: Produce an overview on other capacity definitions and their relationship to each other, such as demonstrated capacity, productive capacity, protective capacity, excess capacity, idle capacity, and activation.

Continuation from previous subsection (14.1.1)

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 [ASCM22]. 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.

Course section 14.1: Subsections and their intended learning outcomes