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Planning Capacity Capacity Definitions

• Capacity is the maximum rate of output of a process or system
• Accounting, finance, marketing, operations, purchasing, and • Required capacity: Estimated using capacity planning
human resources all need capacity information to make decisions techniques
• Capacity planning is done in the long-term and the short-term
• Rated capacity: Available capacity considering staffing
• Questions involve the amount of capacity cushion and expansion equipment capabilities
strategies
• Demonstrated capacity: Actual (or realized) capacity
based on actual production output

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Measures of Capacity Utilization Capacity and Scale

• Output measures of capacity
• Input measures of capacity 250-bed 750-bed
hospital hospital
• Utilization 500-bed

(dollars per patient)

Average unit cost
hospital

Average output rate

Utilization =  100%
Maximum capacity Economies Diseconomies
of scale of scale

Output rate (patients per week)

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Systematic Approach Systematic Approach

• For one service or product processed at one operation with a one • Setup times may be required if multiple products are produced
year time period, the capacity requirement, M, is

Processing and setup hours required for

Capacity Processing hours required for year’s demand year’s demand, summed over all services
requirement = Hours available from a single capacity unit Capacity or products
(such as an employee or machine) per year, requirement = Hours available from a single capacity unit
after deducting desired cushion per year, after deducting desired cushion
Dp
M= [Dp + (D/Q)s]product 1 + [Dp + (D/Q)s]product 1 + …
N[1 – (C/100)]
+ [Dp + (D/Q)s]product n
where M=
D = demand forecast for the year (number of customers serviced or N[1 – (C/100)]
units of product)
where
p = processing time (in hours per customer served or unit produced) Q = number of units in each lot
N = total number of hours per year during which the process operates s = setup time (in hours) per lot
C = desired capacity cushion (expressed as a percent)
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Estimating Capacity Requirements Estimating Capacity Requirements

EXAMPLE SOLUTION
A copy center in an office building prepares bound reports for two
clients. The center makes multiple copies (the lot size) of each report. [Dp + (D/Q)s]product 1 + [Dp + (D/Q)s]product 1 + … + [Dp + (D/Q)s]product n
The processing time to run, collate, and bind each copy depends on, M=
among other factors, the number of pages. The center operates 250 N[1 – (C/100)]
days per year, with one 8-hour shift. Management believes that a
capacity cushion of 15 percent (beyond the allowance built into time
[2,000(0.5) + (2,000/20)(0.25)]client X + [6,000(0.7) + (6,000/30)(0.40)]client Y
standards) is best. It currently has three copy machines. Based on the =
following table of information, determine how many machines are [(250 day/year)(1 shift/day)(8 hours/shift)][1.0 - (15/100)]
needed at the copy center.
5,305
= = 3.12
1,700
Item Client X Client Y
Annual demand forecast (copies) 2,000 6,000
Standard processing time (hour/copy) 0.5 0.7 Rounding up to the next integer gives a requirement of
Average lot size (copies per report) 20 30 four machines.
Standard setup time (hours) 0.25 0.40

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Systematic Approach Tools for Capacity Planning

• Waiting-line models
1. Estimate future capacity requirements • Useful in high customer-contact processes
2. Identify gaps by comparing requirements with available
capacity
3. Develop alternative plans for reducing the gaps
4. Evaluate each alternative, both qualitatively and quantitatively,
 Simulation
and make a final choice
 Can be used when models are too complex for waiting-line analysis

 Decision trees
 Useful when demand is uncertain and sequential decisions are
involved

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Capacity Planning in the Manufacturing

Decision Trees planning and control System

Long Range Resource Sales and operations Demand

Low demand [0.40] planning planning management
$70,000
Resource planning
Don’t expand
$90,000 Master production
High demand [0.60] Rough-cut capacity
$109,000 2
scheduling
planning
$135,000 Expand
1 $135,000
Low demand [0.40] Medium Range
$148,000 $40,000 Detailed material
Capacity requirement planning
planning
$148,000 High demand [0.60]
$220,000
Material and
Short Range
capacity plans
Finite Loading

Input/output analysis Shop-floor Supplier

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Capacity Capacity Planning Using Overall Factors

Planning Using (CPOF)
Capacity Bills
Overall Factors • Simplest rough-cut capacity planning approach
(CPOF) • Data inputs from master production schedule
• Based on planning factors from historical data (work center utilization,
Capacity production standards)
• Overall labor- or machine-hour capacity requirements are estimated
Planning from MPS data
and Control • Estimate is allocated to work centers based on historical workloads
• Inherent inaccuracies may limit usefulness

Capacity
Resource Profiles Requirements
Planning
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CPOF Example Capacity Bills

• Rough-cut capacity planning method that provides more direct link to
individual end products
• Bill of capacity indicates total standard time to produce one unit of an
end product (by work center)
• Master production schedule data is then used to estimate capacity
requirements for each work center
Total required
capacity = • Requires more data than CPOF procedure
(33*0.95)+(17*1. Work center capacity = Historical percentage*Total
85) = 62.80 required capacity

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Capacity Bill Example Capacity Bill Example

MPS quantities are

multiplied by bill of
Total hours include capacity to
Std. Setup hours both std. run time determine work
are spread over the and std. setup time center capacity
standard lot size
requirements by
period

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Resource Profiles Resource Profile Example

Production of one unit of product A in period 5
requires production activity in periods 3, 4, and 5
and in work centers 100, 200, and 300
• Rough-cut capacity planning technique that includes
production lead time information
• Provides time-phased projections of capacity requirements
for individual work centers
• More sophisticated approach but requires tracking of
relatively short time periods (< 1 week)

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Resource Profile Example Capacity Requirements Planning (CRP)

Requirements
(by work center
and period) for • Capacity requirements planning differs from the rough-cut planning
one unit of end procedures
product are • Utilizes time-phased material plan from MRP
multiplied by
• Takes into account materials in inventory
the MPS plan
• Accounts for the current status of work-in-process
to determine
capacity • Accounts for service parts and other demands not accounted for in the MPS
requirements • Requires more inputs and more computational resources

These
requirements
are then
summed over
all periods to
finalize the
process
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Scheduling Capacity and Materials

Capacity Requirements Planning Example
Simultaneously
• Capacity requirements planning doesn’t consider capacity when
planning materials
• Assumes that capacity can be adjusted, given sufficient warning
• Planning capacity and materials at the same time allows
construction of a plan that works within current capacity constraints
MRP Data
Detailed

Scheduled/planned
quantity multiplied
by processing time
for work center.
(0.2 for this case.)

This process is repeated for each work center to complete the plan
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Finite Capacity Scheduling Finite Capacity Scheduling

Product A
does not
• Simulates job order start and finish times in each work center consume all
available
• Establishes a detailed schedule for each job in each work center capacity
• When a work center’s capacity is not sufficient for all planned jobs,
prioritization rules determine which jobs will be shifted to later times Combination of
all products
consumes all
available
capacity in
several periods

Planned
orders are
shifted to
stay within
capacity
limitations
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Work Center Scheduling Finite Capacity Scheduling

• The FCS plan is a simulation
• Vertical Loading–each work center is scheduled job by job without
consideration of other work centers • Randomness leads to actual times that don’t match scheduled times
• Should the work center wait for a job that isn’t available on time (idleness = lost
• Increases capacity utilization but may result in more partial job completion
capacity)
• Horizontal Loading–jobs are scheduled through all work centers in • Over time, the accuracy of the plan deteriorates
order of priority
• Lower capacity utilization but generally a higher proportion of jobs are • Frequent rescheduling may be needed to maintain accuracy
completed in a shorter time span (higher customer service levels) • Rescheduling process is computationally expensive

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Capacity Monitoring with Input/Output

Advanced Production Scheduling (APS)
Control
• Expands Finite Capacity Scheduling to the entire product structure • Planned inputs are determined by the capacity
(end products and sub-assemblies) planning process
• Can lead to a significant reduction in lead times • Planned outputs depend upon the nature of the work
• Requires accurate scheduling parameters, flawless execution, and center
prompt recovery from any problems
• Capacity-constrained–planned output is determined by the
processing rate of the work center
• Non-capacity-constrained–planned outputs match planned
inputs
• Differences between plan and actual must be
addressed (management by exception)

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Managing Bottleneck Capacity–

Capacity Planning in the MPC System
Theory of Constraints
Determine bottleneck work centers
• Short-term capacity planning problems can be reduced by well-
Rough-cut capacity planning Capacity resource planning
executed production and resource planning
• Efficient use of sufficient capacity by a good shop-floor system
reduces capacity issues
Look for quick solutions to eliminate bottlenecks

Expand capacity Alternate routings

Concentrate scheduling efforts on managing bottleneck resources

Use finite scheduling for bottleneck jobs, with
Schedule jobs that run through bottlenecks
horizontal loading and back scheduling for the most
separately from non-bottleneck jobs
critical
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Choosing the Measure of Capacity Capacity Bill Example

• Capacity can be measured in many ways Sarah Reed. master scheduler at Walnut Hill, has developed a master
production schedule for the XYZ boom box:
• Labor hours, machine hours, physical units, monetary units
• The firm’s needs and constraints should determine the Period 1 2 3 4
capacity measure MPS 450 300 625 890

• Trends Dept. Capacity Hours per Unit of End Product

• Shrinking portion of direct labor Circuit Board 130 .2
• Less clear distinctions between direct and indirect labor Assembly 160 .3
• Reduced ability to change labor capacity
• Outsourcing The XYZ is fabricated in several departments, but the circuit board
department and assembly areas are the potential bottlenecks.
• Flexible automation/cellular technologies Prepare a rough-cut analysis of capacity for the MPS.

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Example: Capacity Bill Resource Profile Example

Determine the capacity requirements in all work centers at
Erben Fabricators using the MPS, resource profile, product
Period: 1 2 3 4 structure, and lead time information given below for product Z

MPS: 450 300 625 890 and all of its components. (Assume all usages are one and
that a new setup must be made in each period at each work
center.)

Capacity Requirements
Period
Dept 1 2 3 4 Available Capacity
1 2 3 4 5
(.2 hr/unit) Circuit Board 90 60 125 178 130 hr/per. Product Z MPS 10 20 15 10 15
(.3 hr/unit) Assembly 135 90 187.5 267 160 hr/per. Product Z resource profile
Part Work center Setup hours Run hours/unit Planned
Lead time
Z 201 8.0 1.5 0 periods
M 201 5.0 1.0 1 period
N 202 3.0 2.0 1 period
O 202 2.0 1.0 2 periods
35 P 203 1.0 0.5 3 periods 36
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Resource Profile Solution Capacity Requirements Planning (CRP)

Example
The Kuczma Company makes sign mounts
for commercial customers. One
MPS 10 20 15 10 15 product is the H mount which is made up of a
Period painted surface on both sides of a wooden H
Dept İtem -6 -5 -4 -3 -2 -1 1 2 3 4 5
frame. The H mount is put together in final
201 Z 23 38 31 23 31
M 15 25 20 15 20 assembly. The surfaces are painted in the
202 N 23 43 33 23 33 paint shop, and frame is made in the frame
O 12 22 17 12 17 shop. Kuczma wants to estimate the H mount
203 P 6 11 8,5 6 8,5 capacity needs for next five periods in final
assembly, the paint shop, and the frame shop.
201 15 48 58 46 43 31
202 12 22 40 55 50 23 33 0
203 6 11 8,5 6 8,5 Operation Work Center Setup Time Run time
Mount assembly Final Assembly 2 hours 1.0 hours
Fabricate H frame Frame Shop 3 hours 0.5 hours
Paint surfaces Paint Shop 4 hours 0.4 hours

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CRP

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References:
MPC 6th Edition Chapter 7 and
Krajewski/Ritzman/Malhotra 9th edition

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McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

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