8-1 Understanding Capacity

Capacity is the capability of a manufacturing or service resource such as a facility process,

workstation, or piece of equipment to accomplish its purpose over a specified time period.
Capacity can be viewed in one of two ways:

1. as the maximum rate of output per unit of time; or

2. as units of resource availability.

For example, the capacity of an automobile plant might be measured as the number of
automobiles capable of being produced per week and the capacity of a paper mill as the
number of tons it can produce per year. As a resource availability measure, the capacity of a
hospital would be measured by the number of beds available, and the capacity of "cloud"
storage would be measured in gigabytes.

8-1a Economies and Diseconomies of Scale

Economies of scale are achieved when the average unit cost of a good or service decreases
as the capacity and/ or volume of output increases.

Diseconomies of scale occur when the average unit cost of the good or service begins to
increase as the capacity and/or volume of throughput increases.

Unfocused Factory

As a single facility adds more and more goods and or services to its portfolio, the facility can
become too large and "unfocused." At some point, diseconomies of scale arise, and unit
costs increase because dissimilar product lines, processes, people skills, and technology
exist in the same facility. In trying to manage a large facility with too many objectives and
missions, key competitive priorities such as delivery, quality, customization, and cost
performance can begin to deteriorate.

Focused Factory

A focused factory is a way to achieve economies of scale, without extensive investments in

facilities and capacity, by focusing on a narrow range of goods or services, target market
segments, and/ or dedicated processes to maximize efficiency and effectiveness.

8-2 Capacity Measurement in Operations

Capacity measures are used in many ways in long-term planning and short-term
management activities. For example, managers need to plan capacity contingencies for
unanticipated demand and plan routine equipment and labor requirements. In this section,
we present several examples of how capacity measurements are used in OM.

Average safety capacity (%) = 100% - Average resource utilization (%)

8-2a Safety Capacity

Safety capacity (often called capacity cushion), defined as an amount of capacity reserved
for unanticipated events such as demand surges, materials shortages, and equipment
break-downs, is normally planned into a process or facility.

8-2b Capacity Measurement

A work order is a specification of work to be performed for a customer or a client. It generally

includes the quantity to be produced, the processing requirements, and resources needed.

Work orders may be defined for manufacturing (e.g., a job shop) or services (e.g., a patient
at a dentist's office or room maintenance at a hotel). For any production situation, setup time
can be a substantial part of total system capacity and therefore must be included in
evaluating capacity.

Capacity required = Setup time

+ [Processing time (P1)
× Order size (Q1)]

8-2c Using Capacity Measures for Operations Planning

Capacity needs must be translated into specific requirements for equipment and labor.

Utilization (U) = Resources Use

Resources Available

Utilization (U) = Demand Rate

Service Rate × Number of Servers

Resources Used (Capacity) = Utilization X [Service Rate X Number of Servers]

Illustration:

Fast Burger Inc. is building a new restaurant near a college football stadium. The restaurant
will be open 16 hours per day, 360 days per year. Managers have concluded that the
restaurant should have the capacity to handle a peak hourly demand of 100 customers. This
peak hour of demand happens two hours before every home football game. The average
customer purchase are as follows:

1 burger (4-ounce hamburger or cheeseburger)

1 bag of french fries (4 ounces)
1 soft drink (12 ounces)

Determine:

1. How many grills, deep fryers, and soft drink spouts are needed.
Information:

A 36 X 36-inch grill cooks 48 ounces of burgers every 10 minutes, and a single-basket deep
fryer cooks 2 pounds of french fries in 6 minutes, or 20 pounds per hour. Finally, one soft
drink spout dispenses 20 ounces of soft drink per minute, or 1,200 ounces per hour.

The peak hourly demand for burgers, french fries, and soft drinks are as follow:

Product Peak Hourly Demand (ounces)

Burgers 400

French fries 400

Soft drinks 1,200

Solution:

Because the capacity of a grill is (48 oz/10 minutes)(60 minutes/hour) = 258 ounces/hour,
the number of grills needed to satisfy a peak hourly demand of 400 ounces of burgers is:

Number of grills = 400/288

= 1.39 grills

To the number of single-basket deep fryers needed to meet a peak hourly demand of 400
ounces of French fries, we must first compute the hourly capacity of the deep fryer.

Capacity of deep fryer = (20lb/hour)(16oz/lb)

= 320 oz/hour

Hence, the number of single-basket deep fryers needed is 400/320 = 1.25

Finally, the number of soft drink spouts needed to satisfy peak demand of 1,200 ounces is

Number of soft drink spouts needed: =1,200/1,200 =1.0

Average equipment utilization:

Grill Utilization (U) = Resources used/Resources available

= 1.39/2.0 = 69.5%

Fryer Utilization(U) = Resources used/Resources available

= 1.25/2.0 = 62.5%

Soft drink Utilization (U) = Resources used/Resources available

= 1.0/2.0 = 50.0%
The managers of Fast Burger Inc. must also staff the new restaurant for peak demand of
100 customers/hour. Assume front-counter service personnel can take and assemble orders
at the service rate of 15 customers per hour and the target labor utilization rate for this job us
85 percent.

Solution:

Utilization = Capacity
Service rate X Number of servers

Using the data for Fast Burger, we have:

0.85 = (100 customer/hour)

(15 customers/hour) X Number of servers

Hence,

(12.75)(Number of servers) = 100

Number of servers = 7.8