Chapter 5 – Capacity Management

Basic Capacity Definitions

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 Basic Capacity Definitions
• Capacity Required – capacity needed to produce
a desired output in a given time period
• Capacity Planning – determining the resources
and methods needed to meet the priority plan
• Capacity Control – monitoring production,
comparing with the capacity plan, and taking
appropriate corrective actions
• Capacity Management – determining capacity
needed as well as providing, monitoring, and
controlling the capacity

Capacity Planning
1. Determine the capacity available at each work
center in each time period.
2. Determine the load at each work center in each
time period.
■ Translate the priority plan into the hours of work
required at each work center in each time period.
■ Sum up the capacities required for each item on
each work center to determine the load on each work
center in each time period.
3. Resolve differences between available capacity and
required capacity.

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 Capacity Planning Levels

Capacity Planning Levels

Figure 5.2 Planning levels

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 Capacity Planning Levels
• Resource Planning – Long range resource
requirements linked to the production plan
• Rough-cut Capacity Planning – Used to
check feasibility of MPS
• Capacity Requirements Planning –
Detailed work center capacity plans linked
to MRP

Capacity Requirements Planning

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 Capacity Requirements Planning
Inputs
• Open Order File – found as scheduled receipts on MRP
• Planned order releases from MRP – Potential future orders
• Work Center file
– Information on capacity in the work center
– Move, wait, and queue time information
• Routing file – the path that the work will follow
– Operations to be performed
– Operation sequence
– Work centers used
– Potential alternative work centers
– Tooling needed
– Standard setup times and run times

Sample Routing File

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 Capacity Requirements Planning
Inputs (Cont.) - Shop calendar

Capacity Available
• Impacted by:
– Product specification
– Product mix
– Methods used to make product
– Pace of work

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 Measuring Capacity
Capacity is usually measured on at least three
levels:
■ Machine or individual worker.
■ Work center, production line or cell.
■ Plant, which can be considered as a group of
multiple work centers.

Determining Capacity Available

• Available time
• Utilization
• Efficiency
• Productivity
• Rated capacity

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 Available time

Exercise!
A work center consists of 3 machines each
working a 16-hour day for 5 days a week.
What is the weekly available time?

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 Exercise!
The work center in problem 5.1 is utilized
75% of the time.
What are the hours per week actually worked?

Utilization

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 Efficiency

Efficiency: It is possible for a work center to utilize

100 hours a week but not produce 100 standard
hours of work.
Efficiency measures the output as compared to the
standard. The workers might be working at a faster
or slower pace than the standard working pace,
causing the efficiency of the work center to be more
or less than 100%.
For example, in a given shift, the expected output
may be 100 hours, or the production of 50 units. But
the actual output is 120 hours, which produced 60
units.

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 Exercise
In 1 week, a work center produces 75 standard
hours of work. The hours scheduled are 80,
and 72 hours are actually worked.
Calculate the utilization and efficiency of the
work center.

Productivity

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 Finding Capacity Available
• Rated Capacity = (available time) x (utilization)
x (efficiency)
– Available time – number of hours a work center can
be used
– Utilization = [(hours worked)/(available hours)] x
100%
– Efficiency = [(actual production rate)/(standard
production rate)] x 100%

Rated capacity

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 Exercise!
A work center consisting of 7 machines is
operated 16 hours a day for a 5-day week.
Utilization is 80%, and efficiency is 110%.
What is the rated weekly capacity in standard
hours?

Demonstrated Capacity
The historical output
An average output
Depends on the utilization and efficiency

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 Demonstrated Capacity

Exercise!
Over a period of 4 weeks, a work center
produced 50, 45, 42, and 52 standard hours of
work.
What is the demonstrated capacity of the work
center?

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 Exercise!
A work center consisting of 3 machines operates
40 hours a week. In a 4-week period, it actually
worked 355 hours and produced 475 standard
hours of work.

Calculate the utilization and efficiency of the

work center.
What is the demonstrated weekly capacity of the
work center?

Exercise!
A firm wishes to determine the efficiency and
utilization of a work center composed of 5
machines each working 16 hours per day for 5
days a week. A study undertaken by the
materials management department found that
over the past 50 weeks the work center was
actually working for 16,000 hours, and work
performed was 15,200 standard hours.
Calculate the utilization, efficiency, and
demonstrated weekly capacity.

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 Safety capacity
planned to exceed capacity required
protect against unplanned activities
a capacity cushion
an alternative to safety stock.
cause additional costs for the firm

Capacity Load (Required)

Time Needed for Each Order
Load
Work Center Load Report

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Time Needed for Each Order

Time Needed for Each Order

(Cont.)

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 Load
- The sum of the required times for all the planned
and actual orders.
- The steps in calculating load are as follows:
1. Determine the standard hours of operation time for each
planned and released order for each work center by
time period.
2. Add all the standard hours together for each work
center in each period. The result is the total required
capacity (load) on that work center for each time period
of the plan.

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 Exercise!
A work center has the following open and
planned orders for week 4. Calculate the total
standard time required (load).

Exercise!
A work center has the following open and
planned orders for week 4. Calculate the total
standard time required (load).

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 Capacity Load – Sum of all time
required for orders on a work center
Example

Work center load report

Graph of a load profile.

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The report shows released and planned load, total load,
rated capacity, and over/undercapacity.
The term overcapacity means that the work center is
overloaded and the term undercapacity means the work
center is underloaded.
This type of display gives information used to adjust
available capacity or to adjust the load by changing the
priority plan. In this example, weeks 20 and 21 are
overloaded, the rest are underloaded, and the cumulative
load is less than the available.
For the planner, this shows there is enough total
capacity over the planning horizon, and available
capacity or priority can be juggled to meet the plan

Scheduling Orders
• Back scheduling (the typical approach) –
Start with the due date, use lead time to find
the proper start date for each operation
• Forward scheduling – Launch the order
into the first (gateway) work center, then
use the lead times to find when the order
will be completed at each work center

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So far the assumption has been that CRP
knows when an order should be run on one
work center.
Most orders are processed across a number of
work centers, and it is necessary to calculate
when orders must be started and completed on
each work center so the final due date can be
met.
This process is called scheduling which is
defined as “a timetable for planned
occurrences.

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The next step is to schedule back from the due date (day 135) to
get the completion and start dates for each operation. To do so,
not only must the operation times just calculated be known, but
also the queue, wait, and move times.
The back scheduling process starts with the last operation. The
goods are to be in the stores at the beginning of day 135. It takes
1 day to move them, so the order must be completed on
operation 40 at the end of day 133, leaving day 134 to move the
product.
Subtracting the wait, queue, and operation times (11 days), the
order must be started at the beginning of day 123. With a move
time of 1 day, it must be completed on operation 30 at the end of
day 121. Using this process, the start and completion dates can
be calculated for all operations.
Figure 5.8 shows the resulting schedule and Figure 5.9 shows the
same thing graphicall

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 Exercise!
Back schedule the following shop order. All times are
given in days. Move time between operations is 1 day,
and wait time is 1 day. Due date is day 150. Assume
orders start at the beginning of a day and finish at the
end of a day.

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 Managing the Plan –
Adjusting Capacity
• Use Overtime or Undertime

• Adjust the number of workers

• Shift workers from other work centers

• Use alternative work centers to shift load

• Subcontract work

So far the data needed for a capacity requirements plan, where

the data comes from, and the scheduling and loading of shop
orders through the various work centers has been determined.
The next step is to compare the load with available capacity to
see if there are imbalances and if so, to find possible solutions.

There are two ways of balancing capacity available and load:

alter the load, or change the capacity available. Altering the load
means shifting orders ahead or back so the load is leveled.
If orders are processed on other work stations, the schedule and
load on the other work stations have to be changed as well. It
may also mean that other components should be rescheduled and
the master production schedule changed.

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Some ways that this may be done are as follows:
■ Schedule overtime or undertime. This will provide a temporary solution for cases
where the load/capacity imbalance is not too large or long term.
■ Adjust the level of the workforce by hiring or laying off workers. The ability to
do so will depend on the availability of the skills required and the training needed.
The higher the skill level and the longer the training needed, the more difficult it
becomes to change the level of the workforce quickly.
■ Shift workforce from underloaded to overloaded work centers. This may
require a flexible cross-trained workforce, or adaptable equipment.
■ Use alternate routings to shift some load to another work center. Often the other
work center is not as efficient as the original. Nevertheless, the important thing is to
meet the schedule, and this is a valid way of doing so.
■ Subcontract work when more capacity is needed or bring in previously
subcontracted work to increase load. It may be more costly to subcontract rather
than make the item in-house, but again, it is important to maintain the schedule.

The result of capacity requirements planning should be a detailed workable plan

that meets the priority objectives and provides the capacity to do so. Ideally, it will
satisfy the material requirements plan and allow for adequate utilization of the
workforce, machinery, and equipment.

MRP and CRP

closed-loop
system

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Capacity management occurs at all levels of the planning process. It is
directly related to the priority plan, and the level of detail and time spans
will be similar to the related priority plan.
Capacity planning is concerned with translating the priority plan into the
hours of capacity required in manufacturing to make the items in the
priority plan and with methods of making that capacity available. Capacity
available depends upon the number of workers and machines, their
utilization, and efficiency.
Capacity requirements planning occurs at the material requirements
planning level. It takes open shop orders and planned orders from the
MRP and converts them to a load on each work center. It considers lead
times and actual order quantities. It is the most detailed of the capacity
planning techniques.
Material requirements planning and capacity requirements planning
should form part of a closed-loop system that not only includes planning
and control functions but also provides feedback so planning can always
be current.

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