Capacity Planning

• Achieve match between the long-term supply capabilities of an

organization and the predicted level of long-term demand
– Overcapacity: operating costs that are too high
– Undercapacity: strained resources and possible loss of customers
• Key Questions:
– What kind of capacity is needed?
– How much is needed to match demand?
– When is it needed?
• Capacity
– The maximum amount that a process can produce in a given unit of time
• Process : collection of activities that transforms inputs into outputs
that are valuable to the customer
• Capacity (process capacity) is the capacity of the bottleneck activity
Elements of a Process

Activity

Flow

Inventory buffer

Decision point
 Process Flow Diagram
Customer order
Burger making

Cook Assemble Deliver

RM
 Process Analysis

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠
1. 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒 =
𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑦 𝑡𝑖𝑚𝑒

2. 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 𝑏𝑜𝑡𝑡𝑙𝑒𝑛𝑒𝑐𝑘 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦

3. 𝐹𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 (𝑖. 𝑒. 𝑇ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡) =

𝑀𝑖𝑛𝑖𝑚𝑢𝑚 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑖𝑛𝑝𝑢𝑡, 𝐷𝑒𝑚𝑎𝑛𝑑, 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦

𝐹𝑙𝑜𝑤 𝑟𝑎𝑡𝑒
4. 𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒 =
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒
 Process Analysis

5. 𝐼𝑚𝑝𝑙𝑖𝑒𝑑 𝑢𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒

𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑟𝑒𝑞𝑢𝑒𝑠𝑡𝑒𝑑 𝑏𝑦 𝑑𝑒𝑚𝑎𝑛𝑑
=
𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒

𝐹𝑙𝑜𝑤 𝑟𝑎𝑡𝑒
6. 𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑢𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =
𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦

7. 𝐿𝑖𝑡𝑡𝑙𝑒 ′ 𝑠 𝑙𝑎𝑤:

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑓𝑙𝑜𝑤 𝑟𝑎𝑡𝑒 × 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑓𝑙𝑜𝑤 𝑡𝑖𝑚𝑒

1
8. 𝐶𝑦𝑐𝑙𝑒 𝑡𝑖𝑚𝑒 =
𝐹𝑙𝑜𝑤 𝑟𝑎𝑡𝑒
 Process Flow Diagram---Process Capacity
Customer order
Burger making: Scenario 1 45 units/hour

Cook Assemble Deliver

RM

Activity 2 min/unit 3 1
time min/unit min/unit
Number of 1 1 1
resources
Capacity 30 units/hr 20 60
units/hr units/hr
 Process Flow Diagram---Demand Constrained
System
Customer order
Burger making: Scenario 2 45 units/hour

Cook Assemble Deliver

RM

Activity 2 min/unit 3min/unit 1

time min/unit
Number of 2 3 1
resources
Capacity 60 units/hr 60 60
units/hr units/hr

Flow rate = demand = 45 units/hour

 Process Flow Diagram---Supply Constrained
Process
Customer order
Burger making: Scenario 1 45 units/hour

Cook Assemble Deliver

RM

Activity 2 min/unit 3 1
time min/unit min/unit
Number of 1 1 1
resources
Capacity 30 units/hr 20 60
units/hr units/hr

Flow rate = capacity of Assemble stage = 20 units/hour

 Cycle Time and Flow Time

Burger : Scenario 1

Time
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Item 1 Ccook Assemble D

Item 2

Item 3

Item 4

Item 5

Cycle time = 3 minutes

Flow time = 7 minutes (measured in the steady state)
 Process Flow Diagram---Process Capacity
Customer order
Burger: Scenario 3 45 units/hour

Cook Assemble Deliver

RM WIP

Activity 2 min/unit 3 min/unit 1 min/unit

time
Number of 1 1 1
resources
Capacity 30 units/hr 20 units/hr 60 units/hr
 Supply Constrained: Adding Buffer does not
Change the Capacity
Burger: Scenario 3

Time
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Item 1 Ccook Assemble D

Item 2

Item 3

Item 4

Item 5

Cycle time = 3 minutes Buffer

Flow time = Increasing
 Process Analysis of Circored Plant

Source: Matching supply with demand: An introduction to operations management, Cachon and Terwiesch
Source: Matching supply with demand: An introduction to operations management, Cachon and Terwiesch
Source: Matching supply with demand: An introduction to operations management, Cachon and Terwiesch
 Case 1: Unlimited Demand

Process Step Capacity Utilization

Preheater 120 tons/hr 100/120 = 83.3%
Lock hoppers 110 tons/hr 100/110 = 90.9%
First reactor 112 tons/hr 100/112 = 89.3%
Second reactor 100 tons/hr 100/100 = 100%
Flash heater 135 tons/hr 100/135 = 74.1%
Discharger 118 tons/hr 100/118 = 84.7%
Briquetting 165 tons/hr 100/165 = 60.6%

Flow rate = bottleneck capacity = 100 tons/hr

 Case 2: Demand =125 tons/hr

Process Step Capacity Utilization Implied Utilization

Preheater 120 tons/hr 100/120 = 83.3% 125/120 = 104.2%
Lock hoppers 110 tons/hr 100/110 = 90.9% 125/110 = 113.63%
First reactor 112 tons/hr 100/112 = 89.3% 125/112 = 111.6%
Second reactor 100 tons/hr 100/100 = 100% 125/100 = 125%
Flash heater 135 tons/hr 100/135 = 74.1% 125/135 = 92.6%
Discharger 118 tons/hr 100/118 = 84.7% 125/118 = 105.9%
Briquetting 165 tons/hr 100/165 = 60.6% 125/165 = 75.8%

Flow rate = bottleneck capacity = 100 tons/hr

 Case 3: Demand =80 tons/hr

Process Step Capacity (Implied )

Utilization
Preheater 120 tons/hr 80/120 = 66.67%
Lock hoppers 110 tons/hr 80/110 = 72.72%
First reactor 112 tons/hr 80/112 = 71.42%
Second reactor 100 tons/hr 80/100 = 80%
Flash heater 135 tons/hr 80/135 = 59.25%
Discharger 118 tons/hr 80/118 = 67.79%
Briquetting 165 tons/hr 80/165 = 48.48%

Flow rate = Min{Demand, Process capacity} = Min{80, 100}= 80 tons/hr

 Capacity Strategy Formulation

• Capacity strategies are typically based on assumptions and

predictions about
– Long-term demand patterns
– Technological change
– Competitor behavior
Capacity strategies
• Leading
– Build capacity in anticipation of future demand increases
• Following
– Build capacity when demand exceeds current capacity
• Tracking
– Similar to the following strategy, but adds capacity in relatively small
increments to keep pace with increasing demand
 Steps in Capacity Planning

1. Estimate future capacity requirements

2. Evaluate existing capacity and facilities; identify gaps
3. Identify alternatives for meeting requirements
4. Conduct financial analyses
5. Assess key qualitative issues
6. Select the best alternative for the long term
7. Implement alternative chosen
8. Monitor results
 Forecasting Capacity Requirements

• Long-term considerations relate to overall level of capacity

requirements
– Require forecasting demand over a time horizon and converting those
needs into capacity requirements
• Short-term considerations relate to probable variations in
capacity requirements
– Less concerned with cycles and trends than with seasonal variations
and other variations from average
 In-House or Outsource?

• Once capacity requirements are determined, the organization must

decide whether to produce a good or service itself or outsource
• Factors to consider:
– Available capacity
– Expertise
– Quality considerations
– The nature of demand
– Cost
– Risks
 Developing Capacity Alternatives

• Things that can be done to enhance capacity management:

– Design flexibility into systems
– Take stage of life cycle into account
– Take a “big-picture” approach to capacity changes
– Prepare to deal with capacity “chunks”
– Attempt to smooth capacity requirements
– Identify the optimal operating level
– Choose a strategy if expansion is involved
 Constraint Management---The Theory of
Constraints*
• Constraint
– Something that limits the performance of a process or system in
achieving its goals
• Constraint categories
– Market
– Resource
– Material
– Financial
– Knowledge or competency
– Policy

* (Introduced by Eli Goldratt, in his book The Goal)

Resolving the Constraint Issues

1. Identify most
pressing constraint

5. Repeat the process 2. Exploit that constraint

4. Explore and evaluate 3. Subordinate &

ways to overcome that Synchronize that
constraint constraint