MODULE 5

CAPACITY PLANNING

I. Learning Outcomes

At the end of the module, you should be able to:

1. Solve for the capacity of a system.

2. Understand how to increase or improve the capacity using different strategies
(e.g. bottleneck analysis, line balancing, demand & capacity management)

II. Introduction

Capacity Planning is very important in the optimization of every business’

operation. Like in restaurants, capacity planning helps to answer the question, How
many customers does the restaurant need to serve everyday? To manufacturing plant
– Can the company produce certain number of goods every shift? So with this module,
Industrial Engineering students will learn about capacity planning as powerful tool to
help industrial Engineers to make decisions regarding issues like what were
mentioned.

III. Lesson

A. DEFINITION OF TERMS

 Capacity
System’s potential for producing goods or delivering services over a specified
time interval

Maximum output rate that can be achieved by a facility.

 Facility
It may be an entire organization, a division, or only one machine.

 Capacity Planning
The goal is to reach an optimal level where production capabilities meet
demand.

The process of establishing the output rate that can be achieved by a facility.

Process of determining the production capacity needed by an organization to

meet changing demands for its products.

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B. WHAT TO CONSIDER IN CAPACITY PLANNING?

1. Capacity to be determined
2. How much of the products will be needed?
3. When will the product be needed?

“In order to create a HIGH QUALITY PRODUCT while being EFFICIENT and
COST EFFECTIVE, any company must select a MANUFACTURING PROCESS
that best matches the product.”

Why we need to establish this output rate?

If a company does not plan its capacity correctly, it may find that it either does not
have enough output capability to meet customer demands (SHORTAGE) or has
too much capacity sitting idle (SURPLUS).

C. MEASURING CAPACITY

1. Design Capacity
 Maximum designed service capacity or output rate
 Maximum theoretical number of output of a system in a given period under
ideal conditions.

Most organizations operate their facilities at a rate less than the DESIGN
CAPACITY

2. Effective Capacity

 Design capacity minus personal and other allowances

 It is the capacity of a firm expects to achieve given the current operating
constraints and it is often lower than the Design Capacity.

D. MEASURING EFFECTIVENESS OF CAPACITY USE

1. Efficiency – is the percent of effective capacity actually achieved.

Efficiency can be 100% is considered normal or standard performance. It can be

above and below normal

𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 =
𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦

2. Utilization – is simply the percent of design capacity actually achieved.

𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =
𝐷𝑒𝑠𝑖𝑔𝑛 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦

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Sample Problem 1. Sara James Bakery has a plant for processing deluxe
breakfast rolls and wants to better understand its capability. Last week the facility
produced 148,000 rolls. The effective capacity is 175, 000 rolls per week. The
production line operates 7 days per week with three 8 hour shifts per day. The line
was designed to process the nut-filled cinnamon flavored deluxe roll at a rate of
1200 per hour. Determine the Design Capacity per week and the Utilization.

Solution
a. Solving for Design Capacity

The Design Capacity can be calculated from lines below. The keyword the
word is in bold face.

“The production line operates 7 days per week with three 8 hour shifts per day. The line was
designed to process the nut-filled cinnamon flavored deluxe roll at a rate of 1200 per hour.”

Solve for the design capacity by computing the number of rolls produced in a
week (rolls per week)

3 𝑠ℎ𝑖𝑓𝑡𝑠 8 ℎ𝑟𝑠 1,200 𝑟𝑜𝑙𝑙

𝐷𝑒𝑠𝑖𝑔𝑛 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 7 𝑑𝑎𝑦𝑠 𝑥 𝑥 𝑥
𝑑𝑎𝑦 𝑠ℎ𝑖𝑓𝑡 ℎ𝑟
𝐷𝑒𝑠𝑖𝑔𝑛 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = 201,600 𝑟𝑜𝑙𝑙𝑠 𝑝𝑒𝑟 𝑤𝑒𝑒𝑘

b. After solving for design capacity, utilization can now be computed using this
formula

𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =
𝐷𝑒𝑠𝑖𝑔𝑛 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦

Given:
Actual Output = 148,000 rolls
Design Capacity = 201,600 rolls

148,000
𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =
201,600

𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 0.7341 𝑜𝑟 73.41%

Sample Problem 2. The manager of Sara James Bakery now needs to increase
production of the increasingly popular deluxe roll. To meet this demand, she will
be adding a second production line. The manager must determine the expected
output of this second line for the sales department. Effective Capacity on the
second line is the same of the first line, which is 175, 000 Deluxe rolls. The first
line operating at an efficiency of 84.57% but output on the second line will be less
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 than the first line because the crew will be primarily new so efficiency can be
expected to be no more than 75%. What is the expected output?

Solution

Given:
Effective Capacity on the 1st line & 2nd line = 175,000 rolls
Efficiency on the 1st line = 84.57%
Expected Efficiency on the 2nd line = not more than 75%

1) The expected output can be calculated using the efficiency formula. The
formula will be just derived and solve for expected output in lieu of the
actual output.

𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡
𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 = 𝑥 100
𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦

2) Derive the above formula and solve for actual output.

𝐴𝑐𝑡𝑢𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 = 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 𝑥 𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦

3) In lieu of “Actual Output”, use “Expected Output”

𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑂𝑢𝑡𝑝𝑢𝑡 = 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 𝑥 𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦

4) Since we are computing for expected output on the 2 nd line, we will use
expected efficiency on the 2nd line, not the efficiency on the 1st line.

𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑂𝑢𝑡𝑝𝑢𝑡 = 75% 𝑥 175,000

𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑂𝑢𝑡𝑝𝑢𝑡 = 131,250 𝑟𝑜𝑙𝑙𝑠

E. CAPACITY AND STRATEGY

Even with good forecasting and facilities built to that forecast, there may be
a POOR MATCH between the actual demand that occurs and available capacity.

Capacity > Demand = Poor Match

Capacity < Demand = Poor Match

Capacity > Demand = Surplus

Capacity < Demand = Shortage

Scenario1: When demand exceeds capacity

Strategy 1: Decrease the demand
Strategy 2: Increase the capacity

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Scenario 2: When capacity exceeds demand
Strategy 1: Decrease the capacity
Strategy 2: Increase the demand

E.1 Tactics For Matching Capacity to Demand

 Making staffing changes

Hire workers (under Strategy 2 for Scenario 1)
Minimizing the number of workers (under Strategy 1 for Scenario 2)

 Adjusting Equipment
Purchase additional machines (under Strategy 2 for Scenario 1)
Minimize the use of machines (under Strategy 1 for Scenario 2)

 Improving processes
Improving your capacity (under Strategy 2 for Scenario 1)

 Redesigning Products
Raising the price of the products (under Strategy 1 for Scenario 1)
Improving the product (under Strategy 2 for Scenario 2)
Price reductions (under Strategy 2 for Scenario 2)
Creating marketing department (under Strategy 2 for Scenario 2)

 Closing Facilities

In the service sector scheduling customers is Demand Management while

scheduling the workforce is Capacity Management.

E.2 Demand Management

 Appointments
 Reservations
 First Come First Serve Rule

E.3 Capacity Management

When demand management is not feasible, full-time, temporary, or part-time

staffs may be an option.

E.4 Capacity Analysis

Capacity analysis Involves determining the capacity of workstations in a

system and ultimately the capacity of the entire system.

Bottleneck refers to the literal neck of a bottle that constraints flow or in the
case of a production system, constrains throughput.

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 Bottleneck has the lowest effective capacity of any operation in the system and
thus limits the system’s output.

Process Time of Station is the time to produce a given number of units (or a
batch of units) at that workstation.

Process Cycle Time is the time it takes for a unit of product to go through the
entire empty system from start to finish.

Process Time of the System is the time of the longest process (the slowest
workstation) in the system, which is defined as the process time of the
bottleneck. It defines also the number of output that the system can achieve .

Important notes:

 Every process has a constraint (bottleneck) and focusing improvement

efforts on that constraint is the fastest and most effective path to
improved profitability.

 Increasing the capacity of a bottleneck station, increases the capacity

of the system.

 Increasing the capacity of a non-bottleneck stations has no impact on

the system’s overall capacity. Working faster on non-bottleneck station
may just create extra inventory and other negative effects.

 Non-bottlenecks should have planned idle time. Extra work, or set-ups

at non-bottleneck stations will not cause delay, which allows smaller
batch sizes.
 Capacity Analysis is used to minimize idle time in the system in the way
of Line Balancing. Balancing is done either by adjusting the number of
workers per station or determining the number of stations. See Sample
Problem 2

Sample Problem 1. Howard Kraye’s sandwich shop provides healthy sandwiches

for customers. Howard has two identical sandwich assembly lines. A customer first
places and pays for an order, which takes approximately 30 seconds. The order is
then sent to one of the two lines. Each assembly line has two workers and three
major operations:

(1) Worker 1 retrieves and cuts the bread (15 second per sandwich);
(2) Workers add ingredients and places the sandwich onto the toaster
conveyor belt (20 seconds per sandwich); and
(3) The toaster heats the sandwich (40 seconds per sandwich).
(4) A wrapper then wraps heated sandwiches coming from both lines and
provides final packaging for the customer (37.5 seconds per sandwich).

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A flowchart for the customer order is shown below:

Bread Fill Toast

15 sec/sandwich 20 sec/sandwich 40 sec/sandwich

Order Wrap

30 sec/sandwich 37.5 sec/sandwich

Bread Fill Toast

15 sec/sandwich 20 sec/sandwich 40 sec/sandwich

Determine the following:

a) Process Cycle Time
b) Process Time of the System
c) Number of outputs per day or 8 hours per day

Solution

a) Process Cycle Time

Since Process Cycle Time is the time it takes for a unit of product to go
through the entire empty system from start to finish, the time for
simultaneous activities cannot be added together.

Thus, Process Cycle Time would be simply equal to:

𝑂𝑟𝑑𝑒𝑟 𝑇𝑖𝑚𝑒 + 𝐵𝑟𝑒𝑎𝑑 𝑇𝑖𝑚𝑒 + 𝐹𝑖𝑙𝑙 𝑇𝑖𝑚𝑒 + 𝑇𝑜𝑎𝑠𝑡 𝑇𝑖𝑚𝑒 + 𝑊𝑟𝑎𝑝 𝑇𝑖𝑚𝑒

𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝐶𝑦𝑐𝑙𝑒 𝑇𝑖𝑚𝑒 = 30 𝑠𝑒𝑐𝑠 + 15 𝑠𝑒𝑐𝑠 + 20 𝑠𝑒𝑐𝑠 + 40 𝑠𝑒𝑐𝑠 + 37.5 𝑠𝑒𝑐𝑠

𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝐶𝑦𝑐𝑙𝑒 𝑇𝑖𝑚𝑒 = 142.5 𝑠𝑒𝑐𝑠

b) Process Time of the System

As previously defined, Process Time of the System is the process time of

the bottleneck or the longest process time in the system.

𝑃𝑟𝑜𝑐𝑒𝑠𝑠 𝑇𝑖𝑚𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑆𝑦𝑠𝑡𝑒𝑚 = 40 𝑠𝑒𝑐𝑠

c) Number of outputs per day (8 hours per day)

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 Considering it’s a continuous production, the number of outputs will depend
on the process time of the system or the bottleneck. It means that in every
40 secs, there will be a unit that will come out from the system.

1. Convert 8 hours into seconds

60 𝑠𝑒𝑐𝑠
8 ℎ𝑟𝑠 𝑥 = 480 𝑠𝑒𝑐𝑠.
1 ℎ𝑟

2. Divide the answer by 40 seccs

480 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦

= 12 𝑜𝑢𝑡𝑝𝑢𝑡𝑠 𝑝𝑒𝑟 𝑑𝑎𝑦
40 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑜𝑢𝑡𝑝𝑢𝑡

Sample Problem 2. The home security devices produced by a firm are assembled
manually in 4 successive steps. Unit time requirements for these 4 operations are
expected to be as follows:

Assembly Required Time Per

Operation Unit (sec)
1 64
2 95
3 32
4 142

To satisfy the forecasted demand for the devices, it will be necessary to setup an
assembly line which is capable of yielding an output of 9,000 units in the 40 hours
during which the plant operates each week. What number of workers must be
assigned to each operation 2 and 4, if the result is to be a fairly well balanced line
with the required output capacity?

Solution

1. Find the takt time.

The takt time is the calculated time to produce a unit based on the demand.

60 𝑚𝑖𝑛𝑠. 60 𝑠𝑒𝑐𝑠
40 ℎ𝑟𝑠 𝑥 𝑥 = 144,000 𝑠𝑒𝑐𝑠.
1 ℎ𝑟 1 𝑚𝑖𝑛

144,000 𝑠𝑒𝑐𝑠
𝑇𝑎𝑘𝑡 𝑇𝑖𝑚𝑒 = = 16 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
9,000 𝑢𝑛𝑖𝑡𝑠

2. The line should be balanced in such way that all operations or workstations
must have equal amount of work. This can be done by determining the
number of workers per each station. To determine the number of workers
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 for each operation, divide the required time per unit for each operation by
the takt time. Note: In case of value with decimal, always round-up.

64 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 1 = = 4 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
16 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

95 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 2 = = 5.94 ≈ 6 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
16 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

32 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 3 = = 2 𝑤𝑜𝑟𝑘𝑒𝑟
16 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

142 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛 4 = = 8.88 ≈ 9 𝑤𝑜𝑟𝑘𝑒𝑟𝑠
16 𝑠𝑒𝑐𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

IV. Activity

Directions:
1. Answer the following problems
2. Show complete solutions and box your final answer
3. Use separate sheet.
4. Answer should be handwritten.
5. Where and when to submit: To Be Announced (TBA)

Problems

1. The design capacity for engine repair in our company is 80 engines per day. The
effective capacity is 40 engines per day and the actual output is 36 engines per
day. Calculate the utilization and efficiency of the operation. If the efficiency for
next month is expected to be 82%, what is the expected output?

2. Dr. Cynthia Knott’s dentistry has been cleaning customer’s teeth for decades. The
process for a basic dental cleaning is relatively straightforward.

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 Cleaning

Develops 24 min/unit Check

Check Takes Dentist
in X-ray X-ray out

2 min/unit 2 min/unit 4 min/unit X-ray 8 min/unit 6 min/unit

Exam

5 min/unit

Determine the following:

a) Process Cycle Time
b) Process Time of the System
c) Number of outputs per hour

V. Assessment

Direction: Show the complete solution and explain in words each step of solving this
problem.

1. In a sandwich assembly line, below is the sequence of operations:

1) 1st worker can retrieve and cut 4 sandwiches per minute
2) 2nd worker can add ingredients and place 30 sandwiches per hour onto
the toaster conveyor belt
3) The toaster heats the sandwich (40 seconds per sandwich)
4) A wrapper then wraps heated sandwiches and provides final packaging
for the customer (37.5 seconds per sandwich)

Determine the following:

a) Process Cycle Time (in seconds)
b) Process Time of the System (in seconds)
c) Number of sandwiches per day (7.5 hours per day)

2. The home security devices produced by a firm are assembled manually in 5

successive steps. Unit time requirements for these 5 operations are expected to
be as follows:

Assembly Required Time Per

Operation Unit (sec)
1 48
2 56
3 128
4 152
5 96

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 To satisfy the forecasted demand for the devices, it will be necessary to setup an
assembly line which is capable of yielding an output of 21,600 units per week. The
plant operates on an 8-hour basis (Mondays-Saturdays) and 52 weeks per year.
What number of workers must be assigned to each operation (1-5), if the result is
to be a fairly well balanced line with the required output capacity?

VI. Reflection

Directions: Reflect on the following questions:

1. What is the importance of Capacity Planning?

2. What do you think is the link between standard time and capacity?

I. Assignment

1. Look for a case study involving bottleneck analysis. Digest the case study, write
it and just highlight the following:
a. How the company executed the bottleneck analysis
b. How the company benefitted from doing bottleneck analysis.

II. References

 Heizer, Render (2011). Operations Management, 10th Edition.pdf, n.d.

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