OPMG 402

Logistics and Materials Management

Lec_4: Capacity Management

A s s i s . P ro f. M o h a m m e d A b d e l g ha ny
A s s i s t a n t P ro fe s s o r, I n d u s t r i a l E n g i n e e r i n g ,
Mechanical Engineering Department
E - m a i l / M A b d e l g h a ny @ n u . e d u . e g
Te l . / + 2 0 1 1 4 4 8 7 6 7 0 2
Previous Lecture Review
• Material Requirements Planning.

• MRP inputs and outputs.

• Bill of Materials (BOM).

• MRP processing sheet.

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Definition of Capacity
• Capacity is the amount of work that can be done in a specified
Production (Aggregate)
time period. Plan
• Capacity is a rate of doing work, not the quantity of work done.
• Capacity available is the capacity of a system or resource to produce a
quantity of output in a given time period. Master Production
Schedule
• Capacity required is the capacity of a system or resource needed to
produce a desired output in a given time period.
• Load is the amount of planned work assigned to a facility for a Material Requirements
particular time period. Plan

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Capacity
versus Load
Capacity is often pictured as a
funnel.

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DR/ M. ABDELGHANY Management 5
Capacity Management
• Capacity management is responsible for determining the capacity needed to
achieve the plans as well as providing, monitoring, and controlling that capacity
so the plan can be met.
• Capacity planning is the process of determining the resources required to meet the
plan and the methods needed to make that capacity available.
• Capacity control is the process of monitoring production output, comparing it with
capacity plans, and taking corrective action when needed.

• Capacity is stated in units of product, or as the hours available.

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Capacity Planning Process
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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Measuring Capacity
• Units of output:
• Used if the variety of products is not large. Paper mills (tons of paper), automobile
manufacturers (numbers of cars).

• Standard time:
• The work required to make a product is expressed as the time required to make the
product.
• Time study techniques is used to determine the standard time (standard hours) for
a job.

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Capacity
Planning
Levels

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DR/ M. ABDELGHANY Management 9
Resource Planning
• It involves long-range capacity resource requirements and is directly linked to
production/aggregate planning.

• It involves changes in staffing, capital equipment, product design, or other

facility changes that take a long time to acquire and eliminate.

• Machinery, equipment, and plants can be added to or taken away from

manufacturing

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Resource Planning Example Example: Page 47

The firm planned to make 500 tables, 300 The amount of wood needed is:
chairs, and 1500 stools in a particular
period.
Resource bill

The amount of labor needed is:

Calculate the quantity of wood and

Now compare these requirements with the availability
labor that will be needed.
of these resources. (if 1600 available hours)
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Rough-Cut Capacity Planning (RCCP)
• The master production schedule is the primary information source for RCCP.

• Checks whether critical resources are available to support the preliminary

master production schedules.

• The process is similar to resource planning.

• The difference is that now we are working with a product and not a family of
products.

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Rough-Cut Capacity Planning (RCCP) Example
Example: Page 62
• The Acme Tweezers Company makes tweezers in two models, medium and
fine. The bottleneck operation is in work center 20. Following is the resource
bill (in hours per dozen) for work center 20.
Hours per dozen
Work Center Medium Fine
The master production schedule 20 0.5 1.2
for the next 4 weeks is:
Week 1 2 3 4 Totals

Medium 40 25 40 15 120

Fine 20 10 30 20 80

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Rough-Cut Capacity Planning (RCCP) Example
Example: Page 62
• Calculate the number of hours Hours per dozen
required in work center 20 for Work Center Medium Fine
each of the 4 weeks. 20 0.5 1.2
Week 1 2 3 4 Totals
Medium 40 25 40 15 120
Fine 20 10 30 20 80

Week 1 2 3 4 Totals
Medium
Fine
Total hours

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Rough-Cut Capacity Planning (RCCP) Example
Example: Page 62
• Calculate the number of hours Hours per dozen
required in work center 20 for Work Center Medium Fine
each of the 4 weeks. 20 0.5 1.2
Week 1 2 3 4 Totals
Medium 40 25 40 15 120
Fine 20 10 30 20 80

Week 1 2 3 4 Totals
Medium 20 12.5 20 7.5 60
Fine 24 12 36 24 96
Total hours 44 24.5 56 31.5 156

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Rough-Cut Capacity Planning (RCCP) Example
Example: Page 62
• Now compare the total time required to the available capacity of the work center.
• If available capacity is greater than the required capacity, the MPS is workable.

• If not, methods of increasing capacity have to be investigated.

• Available capacity can be adjusted with overtime, extra workers, routing through other
work centers, or subcontracting.

• If capacity cannot be adjusted, the MPS must be revised.

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Capacity requirements planning (CRP)
• Occurs at the level of the material requirements plan (MRP).

• CRP is the most detailed, complete, and accurate of the capacity planning
techniques.

• Inputs needed for CRP:

✓ Open orders, ✓ Work centers,
✓ MRP, ✓ Time standards,
✓ Routings, ✓ Shop calendar.

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Inputs Needed for CRP
• Open Orders:
• Appears as a scheduled receipt on the material requirements plan.

• A record of all the active shop orders is maintained manually or as a computer file.

• Planned order releases:

• Determined by the computer’s MRP logic based upon the gross requirements for a
particular part.

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Inputs Needed for CRP
• Routings:
• A routing is the path that work follows from work center to work center as it is
completed.
• A routing is specified on a routing sheet, for every component manufactured, and
contain the following information:
✓ Operations to be performed, ✓ Possible alternate work centers
✓ Sequence of operations, ✓ Tooling needed at each operation,
✓ Work centers to be used ✓ Standard times: setup times and
run times per piece
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Inputs Needed for CRP
• Routings: Routing sheet example

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Inputs Needed for CRP
• Work centers:
• A work center is comprised of a number of machines or workers capable of doing
the same work.
• Information on the capacity and move, wait, and queue times associated with the
center.
• Move time is the time normally taken to move material from one workstation to another,

• Wait time is the time a job is at a work center after completion and before being moved,

• Queue time is the time a job waits at a work center before being processed.

• Lead time is the sum of queue, setup, run, wait, and move times.

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Inputs Needed for CRP
• Shop Calendar:
• The number of working days available at a work center.

• The Gregorian calendar has some serious drawbacks for manufacturing planning:
• months do not have the same number of days,

• holidays are spread unevenly throughout the year,

• Therefore, developing a shop calendar is desirable.

• Suppose that the lead time for an item is 35 working days and on December 13 an
order is placed for delivery by January 22.

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A Planning
Calendar
Example

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Determining Capacity Available
• There are three types of capacity available:
• Theoretical capacity,

• Calculated or rated capacity,

• Demonstrated or measured capacity.

• There are three factors used for determination:

• Available time • Utilization • Efficiency

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Determining Capacity Available
• Available time: is the number of hours a work center can be used.
• A work center working one 8-hour shift for 5 days a week is available 40 hours a
week.

• It depends on number of machines, number of workers, and hours of operation.

• Example: A work center has 3 machines and is operated for 8 hours a day, 5
days a week. What is the available time?
• Answer: Available time = 3 × 8 × 5 = 120 hours per week

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Determining Capacity Available
• Utilization: is the percentage of time that a work center is active compared to the
available time.
• Downtime can occur due to machine breakdown, training, lack of material, time for
lunch or breaks.
ℎ𝑜𝑢𝑟𝑠 𝑎𝑐𝑡𝑢𝑎𝑙𝑙𝑦 𝑤𝑜𝑟𝑘𝑒𝑑
𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = × 100%
𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 ℎ𝑜𝑢𝑟𝑠

• Example: A work center is available 120 hours but actually produces goods for only
100 hours. What is the utilization of the work center?
100
• Answer: 𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = × 100% = 83.3%
120

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Determining Capacity Available
• Efficiency: measures the output as compared to the standard.
• It is possible for a work center to utilize 100 hours a week but not produce 100 standard
hours of work.
• Workers might be working at a faster or slower pace than the standard.
𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 ℎ𝑜𝑢𝑟𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 = × 100%
ℎ𝑜𝑢𝑟𝑠 𝑎𝑐𝑡𝑢𝑎𝑙𝑙𝑦 𝑤𝑜𝑟𝑘𝑒𝑑

• Example: A work center produces 120 standard hours of work in 100 hours. What is the
efficiency?
120
• Answer: 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 = × 100% = 120%
100

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Determining Capacity Available
• Rated Capacity:
• The available capacity at a work center for a period of time, considering the
average utilization and efficiency of that work center.
𝑹𝒂𝒕𝒆𝒅 𝒄𝒂𝒑𝒂𝒄𝒊𝒕𝒚 = 𝒂𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆 𝒕𝒊𝒎𝒆 × 𝒖𝒕𝒊𝒊𝒛𝒂𝒕𝒊𝒐𝒏 × 𝒆𝒇𝒇𝒊𝒄𝒊𝒆𝒏𝒄𝒚

• Theoretical capacity:
• The maximum capacity available, with no regard for downtime, utilization, or
efficiency.

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Determining Capacity Available
• Example: A work center consists of 4 machines and is operated 8 hours per day
for 5 days a week. Historically, the utilization has been 85% and the efficiency
110%. Determine the theoretical capacity and rated capacity?

• Answer:
• Theoretical capacity = 4 × 8 × 5 = 160 hours per week → (Available time)

• Rated capacity = 160 × 0.85 × 1.10 = 149.6 standard hours

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Determining Capacity Available
• Demonstrated Capacity:
• The historical output, or capacity, of a work center.

• It is based on the actual load input to the work center, not necessarily reflective of
what the work center is capable of producing.

• Example: Over the previous 4 weeks, a work center produced 120, 130, 150, and 140
standard hours of work. What is the demonstrated capacity of the work center?
120+130+150+140
• Answer: 𝐷𝑒𝑚𝑜𝑛𝑠𝑡𝑟𝑎𝑡𝑒𝑑 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 = = 135 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 ℎ𝑜𝑢𝑟𝑠
4

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Determining Capacity Available
• Example: Over a 4-week period, a work center produced 540 standard hours of
work, was available for work 640 hours, and actually worked 480 hours.
Calculate the utilization and the efficiency of the work center?

• Answer:

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Determining Capacity Available
• Safety Capacity:
• It is available capacity that is planned to exceed capacity required.

• It is used to protect against unplanned activities, such as breakdowns, poor

quality, preventive maintenance, and so forth.

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Capacity Required (Load)
• Capacity requirements are generated by the priority planning system.

• It involves translating priorities, given in units of product, into hours of work

required at each work center in each time period.

• A two-step process:
1) Determine the standard hours needed for each order at each work center.

2) Add all the standard hours together for each work center in each period

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Time Needed for Each Order
• It is the sum of the setup time and the run time.

• Run time is equal to the run time per piece multiplied by the number of pieces
in the order.

• Example: A work center is to process 150 units of gear shaft SG 123 on work
order 222. The setup time is 1.5 hours, and the run time is 0.2 hours per piece.
What is the standard time needed to run the order?
• Answer: Total standard time = setup time + run time = 1.5 + (150×0.2) = 31.5 hrs

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 Load Calculation
• Load is the sum of the required times for all the planned and actual orders to
be run on the work center in a specified period.

• Example: A work center has the

following open orders and
planned orders for week 20.
Calculate the total standard time
required (load) on this work
center in week 20. Order 222 is
already in progress, and there are
100 remaining to run.

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Load Calculation – Example
• Answer:

• In week 20, there is a load (requirement) for 152 standard hours.

• The load must now be compared to the available capacity. A way of
doing this is with a work center load report.

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Work Center Load Report

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Work Center Load Report
• A work center load report
gives information used to
adjust available capacity or
to adjust the load by
changing the priority plan.
• Weeks 20 and 21 are
overloaded, the rest are
underloaded.

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Scheduling Orders Audit
• Most orders are processed across a number of work centers.

• It is necessary to calculate when orders must be started and completed on each work
center so the final due date can be met [Scheduling].

• Backward Scheduling: starting with the due date and using the lead times to work
back to find the start date for each operation.

• The following must be known for each order: ✓ Setup and run times for each operation,

✓ Quantity and due date, ✓ Queue, wait, and move times,

✓ Sequence of operations and work centers needed, ✓ Work center capacity available
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Scheduling Orders – Example Audit
• Suppose there is an order for 150 gear shaft SG 123. The due date is day 135. The
route sheet, shown gives information about the operations to be performed and the
setup and run times. The work center file shown gives lead time data for each work
center. Calculate the start and finish dates for each operation. Use the following
scheduling rules:
• Operation times are rounded up to the nearest 8 hours and expressed as days on a one-shift basis.
• Assume an order starts at the beginning of the day and finishes at the end of a day.

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Scheduling Orders – Example Audit
• Answer:

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Scheduling Orders – Example Audit
• Answer:

95 103

105 113

115 121

123 133

135

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Lecture Summary
• Capacity planning process

• Capacity planning levels:

• Resource planning
• Rough-cut capacity planning
• Capacity requirements planning

• Capacity available determination [Theoretical, rated, Demonstrated capacity]

• Load calculations

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