Bottleneck Bottleneck OperationOperation

Bottleneck operation: An operationin a sequence of operations whosecapacity is lower than that of theother operations

Capacity planningCapacity is the maximum output rate of a production

or service facility.

Capacity also includes EquipmentSpaceEmployee skills

05/03/23 3

The basic questions in capacity The basic questions in capacity planningplanning

Capacity planning is the process of establishing the output rate that may be needed at a facility.

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Reasons of capacity Reasons of capacity planningplanning

Impacts ability to meet future demandsAffects operating costsMajor determinant of initial costsInvolves long-term commitmentAffects competitivenessAffects ease of management

Importance of Capacity Decisions

05/03/23 7

Measuring Capacity Examples

Type of Business Input Measures of Capacity

Output Measures of Capacity

Car manufacturer Labor hours Cars per shift

Hospital Available beds Patients per month

Pizza parlor Labor hours Pizzas per day

Retail store Floor space in square feet Revenue per foot

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Capacity terminologyCapacity terminology Design capacity Design capacity ( Max. Capacity )

is the maximum theoretical output of a is the maximum theoretical output of a systemsystem Normally expressed as a rateNormally expressed as a rate Under ideal conditionsUnder ideal conditions

Effective capacity Effective capacity ( Best Operating Level ) is the capacity a firm expects to achieve is the capacity a firm expects to achieve given current operating constraintsgiven current operating constraints Often lower than design capacityOften lower than design capacity Under ideal conditionsUnder ideal conditions Actual output Actual output ( Capacity Used )

is rate of output actually is rate of output actually achievedachieved

Cannot exceed effective capacity.Cannot exceed effective capacity.

Utilization is the percent of design capacity achievedEfficiency is the percent of effective capacity achieved

Utilization = Actual Output/Design CapacityUtilization = Actual Output/Design Capacity

Efficiency = Actual Output/Effective CapacityEfficiency = Actual Output/Effective Capacity

Utilization and EfficiencyUtilization and Efficiency

Both measures expressed as percentagesBoth measures expressed as percentages

Calculating Capacity Utilization

Measures how much of the available capacity is actually being used:

Measures effectiveness Use either effective or design capacity in denominator

100%capacity

rateoutput actualnUtilizatio

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Efficiency/UtilizationEfficiency/Utilization

Actual output 36 units/day Efficiency = = = 90%

Effective capacity 40 units/ day Actual output 36 units/day

Utilization = = = 72% Design capacity 50 units/day

Design capacity = 50 trucks/day

Effective capacity = 40 trucks/day

Actual output = 36 units/day

Ex.Ex.

Facilities (size, location, layout, heating, lighting, ventilations)

Product and service factors (similarity of products)

Process factors (productivity, quality)Human factors (training, skills, experience, motivations,

absentation, turnover)Policy factors (overtime system, no. of shifts)Operational factors (scheduling problems,

purchasing requirements, inventory shortages)Supply chain factors (warehousing, transportation,

distribution)External factors (product standards, government agencies,

pollution standard)

Determinants of Effective Determinants of Effective CapacityCapacity

P r o d u c tA n n u a l

D e m a n d

S t a n d a r dp r o c e s s i n g t i m e

p e r u n i t ( h r . )P r o c e s s i n g t i m e

n e e d e d ( h r . )

# 1

# 2

# 3

4 0 0

3 0 0

7 0 0

5 . 0

8 . 0

2 . 0

2 , 0 0 0

2 , 4 0 0

1 , 4 0 0 5 , 8 0 0

Calculating Processing Calculating Processing RequirementsRequirements

A dept. works 8-hour shift, 250 days/year

annual capacity is 250*8 = 2000 hours, number of machines required = 5,800 hours/2,000 hours = 2.90 machinesthen we need three machines to handle the required volume

ForecastDemand

ComputeNeededCapacity

ComputeRated

Capacity

EvaluateCapacity

Plans

ImplementBest Plan

QualitativeFactors

(e.g., Skills)

Select BestCapacity

Plan

DevelopAlternative

Plans

QuantitativeFactors

(e.g., Cost)

Capacity Planning Process

Modify capacityModify capacity Use capacityUse capacity

Planning Over a Time HorizonPlanning Over a Time Horizon

IntermediatIntermediate-range e-range planningplanning

Subcontract Add personnelAdd equipment Build or use inventory Add shifts

Short-range Short-range planningplanning

Schedule jobsSchedule personnel Allocate machinery*

Long-range Long-range planningplanning

Add facilitiesAdd long lead time equipment*

* Limited options exist* Limited options exist

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Economies of ScaleEconomies of scale

If the output rate is less than the optimal level, increasing output rate results in decreasing average unit costs

Diseconomies of scaleIf the output rate is more than the optimal

level, increasing the output rate results in increasing average unit costs

Minimumcost

Aver

age

cost

per

uni

t

0 Rate of output

Production units have an optimal rate of output for minimal cost.

Minimum average cost per unit

5-19

Minimum cost & optimal operating rate are functions of size of production unit.

Aver

age

cost

per

uni

t

0

Smallplant Medium

plant Largeplant

Output rate

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Cost Volume Analysis: Breakeven AnalysisTechnique for evaluating process & equipment alternativesObjective: Find the point at which total cost equals total revenueAssumptions•Revenue & costs are related linearly to volume•All information is known with certainty•No time value of money

22

Break-Even AnalysisFixed costs: costs that continue even if no

units are produced: depreciation, taxes, debt, mortgage payments

Variable costs: costs that vary with the volume of units produced: labor, materials, portion of utilities

Breakeven Chart

Fixed cost

Variable cost

Total cost line

Total revenue lineProfitBreakeven point

Total cost = Total revenue

Volume (units/period)

Cost

in D

olla

rs

Loss

5-24

1.One product is involved2.Everything produced can be sold3.Variable cost per unit is the same

regardless of volume4.Fixed costs do not change with volume5.Revenue per unit constant with volume6.Revenue per unit exceeds variable cost per

unit

Assumptions of Cost-Volume Analysis

5-25

Decision TheoryHelpful tool for financial comparison of

alternatives under conditions of risk or uncertainty

Suited to capacity decisions

Small Box Office

Medium Box Office

Large Box Office

Small Box Office

Medium Box Office

Large Box Office

Sign with Movie Co.

Sign with TV Network

200,000

1,000,000

300,000

900,000

900,000

900,000

.3

.6

.1

.3

.6

.1

ER900,000

ER690,000

ER900,000

5-27

Financial AnalysisCash Flow - the difference between cash

received from sales and other sources, and cash outflow for labor, material, overhead, and taxes.

Present Value - the sum, in current value, of all future cash flows of an investment proposal.

Net Present ValueF = future valueP = present valuei = interest rateN = number of years

NiFP

)1(

5-29

Waiting-Line AnalysisUseful for designing or modifying service

systemsWaiting-lines occur across a wide variety of

service systemsWaiting-lines are caused by bottlenecks in

the processHelps managers plan capacity level that will

be cost-effective by balancing the cost of having customers wait in line with the cost of additional capacity

PROCESS PLANNINGDesign Machine

Tool

Scheduling and Production Control

Process

Planning

What methods were used?Machining methodsPressworkingWelding/fabricationCastingPowder materialsLayered depositionOthers

Welding/fabrication:Additive techniques

Initial Stock

WeldAdd-on

WeldAdd-on

Final Product

Machining Methods:Subtractive techniques

Initial Stock

Slotting

Drilling

Final Product

Casting:Form Methods

ENGINEERING DESIGN MODELING

10" +0.01-0.01

1'-4" +0.01-0.01

4" +0.01-0.01

7" +0.05-0.05

5" +0.01-0.01

3" +0.01-0.01

2" +0.01-0.01 0.001 A B

A

B

S.F. 64 u inch

U*

- *

CSG MODEL

Fa c e

Lo o p

Ed g e

V e rt e x

B-REP MODEL

INTERACTION OF PLANNING FUNCTIONS

GEOMETRIC REASONING

PROCESS SELECTION

CUTTER SELECTION

MACHINE TOOL SELECTION

SETUP PLANNING

FIXTURE PLANNING

CUTTER PATH GENERATION

• global & local geometry

• process capability• process cost

• available tools• tool dimension and geometry• geometric constraints

• machine availability, cost• machine capability

• feature relationship• approach directions• process constraints• fixture constraints

• fixture element function• locating, supporting, and clamping surfaces• stability

• feature merging and split• path optimization• obstacle and interference avoidance