CAPACITY MANAGEMENT

Capacity is the total productive capability of a system during a unit of time. For a manufacturing facility, capacity is simply the maximum output that can be attained with the existing capital equipment during a period of time. Thus, an automobile manufacturer may define its capacity as the number of cars that can be assembled in an hour, day, week, or month. Capacity is critically important for a productive organization because:

It provides the output required to meet product demand.
It directly impacts the cost and efficiency of productive capability.
It is a major organizational investment.

What is design capacity?

Design capacity is the total achievable capacity under perfect conditions. Normally,
perfect conditions are not achievable, and few organizations operate for any period of time at design capacity. Furthermore, operating at designed capacity can cause rapid wear and breakdowns. Operating at design capacity essentially means operating at the organization`s productive limits.

What is effective capacity or utilization?

Effective capacity or utilization is a ratio between the expected capacity of a firm and its design capacity. It can be computed by the following formula:

EFFECTIVE CAPACITY OR UTILIZATION = EXPECTED CAPACITY/DESIGN CAPACITY

Effective capacity is affected by an organization`s product mix, production scheduling, age of equipment, and maintenance standards.

EXAMPLE 1.21

A television manufacturing company has a design capacity of 50 televisions per hour, but due to intensive quality control standards, it normally produces only 40 televisions per hour. The effective capacity or utilization of the television manufacturing company is calculated in the following manner:

EFFECTIVE CAPACITY OR UTILIZATION = EXPECTED CAPACITY/DESIGN CAPACITY

EFFECTIVE CAPACITY OR UTILIZATION = 40/50 = 80%

What is capacity efficiency?

Capacity efficiency is a ratio of production output to effective capacity. It is a measure of effective management in utilizing effective capacity. It is calculated using the following formula:
EFFICIENCY = ACTUAL OUTPUT/EFFECTIVE CAPACITY

EXAMPLE 1.22

The effective capacity of a candy manufacturing company is 1,000 units of candy per hour; however, it actually produces only 850 units per hour. The efficiency of the candy manufacturing company can be computed in the following manner:
EFFICIENCY = ACTUAL OUTPUT/EFFECTIVE CAPACITY

EFFICIENCY = 850/1,500 = 85%

What is rated capacity?

Rated capacity is a determination of the maximum usable capacity of manufacturing capability. Rated capacity can never exceed design capacity. It is a product of design capacity times effective capacity times efficiency. The formula used to calculate rated capacity is:

Rated capacity = Design capacity x Effective capacity x Efficiency

EXAMPLE 1.23

A computer printer manufacturer has a manufacturing facility operating at an effective capacity of 80% with 85% efficiency. It has two assembly lines operating five days a week with two shifts a day. Each assembly line has a designed capacity of 40 printers per hour.
The rated capacity of the computer printer manufacturer is calculated by multiplying the design capacity times the effective capacity times the efficiency of the plant. To determine the design capacity, the two production lines have to be multiplied by the number of printers times the combined number of hours of production.

Design Capacity = 40 printers/hour x 2 assembly lines x 80 hours = 6,400 `
Rated capacity = Design capacity x Effective capacity x Efficiency
Rated capacity = 6,400 x 0.8 x 0.85 = 4,352 printers per week

What factors affect capacity?

Many factors affect an organization`s productive capacity. Some are within management`s control while others are not. Factors within management`s control include the acquisition and supervision of land, physical resources, and the utilization of labor.
Management challenges affecting organizational capacity include personnel issues, technological maximization, and issues that are not directly controllable such as the impact of weather events, political issues, or war.

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