Chapter-IV

Capacity is the maximum load that can be handled by

a facility during a given period

Load can be expressed in terms of no. of inputs or
outputs
When a company produces many products or services,
measuring capacity in terms of output may not be
suitable, here they can measure capacity in terms of
input
i.e. amount of plastic processed per day

To keep the
initial
investment as
low as possible

To find the
optimal capacity
of the facility

Investment in
facility capacity
are long-term
and can not be
reversed easily

Need for
Facility
Capacity
Planning

To satisfy the
future demand
of products
without any
shortages

 To find the optimal capacity of the facility, so that sum

of cost of under capacity and over-capacity is

minimum
To keep initial investment in the facility as low as
possible to achieve lower break even volume
Investment in facility capacity are long term and can
not be revised easily
To satisfy the future demand of products without any
shortages

 There are three types of capacity

Design capacity: this is the capacity designed for the

facility
Depends upon the number and capacity of machines
and equipment, labor
It represents the maximum rate of output that can be
achieved under ideal conditions

 Effective capacity: when a company produces different

types of products , it will not be feasible to achieve

design capacity
So effective capacity can be achieved
It is the maximum rate of output which can be
achieved under above constraints
Effective capacity is lower than design capacity

 Actual capacity: It is the maximum output rate which

is actually achieved under the constraints of machine

breakdowns, labor inefficiencies and absenteeism,
defective products etc.
Actual capacity can be equal to or less than effective
capacity

 Efficiency =

Actual output
Effective capacity

Capacity utilization =

Actual output
Design capacity

 For utilization design capacity is constant therefore

utilization can be increased only by increasing the

actual output
Actual capacity can not be increased beyond effective
capacity as it is the maximum unit of actual capacity
So for increasing the utilization , capacity has also to
be increased

Coordination
with suppliers

Properly
following the
environmental
norms
Making products
and services as
uniform as
possible

Good training,
motivation, less
absenteeism

Proper process
quality control

Ways of
Increasing
effective
capacity

Proper facility
location, layout
and internal
working
conditions

 Proper quality control so that there are lesser defective

items requiring rework

Good training, high motivation, less absenteeism, and
turnover on the part of workers
Good co ordination with the suppliers for a continue
flow of supply
Properly following environmental norms resulting in
infrequent inspection
Making products and services as uniform as possible
Proper facility location, layout, working conditions

 Marketing department plays a major role in providing

demand forecasting based on which both long term as

well as short term capacity planning can be done.
Four types of general trends are possible in demand
forecasting
Growth
Decline
Cyclical
Stable

 Growth trend in demand forecasting is an indicator of

capacity expansion requirements

Provisions should be made for capacity expansion in
future
E.g. area of the factory premises should be kept
enough large when the plant is built, keeping in view
the future expansion possible.

 The decline trend of a product indicates that in future,

the company will have to think of utilizing the existing

capacity in the processing of some new products
The cyclic demand trend of a product requires the
company to produce some other product which has an
opposite cyclical demand, so that the crests of the
demand pattern of one product can be balanced by the
troughs of the demand pattern of the other product

 For given capacity of a plant, the average unit cost of

production decreases as the output rate increases

It happens as we know that the fixed cost remains
constant through changes in the volume of output
When a large number of units of the product are
produced, the fixed cost get divided uniformly in large
number of units
So the average cost per unit of the product gets
decreased

 When the rate of output is increased beyond a

particular limit, the average unit cost starts rising,

because of more frequent equipment breakdowns,
fatigue, scheduling problems, etc.
This limit of output rate is optimum output rate, for
which the average unit cost of the product is the
minimum

 There is a relationship between optimum output rate,

minimum average unit cot and the capacity of the

plant
Plant with small design capacity , the optimum output
is the lowest, and minimum average unit cost of the
product is the highest compared to medium sized and
large-sized plants

 Thus while determining the capacity of a new facility,

three important factors have to be kept in mind:

demand forecast, available capital, and minimum
average unit cost

 The large and significantly idle industrial base

available in the US prior to World War II provided the

foundation for Americas worldwide economic
dominance following this global conflict
The industrial capacity of the US, formerly dedicated
to the war effort, was used for the production of
consumer goods and industrial equipment to meet
pending demands not only at home, but also abroad
The capacity was still so high relative to the demand at
prevailing prices that many industries accumulated
excessive inventories during the 1950s

 This scenario changed in the 1960s and 1970s, at the

growing industrial output of countries recovering from

the destruction of war slackened the demand for
American imports and contributed to growing
inventories in the US during this period
An example of rising inventories and excess industrial
capacity is the American steel industry
On the other hand, in the late 1940s, Japan had a
worldwide reputation for cheap and shoddy goods
The economic planners in Japan in Japan knew that a

healthy and thriving economy depended on

manufacturing for export

 A lesson can be taken by the organizations from this

discussion in strategizing the capacity of a new facility

so as to meet the future demand
The capacity should be kept at the minimum expected
demand level and provisions should be made to
introduce some flexibility in the facility in order to
meet higher demands than the maximum capacity of
the facility

 It is a technique used to analyze decision situations

that are sequential in nature

In this technique a diagram is made to represent the
various decision option and their outcomes
The diagram resembles a tree with various branches
coming out from the main stem and therefore it is
called a decision tree

 Here small rectangles are used to represent the points

of decision nodes
Choice is to be made for the best decision option from
a set of options branching out from the decision node
Small circles are used to represent the points of
outcomes or events as a result of choosing a decision
option
The circles are called event or outcome nodes

 Outcomes are not under control of the decision maker

and any one can occur according to the probabilities

assigned to them
Decision tree is analyzed for the best decision
sequence by the rollback technique
Here the later part of the decision tree are analyzed
first and then those in the earlier part

 It is the physical location of the various departments/

units of the facility within the premises of the facility

Departments may be located based on some
considerations such as less walking distance, logical
sequence of the procedure, or any special
requirements of the product
There are four types of basic layouts: product, process,
fixed-position, and cellular layout

Flow Shop or Assembly Line Work Flow

Raw materials
or customer
Material
and/or
labor

Station
1
Material
and/or
labor

Station
2
Material
and/or
labor

Station
3
Material
and/or
labor

Station
4

Finished
item

 It is suitable when a product is having standard

features is to be produced in large volume

The production process involves repetitive tasks to be
performed for items arranged in sequence
Specialized machines and equipment are arranged one
after another in the order of sequence required in the
process
This production line is called assembly line

 The assembly line has moving platform or conveyer

which moves at a regular interval of time

The basic structure of products to be manufactured in
the raw form are placed on the conveyer at equal
distance from each other
Across the conveyer there are work stations with
required machines, equipment, components,
components, tools, and workers to perform the
assembling tasks on the basic structure of the product

 Easier material handling & less inventory costs

Less supervision & labor training costs

High output rate that results into low cost of item per

unit
High efficiency of labor& equipment
No need of routing or scheduling once the line is
operational

 Monotonous repetitive tasks lead to frustration for

workers
Breakdown of a machine or high absenteeism of
workers leads to halt
Inflexible to design changes in product or process
Maintenance cost is fairly high

 U-shaped assembly line is useful particularly when

there is a single worker in the line taking care of all the

work stations
The U shape of the line reduces the walking distance
of the worker by almost half
The U-shaped line is being successfully used by
Matusushita Electric Co. of Japan by using a single
worker in such line

Advantage: more compact, increased communication

facilitating team work, minimize the material handling

 The closeness of the work station allows workers to

help a fellow worker catch up, especially one working

on the station just opposite
This increases teamwork among workers
At the same time, many work stations close to each
other may result in conversations, noise etc., resulting
in distraction from work
The U-shaped line reduces material handling as the
entry and exit points of the material on the line are
nearby
A trolley which brings the raw material for the line
may take back the finished goods in a single round

 The assembly line can be efficient only when tasks are

assigned to different workstations in such a way that,

as far as possible, the total processing times at the
workstations are equal
This is so because the conveyor moves at regular
intervals of time and, therefore, the time available for
each workstation to complete its set of assigned tasks
is the same
This is achieved by line balancing

 The time for which a basic structure of the product is

available before a work station is called the cycle time

In fact, it is the time after which the conveyor moves

Cycle time is defined as the time period after which

completed units come off the assembly line

Note that completed units will be available after each
movement of the conveyor, as the basic structure being
worked up on at the last work station will become a
completed unit in that time
Let us try to understand the steps in assembly line
balancing by an example

 Step- 1- Find the bottleneck operation and the

minimum cycle time

Step-2 Find the theoretical minimum number of
workstations required for the assignment of tasks
Step-3 Apply a heuristic to assign tasks to work
stations
Step-4 Find the efficiency of the assembly line

 In a process layout, general - purpose machines are

arranged in no particular sequence, as the processing

requirements and sequence are different for the
various types of products to be manufactured
These machines include the lathe machine, drilling
machine, milling machine, grinding machine, etc.,
which handle different types of processing
requirements
In a production set-up, such a layout is also called a
machine shop or job shop

Milling
Assembly
& Test

Grinding

Drilling

Plating

Process Layout - work travels

to dedicated process centers

 A good example of a process layout can be seen at any

Maruti Service Station. Here, separate departments

with general-purpose machines are assigned for dent
corrections, painting, wheel alignment, oil
replacement, engine correction, electrical check-up,
interiors, washing, cleaning, etc.
Different Maruti cars have different service
requirements and are thus taken to different
departments according to a schedule decided up on by
the service supervisor
Process layout is particularly suitable when different
products are produced in lots or batches
This is called intermittent manufacturing

 The demand of items is not high enough to warrant

continuous manufacturing
Process layout is very commonly found in services setups such as banks, hospitals, post-offices, universities,
libraries, etc.
There are various advantages and disadvantages of
this layout which have been presented on the next
graph

A low output rate

and high cost per
unit

Work-in-process
inventory is usually
high

Material handling
is time-consuming

Routing and
scheduling is
tedious

Process
Layout

High cost of
supervision
because of special
treatment to every
product being
processed

The system is
more flexible to
design changes

Break down of
machines does
not lead to a halt
in production

Maintenance
cost is low

Advantages

The system
promotes
creativity of
workers due to
variety of tasks

 In this layout, the product is very bulky, heavy, large, or has

a fixed position
For example, the construction of a building, dam, or a plant;

drilling of crude oil; or construction of an airplane, a ship, or a

rocket
Thus, machines, equipment, raw materials, workers, etc.

have to be taken to the site of the product

The important aspect is the placement of all these things
inside or around the product so that no overcrowding takes
place
Equipment, raw materials, and worker teams are brought
to the site according to a time schedule for better
utilization of the space availabel

 We have seen that both product and process layouts

have their advantages and disadvantages

Product layout is desirable by most organizations, but
the low volume and the variety of their products does
not warrant it
Therefore, they have no choice but to go in for good
old batch processing on process layout
Product layout and process layout represent the two
extremes of layout techniques
An intermittent manufacturing of a high variety of
products with the advantages of a product layout

 Let us take up an example to understand cellular

layout
The following figure shows the typical process layout
of a factory which has six departments, namely, lathe,
foundry, fitting, drilling, welding, and paint
Each of these department has a general purpose
machines required for processing products
manufactured by the factory
Following graph shows how different products are
routed through different departments according to
their differing processing requirements

Mill

Drill

Heat
treat

Gear
-1111
cut

2222

Mill

Drill

Heat
treat

Grind - 2222

3333

Lathe

Mill

Heat
treat

Grind - 3333

Drill

Gear
cut

4444

Mill

- 4444

Assembly

-1111

Lathe

 In a cellular layout of the same factory, groups of items

with similar processing requirements are identified,

and separate manufacturing cells are formed for each
group, which contain the required machines in the
desired sequence
There is no conveyor or mechanized moving platform
in the cells to carry items from one machine to the
other, as in the product layout
The identification of similar groups of items is an
important aspect of cellular layout and is called group
technology

 In Group Technology, groups of items can be formed

either according to similarities in their design or

according to similarities in their manufacturing
process
This is a time-consuming and tedious task, which can
be accomplished by the following methods
1. Visual inspection method, which is very simple in
application but not very accurate
2. Examination of design and production data, which is
more complex to implement than visual inspection
but much more accurate
3. Analysis of the production flow of items

 Before switching over to a cellular layout from a

process layout, the production manager must do

proper cost and time comparisons to derive the
maximum advantages of cellular manufacturing

 The assignment model is a heuristic which is used to

assign machines to various locations in such a way that

the total material-handling cost is the minimum
The various steps in the heuristic can be understood as
follows

 Step-1 := Find the smallest value in every row and

subtract it from each cell value in the corresponding

row
Similarly, the smallest value in the second row should be

subtracted from each cell value of the second row

Step-2 := Find the smallest value in every column and

subtract it from each cell value in the corresponding

column
Similarly, the smallest value in the second column

should be subtracted from each cell value of the second

column

 Step-3 := Make horizontal and vertical lines to cover all

the zeroes in the table

The lines drawn can be all horizontal, all vertical, or a

combination of horizontal and vertical lines in whatever

way possible
If the number of lines required to cover all the zeroes in
the table is equal to the number of machines or the
number of locations, the optimal solution has been
obtained
Step- 4 := Select the smallest value out of those not

covered by any of the lines

Subtract the value from all the values not covered by any

of the lines and add it to those at the intersection of any

two lines

 Again make horizontal and vertical lines to cover all the

zeroes in table
If the number of lines required to cover all the zeroes in
the table is equal to the number of machines or the
number of locations, the optimal solution has been
obtained
Step -5 := A single zero in any row or column is

assigned first

 In process layouts, two or more layouts can be

compared to find out the layout which minimizes the

total load-distance value of the various products
manufactured
Here, load means the total number of units of
different products any department processes
Distance means the distance between any two
departments
Let us try to understand this technique called loaddistance analysis