Capacity Analysis: Sample Problems

Example 1. Bread-Making on Two Lines

This example looks at a series of capacity analysis problems, beginning with a base case and
then evaluating a bakery's decisions to: (A) purchase new equipment and (B) add new
products.

To begin with, assume the bakery sells and produces only one type of breadwhite bread.
The bakery operates two parallel baking lines, each equipped with a mixer, a proofer, and an
oven.

In addition, the bakery operates a single packaging line which is shared by the two bread-
making lines. A process flow diagram for the bakery is given in Figure 1 along with the cycle
times of each step of the bread-making and packaging process.

For now we will ignore the packaging process in order to determine the cycle time of the
bread-making process. Each mixer can hold only enough ingredients for a batch of 100
loaves and requires 3/4 of an hour to mix a batch. Similarly, each proofer requires 3/4 hour
to proof a batch of 100 loaves. Each oven, however, requires 1 hour to bake a batch of 100
loaves. The ovens are the bottleneck in bread-making and constrain the cycle time of each
bread-making line to 1 hour per 100loaves (see Figure 2).

The bakery could schedule the bread-making lines so that batches from each line finish
baking at the same time. In this case, it is easy to see that 200 loaves would be completed
every hour and that the cycle time for the entire bread-making operation would be 1 hour
per 200 loaves. Another option would be to alternate the scheduling of the two bread-
making lines, so that every 1/2 hour one of the ovens completes its baking time. In this
case, it would be more intuitive to say that the cycle time of the entire bread-making
operation is 1/2 hour per 100 loaves. Technically this is identical to the cycle time of 1 hour
per 200 loaves. The scheduling choice does not affect the average cycle time. In either case,
the bakery could make 1600 loaves in an 8-hour period. The scheduling choice does affect

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the manufacturing lead time, however. By scheduling bread-making so that 200 loaves are
ready for packaging at the same time, on average, the amount of bread waiting to be
packaged will be higher. This means that it takes longer for bread to move through the
bakery from raw materials into finished, packaged goods.
Now consider that the cycle time of the packaging process is 3/4 hour per 100 loaves.
Because its cycle time is longer than cycle time of bread-making, packaging is the bottleneck
in the entire process. As such it constrains the entire process to a cycle time of 3/4 hour per
100 loaves (see Figure 3). In order to minimize work-in-process inventory, the bakery
operates the bread-making process at 3/4 hour per 100 loaves by alternating beginning
batches between the two mixers every 3/4 hour instead of every 1/2 hour. If the bakery
didn't slow down its bread-making operation to match the packaging cycle time, loaves of
bread would build up over time in the work-in-process inventory and become stale.
Packaging, unless it ran overtime, would never have the capacity to keep up.

The bakery's overall daily capacity, assuming it operates the packaging line for 8 hours a day,
is [(100 loaves/ 3/4 hour) 8 hours], or 1,066 loaves.

Next we evaluate the following two decisions by determining the impact of each option on
the bakery's overall capacity:

(A) The bakery is considering replacing some of its existing equipment with more advanced
and faster equipment. The choice is between: (i) purchasing two new ovens that are each
capable of baking a batch of 100 loaves in 3/4 hour, or (ii) purchasing a new packaging line
that is capable of packaging a batch of 100 loaves in 1/2 hour. Which option would allow
the greatest increase in the bakery's overall capacity?

The bakery should purchase the new packaging line. Reducing the cycle time of the
packaging line to 1/2 hour per 100 loaves would bring the bread-making and packaging
processes into balance and thereby reduce the cycle time of the entire process from 3/4
hour per 100 loaves to 1/2 hour per 100 loaves. The bakery's overall daily capacity would be
[(100 loaves/ 1/2 hour) 8 hours] or 1,600 loavesa 50 percent increase.
If the ovens were purchased, there would be no increase in the bakery's overall capacity.
Although the cycle time of bread-making would be reduced from 1/2 hour to 3/8 hour per
100 loaves, packaging would remain the bottleneck and would continue to constrain the
bakery's overall rate of output.

(B) The bakery is considering producing wheat bread in addition to white bread. We will
assume for simplicity that the bakery would produce equal quantities of each bread and fully
dedicate one bread-making line to white and the other to wheat. The packaging line,
however, would switch between packaging white and wheat bread every 100 loaves, i.e.,
every batch.

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Remember that the cycle time of packaging was previously 3/4 hour per 100 loaves of white
bread. Though the same amount of time would be required to package 100 loaves of either
wheat or white bread, the two breads must be packaged in different bags. Changing the
bags requires a setup time of 1/4 hour. Given this set-up time, and under our previous
assumptions, the cycle time of packaging would increase from 3/4 hour per 100 loaves (with
all white) to 1 hour per 100 loaves.

What would be the impact of this on the bakery's overall capacity? Increasing the cycle time
of the packaging line to 1 hour per 100 loaves would worsen the bottleneck in packaging and
thus increase the cycle time of the entire process. The bakery's overall daily capacity,
assuming it operated the packaging line for 8 hours a day, would be reduced to [(100 loaves/
1 hour) 8 hours], or 800 loavesa 25% decrease.

Example 2. Croissant Manufacturing

In another area of the bakery, croissants are made using the process depicted in Figure 4.
The dough and filling for the croissants are prepared separately. The parallel processes of
making dough and mixing filling are dependent, both must be completed before the
croissants can be filled, folded and baked. These parallel processes are of a fundamentally
different nature than those of the bread-making operation. The two parallel bread-making
lines were identical, the outputs are not combined, and each line could send its output to
packaging independently.

Mixing the filling for a batch of 50 croissants is relatively quick, taking only 10 minutes.
However, preparing the dough involves three steps: mixing, proofing, and rolling & cutting.
Proofing, with a cycle time of 15 minutes per 50 croissants, is the slowest step in the process
of preparing the dough. Although a new batch of filling could be prepared every 10 minutes,
the batch of dough necessary to begin the fill & fold task can only be available at 15 minute
intervals.

The cycle time of the process of preparing the dough and mixing the filling is determined by
the longest cycle time of the two flows, which is preparing the dough. Dough preparation
has a cycle time of 15 minutes per batch of 50 croissants. Note the difference between this
and our bread-making example. The cycle time of the bread-making process was
determined by combining the cycle times of the parallel independent lines. To determine
the cycle time of croissant-making up until packaging, the minimum capacity (or the
maximum cycle time) of the parallel dependent flows is used.

Now that we have determined the cycle time of these parallel processes, we can determine
the cycle time of the entire process. The bottleneck of the entire process including assembly
is the baking step. No matter how fast all the other steps can be completed, the oven can

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only bake one batch of 50 croissants every 20 minutes. As packaging 50 croissants only
takes a total of 10 minutes, the packaging operation incurs an idle time of 10 minutes while
it waits for the next batch to come out of the oven. A new batch of 50 croissants completes
the process every 20 minutes. The bakery's overall daily capacity of croissants, assuming it
operates the oven eight hours a day, is 24 batches, or 1,200 croissants.

We noted in the previous paragraph that "a new batch of 50 croissants will complete the
process every 20 minutes," but how long does it take for a single batch to complete the
entire process, beginning in mixing and ending in packaging? The answer will be the
manufacturing lead time of the process.
The bakery begins making a new batch of dough every 20 minutes. Under this schedule, as
shown in the time-phased "Gantt chart" in Figure 5, Batch #2 finishes 20 minutes after Batch
#1, but each batch takes 60 minutes to make from start to finish. This is the manufacturing
lead time for making croissants. Note what would happen if we started mixing Batch #2
immediately after Batch #1 was mixed. The manufacturing lead time for Batch #2 would
increase to 75 minutes. The management of the bakery would not choose to generally
operate in this way (starting a new batch in the mixer as soon as it becomes free) in order to
avoid building up piles of dough in front of the proofer.

If the bakery begins mixing the filling exactly 15 minutes after it begins mixing the dough (as
shown in Figure 5) then the filling and the dough will be ready for the fill & fold step at the
same time. However, if the bakery begins mixing the filling at the same time it begins mixing
the dough, the filling will spend 15 minutes as work-in-process inventory while it waits for
the dough to be prepared. In either case the total manufacturing lead time for croissant
making will remain 60 minutes.

Example 3. Automobile Component Assembly

This example expands upon the capacity calculations of the previous two examples by
incorporating additional calculations such as labor content, utilization, and cost. In addition
we will consider the impact of a few equipment and labor scheduling alternatives on
capacity.

The XYZ company supplies a component to several large automobile manufacturers. The
parts that XYZ assembles into the finished components come from two sources: the XYZ
molding department makes one very critical part, and the rest come from outside suppliers.
Figure 6 shows a process flow diagram of the operation.

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In the molding shop, there are 11 machines capable of molding the one part done in-house,
but historically one machine is always being maintained or repaired at any given time. Each
machine requires a full-time operator who earns an hourly wage of $15, though only 50
minutes of a molding operator's typical hour is occupied with the tasks of loading,
unloading, actively monitoring, and adjusting the machine. The machines can each produce
25 parts per hour. The workers will work overtime at a 50% wage premium. There are
currently only 6 operators dedicated to molding this automobile component. An additional
4 operators are available from a labor pool within the company.

In the final assembly shop, purchased parts and those molded in-house are assembled by 15
workers working an eight-hour shift on an assembly line that moves at the rate of 150
components per hour. Each assembly worker earns a wage of $10 per hour, though on
average only 37.5 minutes of an assembly worker's typical hour is spent working directly on
components. Management believes that they could hire 15 more workers for a second shift
if necessary.

The size of inventories represented in the figure depend on many factors, including the
degree of synchronization in the scheduling that takes place in molding and in purchasing. It
may be reasonable to assume that, in order to have uninterrupted final assembly, there are
always some molded and purchased parts in inventory.

We can now determine the rate of output (or capacity) of the component operation. We
will assume the department purchasing parts has virtually unlimited capacity, i.e., it can
provide any reasonable number of parts each week. As there are only 6 workers, and thus
only 6 molding machines in operation, the molding operation can produce 6,000 parts per
week according to following calculation:

The capacity of both operations are balanced and the entire process has a capacity of 6,000
components/week.

Based upon our assumptions we can also determine the direct labor content, direct labor
utilization, and labor cost of the molding task according to the following calculations:

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Similarly we can determine the direct labor content, direct labor utilization and labor cost of
the assembly task:

Calculating the total direct labor content and total labor cost per component requires only
adding together the numbers for molding and assembly:

Calculating the total direct labor utilization is a little more tricky. It is important to
remember what basis you are using to calculate direct labor utilization and remain
consistent throughout your calculations. Direct labor utilization can be calculated as the
time directly associated with a unit of production (i.e., a single component, a batch, etc.) or
with a unit of time (i.e., an hour of production, a day of production, etc.). In our example, 6
people are currently employed in molding and 15 people employed in assembly. In every
hour, each of the 6 molding workers contributes 50 minutes to direct labor content for a
total of 300 minutes. In every hour each of the 15 molding workers contributes 37.5
minutes to direct labor content for a total of 562.5 minutes. Each of the total of 21 workers
has available labor time of 60 minutes for a total of 1260 minutes. Using an hour of
production as our basis, we can calculate direct labor utilization in the following way:

Another way to calculate total direct labor utilization would be to weight the direct labor
utilization of molding and assembly by the number of workers each employs:

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Now, let's consider the impact of alternative equipment and labor schedules on capacity. If
XYZ added 4 more workers to the molding operation and thus utilized all 10 machines, it
could produce 10,000 parts/week. However, the entire process still would only have a
capacity of 6,000 components/week because in the long run, overall capacity couldn't
exceed the rate of final assemblythe bottleneck. XYZ could operate its process out of
balance if it were willing to build up the inventory of molded parts. XYZ would not want to
do this, however, unless it had plans to stop the molding task for some period of time or to
increase the capacity of the final assembly task.

If, in addition to increasing its molding capacity, XYZ added a second shift on final assembly,
it would increase assembly capacity to 12,000 components/week. However, the overall
process capacity would still be 10,000 components/week because of the bottleneck in
molding. If molding machine operators worked overtime to increase the molding capacity to
12,000 parts/week, however, the entire process could again be put in balance at an overall
capacity of 12,000 components/week but the production cost per unit would increase.
One assumption we made implicitly was that only 10 molding machines were available. For
long-run planning, this is reasonable if the maintenance record is as stated. For a short
period of time it might be possible to use all 11 machines and increase the molding capacity.
Twenty-four hour operation of all 11 machines would represent the theoretical maximum
capacity of the molding task.

The effective capacity is less than this maximum amount because of the number of shifts of
operation, the number of workers and the long-run need to maintain and repair the
equipment.

These sample problems illustrate the difficulty in measuring the capacity of an operation.
Capacity depends upon what you assume to be fixed (i.e., the number of shifts, or the
number of available workers), and the time frame of the decision being analyzed. Changing
these factors may even change the resource that is the bottleneck. The measure of capacity
that is the most useful depends upon the type of decision being made. Capacity over the
current number of shifts being worked is probably appropriate when evaluating the impact
of an investment in a new preventative maintenance program. In deciding whether to
accept a rush order, the current mix of orders on the factory floor would also need to be
taken into consideration. Evaluating when it will become necessary to purchase new
equipment, however, requires a different set of assumptions. Since the latter is a long-term
decision, the number of shifts and the availability of workers being used in the calculation
may be different than in the current operating environment. Think carefully about the
operating environment and the decision at hand before you begin a capacity analysis.

Source: Harvard Business School