Chapter 5 Capacity Management

Capacity
Management
They say the universe is expanding. That should help with the traffic.
—Steven
Wright
Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Stephen N. Chapman All Rights Reserved
capacity
The productive capability
of a system.

Capacity Management in Operations
• Capacity – Generally, the ability to hold, receive, store, or
accommodate …….
• In business, viewed as the amount of output that a
system is capable of achieving over a “specific period
of time”
 In services, the output is often customers served
 In manufacturing, the output may be units produced
• Capacity – The capability of a worker, a machine, a work

center, a plant, or an organization to produce output in a
time period.
© 2016 APICS Dictionary

Examples of Capacity in Different Organizations
Organization Capacity Measure Factors Affecting Capacity

Law firm Billable hours available Number of lawyers and paralegals;
each Month education and skill levels; supporting
software
Textile-spinning Spinning hours per shift; Number of machines running; quality

plant number of spindles of raw materials; maintenance
produced per week
Automatic car wash Cars per hour Availability of water and chemicals;
reliability of the car wash (Is it
frequently down for repairs?)
Airline (Seats) × (miles flown) Number of jets, pilots, and terminals

Capacity Management in Operations
• Capacity is generally taken to mean the maximum rate at
which a transformation system produces outputs or
processes inputs
• Capacity management needs to consider both “inputs and
outputs”
• Capacity, thus, is a rate and is a relative term.
term “Amount of
resource inputs available relative to output requirements
over a particular period of time”

Capacity
• Capacity – The capability of a worker, a machine, a work center, a plant, or an
organization to produce output in a time period.
• Capacity decisions that managers face:

 How capacity is measured?
 Which factors affect capacity?
 The impact of the supply chain on the organization’s
effective capacity.

Capacity
Measures of Capacity
 Theoretical /Designed/Best
Operating Capacity – The maximum
output capability, allowing for no adjustments for
preventive maintenance, unplanned downtime, or
the like.

Effective Capacity
(Instructor’s Take)
• Effective Capacity is the maximum possible output given
a product mix, scheduling difficulties, machine maintenance, etc.(vs.
Designed capacity / Best Operating Level)
Utilization rate is the maximum output
that can possibly be attained:
Capacity Used
Capacity Utilization Rate 
Best Operating Level
Efficiency : Capacity Used

Efficiency 
Effective Capacity

Effective Capacity
(Example)
• Designed Capacity (Best Operating level: 80
cars/day
• Effective Capacity: 40 cars/day given the complexities

• Actual output: 36 cars/day
36
Capacity Utilization Rate  = 45% (More meaningful to compare
80 installed capacity)
36
Efficiency  = 90% (Effective capacity Utilization)
40
Effective capacity acts as a lid on actual output. So, the real key to improving
capacity utilization is to increase Effective Capacity focusing on the constraints
on effective capacity.

Factors Affecting Capacity
Many factors affect capacity, and many
assumptions must be made:
• Number of lines used
• Number of shifts operating
• Number of temporary workers used
• Number of public storage facilities used
• Product variations
• Conformance quality
• Quality improvement

FIGURE 5.1 Capacity versus load.
Need to understand:
•Theory of Constraints
•Little’s Law (Ch. 11)
•Theory of Waiting Lines
(Ch. 10)
•Learning Curves (Ch. 6)

Understanding Constraints
Let us suppose that fabrication of a product can be divided in 5 elemental

tasks, precedence relationship, task times;
Sum of the Task Times (25 mins) : Maximum cycle time if we are to do
the job in one station by one worker in the sequence.
Assume a 8 hour shift (8*60= 480 mins.)
Output Produced: 480/25= 32 units / day
McGraw-Hill Education Copyright © 2017 by The McGraw-Hill Companies, Inc. All rights reserved. 6-12
Let us suppose that fabrication of a product can be divided in 5 elemental
tasks, precedence relationship, task times and we produce them in high
volume:
Start:: .1 Start: 8 Start: 23

Start: 0 Start: 18
1 Min 7 min 10
5 min 2 min
min
Comp : 0+1=1 : : 8+10 = 18
Comp 1+7=8 Comp Comp 18+5 = 23
Comp : 23+2= 25
Start: .8: Start: 28
Start: 1 Start:: 18 Start: 33
1 Min 7 min 10min 5 min 2 min

Comp:.1+1= 2 :
Comp 18+10= 28 Comp : 28+.5=33 Comp:33+2= 35
:
Comp 8+7=15
Units will flow out of the system every 10minute = Minimum Cycle Time
What is the efficiency of the above line? Output Produced: 480 / 10 = 48
Now, suppose you want invest in a machine to increase capacity – which
machine would you buy and why?

Start: 0 Start: 18
1 Min 7 min 10
5 min 2 min
min
Comp : 0+1=1 : : 8+10 = 18
Comp : 23+2= 25

Comp:.1+1= 2 :
Comp 18+10= 28 Comp : 28+.5=33 Comp:33+2= 35
:
Comp 8+7=15
Units will flow out of the system every X minute = Minimum Cycle Time
What is the efficiency of the above line?
Units will flow out of the system every 7 minute = Minimum Cycle Time = 7 minutes.
What is the efficiency of the above line? Output Produced: 480 / 7 = 68.57
10
min
Start:: .1 Start: 8
Start: 0 Start: 18
Start: 23
1 Min 7 min 10 2 min

5 min
min
Comp : 0+1=1 : : 8+10 = 18
Comp: 23+2= 25

Comp:.1+1= 2 :
Comp 18+10= 28 Comp : 28+.5=33 Comp:33+2= 35
:
Comp 8+7=15
10min
Theory of Constraints
Nearly all products and services are created through a series of linked
processes, and in every case, there is at least one process step that limits the
throughput for the entire chain – the Constraint / Bottleneck
10
min
Start:: .1 Start: 8
Start: 0 Start: 18
Start: 23
1 Min 7 min 10 2 min

5 min
min
Comp : 0+1=1 : : 8+10 = 18
Comp: 23+2= 25

Comp:.1+1= 2 :
Comp 18+10= 28 Comp : 28+.5=33 Comp:33+2= 35
:
Comp 8+7=15
10min
Assembly Line Design
The Station (process, machine, etc.) that has the highest utilization rate is the
bottleneck.
Start: 0 Start: 18
10
1 Min 7 min min 5 min 2 min
Comp : 0+1=1 : 8+10 = 18 : 23+2= 25
:
Comp 1+7=8 Comp Comp 18+5 = 23 Comp
Start: 1 Start: .8: Start:: 18 Start: 28 Start: 33

Comp:.1+1= 2 :
Comp 8+7=15
:
Comp 18+10= 28 Comp : 28+.5=33 Comp:33+2= 35
Capacity:1/Proc Time: 1/1=1unit/min 1/7= .143 unit/min 1/10 = .1 unit/min 1/5=.2 unit/min 1/2 = .5 unit/min
Utilization: .1 / 1 = 10% .1/.143 = 69.9% 100% .1/.2 = 50% .1/.5=20%
Process Capacity: .1 Unit/minute

Flow rate: .1 unit/minute
Cycle Time: 1/Flow Rate: 1/.1= 10 minutes
AI, PMBA 6040

Understanding and Analyzing
Process Capacity
Theory of Constraints
 Identify the constraint
 Exploit the constraint
 Subordinate everything to the constraint
 Elevate & alleviate the constraint
 Find the new constraints and repeat the
steps

Theory of Constraints - Tracy’s Hair Salon
• Tracy’s Hair Salon follows a three-step process in serving its customers.
• First the customer is shampooed, next a stylist cuts and styles the
customer’s hair. Finally, the customer pays $25 to the cashier.
• There is one shampooer, one stylist, and one cashier.
Capacity and Cost Data for Workers at Tracy’s Hair Salon

blank Shampoo Cut and Style Collect Money
Average processing time per customer 10 minutes 15 minutes 3 minutes
Effective capacity per worker 6 per hour 4 per hour 20 per hour
Labor cost per worker $15 per hour $20 per hour $10 per hour

Tracy’s Hair Salon
• Current Process

Effective capacity per worker 6 per hour 4 per hour 20 per hour
• Adding a Second Stylist

Effective capacity per worker 6 per hour 2x4=8 per hour 20 per hour
Adding One Shampooer and Two Stylists
Even with all the expansions, Tracy notices that her cashier is not even close to
being fully utilized. May be there are …………………………….

Process Capacity – Little’s Law

• Little’s Law – A law that holds for any system that has reached a steady
state and enables the understanding of the relationship between average
inventory, average arrival rate (throughput rate), and average time a
unit spends in a system (throughput time)
Typically, we would like to have “Throughput (R) high” and

“WIP (I) & Throughput or Flow time (T) Low”

Process Capacity – Little’s Law

A deceptively Simple but remarkably Powerful tool for
Process Analysis:
Inventory = Throughput Rate X Flow Time
I=RxT
Little’s Law tells us the average time a flow unit spends in the
process.
By changing the process, if we modify one the metrics while holding a
second one constant, we can determine how third one changes.
Throughput Rate = Inventory / Flow Time

Flow Time = Inventory / Throughput Rate
Throughput Rate/Inventory = 1 / Flow Time

Key Process Metrics
Process Metric – a scale or measure that informs us about the performance and capability of
a process.
1.WIP(I)– the number of flow units within a process which can be measured in physical units
(parts, people, jobs, $ values etc.). Tells us how much “stuff” is in the process;
process takes up space
and costs money.
2.Flow Rate (R) – the rate at which flow units are processed by the system. Tells us how
much time is spent in the process.
process
3.Flow time (T) – the time a flow unit spends in a process, from start to finish including any
reworks, restarts due to yield loss or other disruptions.
disruptions
More units flowing through a process is generally

more desirable because the point of the process is 2-12
to produce output.
Let’s Check Our Understanding
Flow Rate
Question: Over the course of an 8-hour day, a dentist’s
office treats 24 patients. What is the flow rate of
patients in this dentist’s office per hour?
Answer:
The rate at which units travel through a process. As a rate, it is measured in “Flow
Units per Unit of Time” :
 Dollars $ per Week
 Kilograms per Hour
 People per month
It is always expressed in terms of some units (e.g. boxes, dollars, people) “per unit
2-14
of time”. Without this, it is then just inventory.

Let’s Check Our
Understanding
Question:
During a typical Friday, the West End Donut Shop serves

2,400 customers during the 10 hours it is open.
A customer spends (on average) 5-minutes in the shop.
On average, how many customers are in the shop

simultaneously?
I=R*T
2-17

Check Your Understanding
Answer:
Flow Rate is:
2,400 customers / 10 hours
= 240 customers / hour
= 4 customers / minute
Flow Time: 5 minutes

I=R*T
4 customers per minute * 5 minutes = 20 customers.
2-18

Check Your Understanding: Example
Patient Arrival Departure Flow Time

1 7:35 8.50 75
2 7.45 10.05 140
3 8.10 10.10 120
4 9.30 11.15 105
5 10.15 10.30 I = R *15T
6 10.30 13.35 185
7 11.05 13.15 130
8 12.35 15.05 150
9 14.30 18.10 220
10 14.35 15.45 70
11 14.40 17.20 160 2-18
Average: 125
Check Your Understanding: Example
Patient Arrival Departure Flow

Time
1 7:35 8.50 75
2 7.45 10.05 140 Avg. Flow Time (T): 125 mins.
3 8.10 10.10 120 = 2.08 hrs.
4 9.30 11.15I = R *105
T Flow Rate(R) : 7:35 – 18:10 = 10.58
5 10.15 10.30 15 = 11/10.58 hours
6 10.30 13.35 185 = 1.04 Pats. / hour
7 11.05 13.15 130
8 12.35 15.05 150 So. Average Patients in the
day (I) = 1.04 x 2.08
9 14.30 18.10 220 = 2.16 patients
2-18
10 14.35 15.45 70
11 14.40 17.20 160
Average: Stephen N. Chapman 125 All Rights Reserved
Let's Check Our Understanding
Congress Has 435 members

52 get reelected every 2 years
How much does an average congress person serve in the house?

Let's Check Our Understanding
Typically, as we discussed, the objective in Operations management is to have:

 throughput rate high
 and WIP and FT( i.e. Throughput Time, cycle time) Low.
The extent to which you achieve this is a function of systems' overall efficiency.
One useful measure of that is the Inventory Turns:
Inv. Turns = Throughput Rate / WIP = CGS /$WIP

 How efficiently are we converting inventory into output?
A major determinant of Throughput Rate, WIP and Flow Time, as well as

Inventory Turns, is the system’s capacity.
capacity
Capacity of a system is the maximum average rate at which units can flow
through the system.
 Capacity = Base Capacity – Detractors
Base capacity is the rate of the process at ideal conditions.

Detractors represent anything that slows the output of the process.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved.
Let's Check Our Understanding:
Capacity & Bottleneck
50%
50%
Capacity & Bottleneck
50%
50%
 The bottleneck of a system is the

process with highest utilization.

BNR and RPT
 Notice that in this hypothetical line, the processing time and rates are identical and
equals 1 penny every 2 minutes or a Flow rate of 0.5 pennies per minute.
 BNR: So, the bottle neck time is 2 minutes and bottle neck rate is:
BNR = .5 pennies/ minute
= 30 per hour
= 30 x 24 = 720 units / day
The raw processing time it takes for a single penny to traverse an empty line is:
RPT = 8 minutes
Now let us test Mr. Little’s law: WIP = Throughput Rate x Flow Time

BNR and RPT
Case #1:
Let us take a WIP level of 1 and release a penny blank into the line and wait until it is
completely finished before we release another penny blank. Throughput Rate = 1/8mins
= 0.125 pennies per minute; and Flow Time = 8 minutes.
If we release 2 penny blanks at a time, in the long run pennies will follow each other
and taking 8 minutes to get through and resulting in 2 pennies every 8 minutes. Hence,
Throughput Rate: 2/8 = 0.25 pennies per minute Flow Time = 8 minutes
Release 3 penny blanks: Throughput Rate = 3/8 = .375 pennies/minute; FT = 8
Release 4 penny blanks: Throughput rate = 4/8 = .5 pennies / minute; FT = 8
 6 minutes after the after the 4 blanks are released, the first penny reaches the
last station, and each four stations has 1 penny to work on.
 From this point on, all stations are constantly busy – a penny finishes every 2
minutes, hence at a rate of =0.5 penny per minute. This is the max rate the line
can achieve – the Bottleneck Rate BNR = .5; & Flow Time = 8 minutes
Let's Check Our Understanding :
Critical WIP
Case #1:
the Bottleneck Rate BNR = .5
 Flow Time = 8 minutes: This is the minimum Raw Processing Time (RPT) as no
penny will have to wait before beginning to work.
Critical WIP: This WIP level, which results in maximum Throughput Rate and minimum
Flow Time is called the “CRITICAL WIP” : BNR X FT = 0.5 X 8 = 4
 Note that here BNR is the highest and Flow Time is the lowest. = CWIP
Now, if we increase the WIP level and release 5 penny blanks, waiting will begin to
occur. There will always be one penny blank waiting Infront of the first station, as there
are only four workstations.
o The result will be that, while your Throughput rate will still be 0.5 pennies per
minute, your Flow Time will be 8 + 2 = 10 minutes due to the waiting.

Let's Check Our Understanding : Critical WIP (Best Case Performance
WIP Throughput % of Flow Time % of Flow Throughput Rate

Level Rate BNR Time X Flow Time
1 0.125 25 8 100 1
2 0.250 50 8 100 2
3 0.375 75 8 100 3
4 0.500 100 8 100 4 CWIP
5 0.500 100 10 125 5
6 0.500 100 12 150 6
7 0.500 100 14 175 7
8 0.500 100 16 200 8
9 0.500 100 18 225 9
10 0.500 100 20 250 10
This is the best-case scenario for: WIP = Throughput Rate X Flow Time.
•Your strategy would then be to maintain WIP right at the Critical Level –
maximize throughput rate and minimize Flow Time.
 Any less WIP will lose throughput rate with no decrease Flow Time.
 Any more WIP, we increase Flow Time with no increase Throughput rate.

Critical WIP (Best Case Performance)

Critical WIP (Best Case Performance)
• For Balanced Lines: Note that the Critical WIP in this example is equal to
the # of workstations. This is always the case when the line consists of
stations with equal capacity – we call it a balances line
• For unbalanced lines, CWP will be less than the number of machines, but
still will have the property of being WIP level that achieves the maximum
Throughput Rate and minimum Flow Time:
WIP = Throughput Rate X Flow Time
 So, the CWIP level represents the “realistic ideal” WIP level.

Critical WIP (Worst Case Performance)
Now let us assume a worst-case scenario: Let’s say we release the jobs in batches.
So, all four jobs released get processed in Station #1, then move to Station #2 and so
on.
•So, total processing time for the any batch of four will take 8+8+8+8 = 32 minutes or:
Flow Time = 32 minutes (where w = 4 X Raw processing time = 8)
Throughput Rate = 4/32 = 1/8 = 0.125 jobs per minute. (One fourth of BNR)
= 7.5 jobs /hour
= 7.5 X 24 = 180 jobs / day
WIP Level = Throughput Rate X Flow Time
= .125 X 32 = 4
Critical WIP (Worst Case Performance)
Now let us assume a worst-case scenario: Let’s say we release the jobs in batches.
So, all four jobs released get processed in Station #1, then move to Station #2 and so
on.
•So, total processing time for the any batch of four will take 8+8+8+8 = 32 minutes or:
Flow Time = 32 minutes (where w = 4 X Raw processing time = 8)
Throughput Rate = 4/32 = 1/8 = 0.125 jobs per minute. (One fourth of BNR)
= 7.5 jobs /hour
= 7.5 X 24 = 180 jobs / day
WIP Level = Throughput Rate X Flow Time
= .125 X 32 = 4
Critical WIP: (Practical Worst-Case Performance)


A hypothetical company, produces printed-circuit boards (PCB) for computers which

is supplied to other plants. The basic process is shown on slide #48. Their best
estimates of capacity are also given (processing rate, avg. processing time).
___________________________________________________________________
•Over the past several months, throughput has averaged 1,400 panels per day,
• Or 71.8 panels per hour (assuming they work three shifts per day, or 19.5 productive
hours per day after considering breaks, lunch, shift change etc.).
•WIP in the line has averaged 47,000 panels
•Flow Time has been a total of 34 days or 816 hours
•Customer Service has averaged about 75%
So, the question is, how is this operation doing??

To answer, we need to evaluate performance metrics – Throughput, WIP, Flow Time.

We gathered the following data in the table on slide #48:
Let's assume the values are averages and as such account for different types of
PCBs with different routings.
The process ratings also averages reflecting all detractors (e.g., machine failures,
setup times, operator efficiency etc.).
The process time represents the average time a panel spends being worked on at
a process, which includes time for waiting for detractors.
The Performance Measures we are interested in are:

 Throughput (how many PCBs are produced),
 Flow Time (the time it takes to produce a typical PCB),
 WIP (inventory in the line), and
 Customer Service (% of prders delivered to customers on time)

Process Rates (parts/hour) Processing Time (Hrs.)

Lamination 191.5 4.7
Machining 186.2 0.5
Internal Circuitize 114.0 3.6
Optical Test /Repair – Int. 150.5 1.0
Lamination -composites 158.7 2.0
External Circuitize 159.9 4.3
Optical Test / Repair - Ext 150.5 1.0
Drilling 185.9 10.2
Copper Plate 136.4 1.0
Precoat 117.3 4.1

Sizing 126.5 1.1
EOL Testing Introduction to Materials Management, 8e
169.5Copyright © 2017 by Pearson Education, 0.5
Inc.

Best Case
Good Region
Practical Worst Case
Bad Region
Worst case
WIP Level
Variance Consumes Capacity 2
• Variability in:
• Outputs: product variety and variable schedules.
• Processes: quality variance, resource availability,
and processing speed.
• Inputs: variance in quality and delivery.
• Learning Objective 3-5
Variance Consumes Capacity 3
Equation  3.2 
 c2a +cp2   u 
Wait time      tp
 2  1u 
ca  coefficient of variation  Standard deviation average 
of job arrival times
cp  Coefficient of variation of job processing times
u  Utilization of the work center
tp  average pricessing  cycle  time for jobs
Learning Objective 3-5

Wait Time: Example 1
• Suppose you are the manager of the Accounts

Receivable department in your university. Recently,
you have been hearing complaints from the
students about having to wait too long in line
before they can discuss their bills with one of the
counselors. After discussing the situation with your
boss, you decide that students should expect an
average wait time of 20 minutes. With this standard
in mind, you collect the following information
during periods of high demand (i.e., the start of
term).
• Learning Objective 3-5
• Average arrival rate = 5 minutes

• Standard deviation of arrivals = 10 minutes
• Average time to discuss bill = 3 minutes
• Standard deviation of discussion time = 4.5 minutes
• Utilization = 85 percent
• Solution: Wait time   c +c   u  t
2 2
a p
 2  1 u 
p
ca  coefficient of variation  Standard deviation average 

of job arrival times
cp  Coefficient of variation of job processing times
u  Utilization of the work center
tp  average pricessing  cycle  time for jobs
• Step 1: Compute the coefficient of variation of job arrival times

 Standard deviation of arrival rates Average job arrival rate
 10 5
ca  2  Coefficient of variation of job arrival times 
• Step 2: Compute the coefficient of variation of processing

times
 Standard deviation of job processing time Average processing time
 4.5 3
cp  1.5  Coefficient of variation of job processing times 
• Step 3: Compute the average wait time
 c +c   u  2 2
Average wait time     tp

a p
 2  1  u 
 22  1.52   .85 
    3
 2   1  0.85 
 53.125 minutes
=0.8854 hours
Example
Example – Manufacturing Plant (1 of 4)
• A manufacturing plant has 100 orders arrive each day. All orders go
through the order processing area, where, on average, there are 25 orders
in the system.
• Of the incoming orders , 70% are “A” orders routed through work center A
where average inventory is 14
• The remaining 30% are “B” orders routed through work center B where on
the average inventory is 1.5 orders.
70 orders /day
70%
00 orders/ day
30% 30 orders /day

Example – Manufacturing Plant
The plant manager wants to know, on average:
 How long does an order (A or B) stay in the order
processing area?
 How long does it take an A order to work its way through
the plant?
 How long does it take a B order to work its way through
the plant?
 How long does it take the average order (A or B) to work
its way through the plant?

Example (Little’s Law)
Manufacturing Plant
 How long does an order (A or B) stay in the order processing area?
Average Throughput Time 
T  I / R  (25 orders) / (100 orders per day)
 0.25 days in order processing
 How long does it take an A order to work its way through the plant?
Average time an order spends in workcenter A 

T  I / R  (14 orders) / (70 orders per day)
 0.2 days in workcenter A
Amount of time the average A order spends in the plant 
Order proccessing time  workcenter A time
 0.25 days  0.2 days  0.45 days
Example (Little’s Law)
Manufacturing Plant
 How long does it take a B order to work its way through the plant?
Amount of time the average B order spends in the plant 
Order processing time  workcenter B time
0.25 days  0.05 days  0.30 days
Average time an order spends in the plant 
70%  0.45 days  30%  0.30 days
 0.405 days
 How long does it take the average order (A or B) to work its way through the plant?
Estimate average throughout time for the entire system 

T  I / R  (40.5 orders) /(100 orders per day)
 0.405 days for the average order

Waiting Line Theory

Process Capacity
Waiting Line Theory

• Waiting Line Theory – A body of theory
based on applied statistics that helps managers evaluate
the relationship between capacity decisions and important
performance issues such as waiting times and line lengths.
lengths
Single-Channel, Single-Phase System

Process Capacity – Waiting Line

Waiting Line Concerns at a Drive-up Window:
 What percentage of the time will the server be busy?
 On average, how long will a customer have to wait in line?
How long will the customer be in the system (i.e., waiting
and being served) ?
 On average, how many customers will be in line?
 How will these averages be affected by the arrival rate of
customers and the service rate of the drive-up window
personnel?

Process Capacity – Waiting Line

• Arrivals: The probability of n arrivals in T time periods is calculated as
follows:
(T ) n  T
Pn  e
n!
where:
Pn  probability of n arrivals in T time periods
  arrival rate
T  number of time periods
• Service Times: Assume that they will be constant or vary. When varying
they use the exponential distribution with μ as the service rate.

Example - Drive-Up Window
• Customers arrive at a drive-up window at a rate of 3 per minute (λ = 3) If
the number of arrivals follows a Poisson distribution, what is the
probability that two or fewer customers would arrive in 1 minute (T=1)?
• The probability of two or fewer customers is actually the probability of no
arrivals plus the probability of one arrival plus the probability of two
arrivals or: ( eto the power µÿq
P ( 2)  P(0)  P(1)  P(2)

 0.050  0.149  0.224  0.423, or 42.3%
We can also look up the value from Published Tables

Process Capacity
• The average utilization of the system is: 
p

• The average number of customers waiting (C W) is:

2
Cw 
 (   )
• The average number of customers in the systems (C S) is:

Cs 
 
Process Capacity
• The average time spent waiting is

TW 
 (   )
• The average time spent in the system is:
1
TS 
 

Example- Drive-Up Window
• Given an arrival rate of 4 customers per minute and a
service rate of 5 customers per minute:
• The average number of customers waiting is:
λ2 16
CW    3.2 customers
 (   λ) 5(1)
• The average number in the system is:
λ 4
CS    4 customers
 λ 1

Example - Drive-Up Window
• Given an arrival rate 4 customers per minute and a service
rate of 5 customers per minute:
• The average time spent waiting is:
λ 4
TW    0.80 minutes, or 48 seconds
 (   λ) 5(1)
• The average time spent in the system is:
1 1
TS    1 minute
 λ 1

Example (Waiting line)
Snappy Lube
• Snappy Lube is a quick-change oil center with a single service bay. On
average, Snappy Lube can change a car’s oil in a 10 minutes. Cars arrive,
on average, every 15 minutes.
Arrival rate  λ  60 minutes / 15 minutes  4 per hour
Service rate    60 minutes /10 minutes  6 per hour

p 
Average utilization  4 / 6  67% 
2
Average number of cars waiting  16 /(6  2)  1.33 cars
Cw 
 (   )
Average number of cars in the system  4 / 2  2 cars Cs 


 
Average time spent waiting  4 /(6  2)  0.33 hour TW 


 (   )
Average time spent in the system  1/ 2  0.50 hour TS 

1
 

Methods of Evaluating Capacity Alternatives
Learning Curves
Learning curve theory – A body of theory based on applied
statistics which suggests that productivity levels can improve at a
predictable rate as people and even systems “learn” to do tasks more
efficiently.
 For every doubling of cumulative output, there is a set
percentage reduction in the amount of inputs required.
Tn  T1nb
where:
Tn = resources (usually labor) required for the nth unit
T1 = resources required for the 1st unit
b = ln(Learning percentage)/ln2

Learning Curves
6-3

Various Forms of the Learning
Curve
 The most common forms of learning curves use process
time, labor content, or unit cost as their measure of
performance on the y-axis.
 The x-axis plots the experience of the process.

 Whether processing time, labor content, defect rates, or
unit cost, a lower number means a better performance,
and so the learning curve slopes down.
6-4

Various Forms of the Learning Curve:
Moore’s Law
Moore’s Law: Exponential Growth
• Moore’s Law states the number of transistors on an
integrated circuit breaker doubles approximately every
two years. Please note that Moore’s Law is not a law of
nature but simply an empirical regularity.
In contrast to improvements with exponential growth
(Moore’s Law) are improvements that happen with
diminishing returns. In such cases of diminishing
returns, improvements do not follow the pattern of
exponential growth.
6-7

Shapes of Learning Curves

Various Forms of the Learning
Curve 5
In contrast to improvements with exponential growth (Moore’s

Law) are improvements that happen with diminishing returns.
In such cases of diminishing returns, improvements do not
follow the pattern of exponential growth.
Diminishing returns – a performance trajectory in which the
improvement rate decreases over time or experience.
 In diminishing returns we can think of them as an exponential
decay of the performance gap.
 The rate of performance improvement decreases over time e.g cost reduction,
customer complaints, # of defects etc.
Performance gap – the difference between the current

process performance and some target or optimal value. 6-8

6-80

6-81

The Power Law
• The most common form of learning curve is one that

uses unit costs as a dependent variable (y-axis) and
cumulative experience as the independent variable (x-
axis).
• The constant improvement (a fixed percentage) with
each doubling of cumulative experience is referred to as
the power law.
• To capture this effect of doubling cumulative output,
consider c(i) gets multiplied by a positive number less
than 1 (one), which we call the learning rate.
6-9

Learning Rate
For example:
Assume that it costs us $100 per unit to make the first
unit of a new product.
c(1) = 100
Assume further that our learning rate LR = 0.8; that is, it
takes us 80% of the previous unit costs after we have
doubled the cumulative output.
We then get:
c(2) = c(1) × LR = 100 × LR = 100 × 0.8 = 80
6-10

Learning Rate
 Assume further that our learning rate LR = 0.8; that is, it takes us 80% of
the previous unit costs after we have doubled the cumulative output. We
then get
c(2) = c(1) × LR = 100 × LR = 100 × 0.8 = 80
c(4) = c(2) x LR = C(1) x LR x LR = 64
c(8) = c(4) x LR = c(1) x LR x LR x LR = 51.2
C(16) = c(8) x LR = c(1) x LR x LR x LR x LR = 40.96
C(32) = c(16) x LR=C(1)x LRxLRxLRXLRxLR = 32.768
 Unit costs decrease by 20% each time that we doubled the cumulative output
n
 In general, we can express that as: C(1) x LR
 But, what will be cost for the, let’s say, 29th unit?
 We need to use logarithm for the non-integers:
 Log 2 (29) = log (29) / Log (2) =n = 4.85799
4.85799
 So: C(29) = 100 x LR = 100 x (.8)4.85799 = 100 x .33823 = 33.823 6-10

LR
Learning Curve Coefficients for Various Learning Rates and Experience Levels
Experience 0.65 0.7 0.75 0.8 0.85 0.9 0.95
1 1 1 1 1 1 1 1
2 0.65 0.7 0.75 0.8 0.85 0.9 0.95
3 0.505213 0.56818 0.633836 0.702104 0.772915 0.846206 0.921919
4 0.4225 0.49 0.5625 0.64 0.7225 0.81 0.9025
5 0.367789 0.436846 0.512745 0.595637 0.685671 0.782987 0.88772
6 0.328389 0.397726 0.475377 0.561683 0.656978 0.761585 0.875823
7 0.298388 0.367397 0.445916 0.5344449 0.633656 0.743948 0.865889
8 0.274625 0.343 0.421875 0.512 0.614125 0.729 0.857375
9 0.25524 0.322829 0.401748 0.49295 0.597397 0.716065 0.849935
10 0.239063 0.305792 0.384559 0.47651 0.58282 0.704688 0.843334
11 0.225313 0.291157 0.369643 0.462111 0.569941 0.694553 0.837407
12 0.213453 0.278408 0.356533 0.449346 0.558431 0.685427 0.832032
13 0.203094 0.267174 0.344883 0.437916 0.548048 0.677138 0.827118
14 0.193952 0.257178 0.334437 0.427592 0.538608 0.669553 0.822595
15 0.185812 0.248208 0.324996 0.418199 0.529965 0.662568 0.818406
20 0.155391 0.214055 0.288419 0.381208 0.495397 0.634219 0.801167
25 0.135268 0.190835 0.262907 0.354784 0.470145 0.613068 0.788046
30 0.120778 0.173745 0.243747 0.334559 0.450471 0.596311 0.777485
50 0.087924 0.133584 0.19718 0.283827 0.399623 0.551761 0.748644
100 0.057151 0.093509 0.147885 0.227062 0.33968 0.496585 0.711212
200 0.037148 0.065456 0.110914 0.181649 0.288728 0.446927 0.675651
500 0.021019 0.040849 0.075827 0.135246 0.232908 0.38882 0.631356
1000 0.013663 0.028594 0.056871 0.108197 0.197972 0.349938 0.599789

Check Your Understanding (1)
Question: Consider a process with a unit cost of $40 for the first unit;
that is, c(1) = 40, and a learning rate of LR = 0.9. What will be the unit
costs for the 16th unit?
Answer: To reach the 16th unit, we have to double the cumulative output
four times (from 1 to 2, from 2 to 4, from 4 to 8, and from 8 to 16). We can
then use the formula:
c  After doubling cumulative output 4 times   c  1   LR4  40  0.94  26.244
Question: Consider a process with a unit cost of $40 for the first unit; that is, c(1)
= 40, and a learning rate of LR = 0.9. What will be the unit costs for the 19th unit?
Answer: We can directly use the formula:
In 19 
c  19   c  1   LRlog2 19  c  1   LR In 2  40  0.9 4.248  25.567

Note that the exponent of 4.248 captures the fact that we are doubling
6-11
production more than 4 times (4 times doubling output got us to 16, see
above), but less than 5 times (which would get us to 32).
Estimating the Learning Curve
Using a Linear Log-Log Graph
LO 6-3
Log-log plot – A graphical representation in which we
plot the logarithmic value of both the x and y variables.
The improvements in the learning curve will appear as
a straight line, as this reflects the constant learning
rate.
The only variable determining the slope of the learning
curve in the log-log representation was the learning
rate (LR). We can form a 1:1 relationship between the
learning rate and the slope.
6-12

Logarithmic Transformation of Experience and Cost Data; ln(x) Stands
for the Natural Logarithm of x
Experience Cost ln(Cumulative experience) ln(Unit cost)

1 100 0.000 4.605
2 80 0.693 4.382
4 64 1.386 4.159
8 51.2 2.079 3.936
16 40.96 2.773 3.713
32 32.768 3.466 3.489
64 26.2144 4.159 3.266
128 20.97152 4.852 3.043

Estimating the Learning Curve
Using a Linear Log-Log Graph
LO 6-3
Log-log plot – A graphical representation in which we
plot the logarithmic value of both the x and y variables.
The improvements in the learning curve will appear as
a straight line, as this reflects the constant learning
rate.
The only variable determining the slope of the learning
curve in the log-log representation was the learning
rate (LR). We can form a 1:1 relationship between the
learning rate and the slope.
6-12

Log-Log Graph
The main reason for working with the log-log version of the
learning curve is that, in practice, the learning curve is
unknown. With the log-log version we can estimate the
learning rate:
1.Plot the learning curve in a log-log representation (making
sure it is linear).
2.Estimate the slope, b, of the curve in the log-log
representation using the formula for the slope as
In  c  x2    In  c  x1  
b ,
In  x2   In  x1 
where x1 and x2 can be any two points with x1 < x2.
6-13
3. Use Table (next slide) to find the learning rate, LR, given the slope b.
Relationship between the Learning Rate, LR, and the Slope of the
Learning Curve in a Log-Log Graph (LR = 2Slope)
Learning Learning Learning Learning Learning

Rate Slope Rate Slope Rate Slope Rate Slope Rate Slope
0.5 –1 0.6 – 0.73697 0.7 – 0.51457 0.8 – 0.32193 0.9 – 0.152
0.51 – 0.97143 0.61 – 0.71312 0.71 – 0.49411 0.81 – 0.30401 0.91 – 0.13606
0.52 – 0.94342 0.62 – 0.68966 0.72 – 0.47393 0.82 – 0.2863 0.92 – 0.12029
0.53 – 0.91594 0.63 – 0.66658 0.73 – 0.45403 0.83 – 0.26882 0.93 – 0.1047
0.54 – 0.88897 0.64 – 0.64386 0.74 – 0.4344 0.84 – 0.25154 0.94 – 0.08927
0.55 – 0.8625 0.65 – 0.62149 0.75 – 0.41504 0.85 – 0.23447 0.95 – 0.074
0.56 – 0.8365 0.66 – 0.59946 0.76 – 0.39593 0.86 – 0.21759 0.96 – 0.05889
0.57 – 0.81097 0.67 – 0.57777 0.77 – 0.37707 0.87 – 0.20091 0.97 – 0.04394
0.58 – 0.78588 0.68 – 0.55639 0.78 – 0.35845 0.88 – 0.18442 0.98 – 0.02915
0.59 – 0.76121 0.69 – 0.53533 0.79 – 0.34008 0.89 – 0.16812 0.99 – 0.0145

Check Your Understanding (2) 1
Question: You are given the following data. In 2000, a

company has a cumulative output of 2000 units and it
costs the company $30 to make one unit. In 2014, the
company has reached a cumulative output of 7000
units and it costs the company $22 to make one unit.
The learning curve in a log-log graph appears to be
linear. By how much does the company improve its
cost with each doubling of cumulative output?
6-14

Check Your Understanding (2) 2
Answer: We choose x2 as the cumulative output in 2014 and get

In(Cost) = In(22) = 3.091, and
In(Cumulative output) = In(7000) = 8.854
Similarly, if we choose x1 as the cumulative output in 2000, that yields
In(Cost) = In(30) = 3.401, and
In(Cumulative output) = In(2000) = 7.601
So, we can compute the slope as
In  c  x2    In  c  x1     3.09  3.401 0.310
slope b     0.248
In  x2   In  x1    8.853  7.601 1.253
Thus, we obtain a slope of the learning curve in a log-log graph of b =
−0.248. We can then use Table 6.2 to find the corresponding learning rate
LR, which is between 0.84 and 0.85. So the process reduces its cost by
15 to 16 percent every time it doubles its cumulative output. Instead of
using Table 6.2, we can also use the equation
LR  2Slope , which gives us LR  20.248  0.842. 6-15

Using Learning Curve
Coefficients to Predict Costs 1
LO 6-4
• Costs are expressed as a multiple of the initial cost c(1).
• You can simplify cost estimation by considering generic
process initial cost of c(1) = 1.
• Compute cost values for different learning rates and
different cumulative outputs and store data in a table.
• Learning curve coefficients (L CC) – the cost of producing
one unit in a process that has an initial cost of c(1) = 1, a
cumulative output of x, and a learning rate of LR.
6-16

Coefficients to Predict Costs 2
• The LCC method allows us to quickly compute the

costs of a unit as a function of the costs for the first
unit and the learning rate.
LCC(, LR) = the cost of producing one unit in a process

that has an with initial cost of c(1) = 1, a cumulative
output of , and a learning rate of LR.
6-17

Coefficients to Predict
Cumulative Costs
L O 6-5
Looking at the example in the textbook, consider the following:
Assume the supplier has a learning rate of 0.85. Using the LCC
method, we can estimate that it costs the supplier
c(20) = $19k × 0.495397 = $9,412 to produce the 20th unit.
Total cost  20   c  1   c  2     c  20 
Cumulative learning curve coefficient – the cost of
producing x units in a process that has an initial cost of
c(1) = 1 and a learning rate of LR. 6-18

Learning Curve Coefficients for the Cumulative Costs of Producing a Certain Quantity
LR
Experience 0.65 0.7 0.75 0.8 0.85 0.9 0.95

1 1 1 1 1 1 1 1
2 1.65 1.7 1.75 1.8 1.85 1.9 1.95
3 2.155213 2.26818 2.383836 2.502104 2.622915 2.746206 2.871919
4 2.577713 2.751118 2.946336 3.142104 3.345415 3.556206 3.774419
5 2.945502 3.195027 3.459081 3.737741 4.031086 4.339193 4.662139
6 3.27389 3.592753 3.934457 4.299424 4.688064 5.100778 5.537962
7 3.572278 3.96015 4.380373 4.833914 5.32172 5.844726 6.403851
8 3.846903 4.30315 4.802248 5.345914 5.935845 6.573726 7.261226
9 4.102144 4.625979 5.203996 5.838863 6.533242 7.289791 8.11116
10 4.341206 4.931771 5.588554 6.315373 7.116063 7.994479 8.954494
11 4.56652 5.222928 5.958198 6.777484 7.686003 8.689031 9.7919
12 4.779972 5.501336 6.314731 7.226831 8.244434 9.374458 10.62393
13 4.983066 5.768511 6.659614 7.664746 8.792483 10.0516 11.45105
14 5.177018 6.025688 6.99405 8.092338 9.331091 10.72115 12.27364
15 5.36283 6.273896 7.319046 8.510537 9.861056 11.38372 13.09205
20 6.194963 7.406536 8.828351 10.48494 12.40228 14.60776 17.13024
25 6.908642 8.404015 10.19069 12.3086 14.80073 17.71323 21.09545
30 7.539799 9.305035 11.44577 14.019l89 17.09066 20.72689 25.00317
40 8.631226 10.90242 13.72316 17.19346 21.42516 26.54271 32.68379
50 9.565429 12.30688 15.77609 20.12171 25.51311 32.14196 40.22385
100 13.03445 17.79071 24.17858 32.65081 43.75387 58.14102 76.58639

Example – Service Call Center
• A video game producer has hired a new service technician

to handle customer calls. The time it takes the new service
technician to help the first, second, fourth, and eighth
callers and the resulting productivity figures are shown
below:
Learning Rate 4/5 = 80% or .80
Call Time for Call Productivity

1 5.00 minutes 0.20 calls per minute

• Estimate the time it will take her to handle her 25th call:
Eighty Percent Learning Curve for Service Technician
 ln(0.80) 
T25  T1  25 ln(2)


 
 (5 minutes)(250.32193 )
 (5 minutes)(0.355)
 1.78 minutes

• If the video game producer hires a second service

technician who takes 5 minutes for his first call,
followed by 4.5 minutes for the second call:
 Estimate the learning rate
 Calculate the time it should take to handle the 25th
call
 Calculate the total time it should take to handle the
next 23 calls (i.e., calls 3 through 25)

Example– Service Call Center (4
of 4)
Learning Rate 4.5/5 = 90% or .90

Estimated time for the 25th call = (5 minutes)(0.613) =
3.605 minutes
Estimated time for the next 23 calls =
Estimate time for the first 25 calls – Time for the first 2 calls
 5 minutes   nb   (5  4.5 minutes)

 5 minutes (17.713)  9.5 minutes
 79 minutes

Determining Capacity Requirements

• Stewart Company produces two flavors of salad dressing- Paul’s and Newman’s. Each is available in
bottles and single-serving bags. You would like to determine equipment and labor requirements for
the packing operations for the next five years. The demand for the flavors and for each packing
option is given in the table below.
• The company has three machines that can pack age 150,000 bottles each year (each machine has 2
operators)
• It also has five machines that can package 250,000 plastic bags per year (each of these machines
require 3 operators).
• What are the capacity and labor requirements for the next five years? Will the company have enough
capacity to meet future demand?
Product Year 1 Year 2 Year 3 Year 4 Year 5

Paul’s 60 100 150 200 250
Bottles (000s)
Paul’s 100 200 300 400 500
Plastic bags (000s)
Newman’s 75 85 95 97 98
Bottles (000s)
Newman’s 200 400 600 650 680
Plastic bags (000s)

Determining Capacity
Requirements (2 of 4)
Step 1: Calculate Aggregate demands & Available Capacity
Step 2: Calculate equipment and labor requirements
Product Year 1 Year 2 Year 3 Year 4 Year 5
Bottles (000s) 135 185 245 297 348
Plastic bags (000s) 300 600 900 1050 1180
Calculate Available Capacity:

Bottling Bagging
Machines : 3 5
Capacity/machine 150K 250K
Total Capacity 450K 1,250K
Operators/machine 2 3
Total Labor 6 15

(3 of 4)
Year 1: Bottling Capacity Requirements
135
Capacity utilizatio n   0.3
450
Machine requiremen t  0.3  3  0.9
Labor requiremen t  0.9  2  1.8
Year 1: Bagging Capacity Requirements
300
Capacity utilization   0.24
1,250
Machine requirement  0.24  5  1.2
Labor requirement  1.2  3  3.6

McGraw-Hill Education
Determining Capacity
Requirements (4 of 4)
Step 3: Project Capacity availabilities / Utilization

Three Common Capacity
Strategies
• Lead capacity strategy – A capacity strategy
in which capacity is added in anticipation of demand.
• Lag capacity strategy – A capacity strategy in
which capacity is added only after demand has
materialized.
• Match capacity strategy – A capacity strategy
that strikes a balance between the lead and lag
capacity strategies by avoiding periods of high under or
overutilization.

Three Common Capacity Strategies
Methods of Evaluating
Capacity Alternatives
Methods of Evaluating Capacity
Alternatives (1 of 7)
• Cost
• Demand Considerations
• Expected Value
• Decision Trees
• Break-Even Analysis
• Learning Curves

• Cost
 Fixed costs – The expenses an organization incurs regardless of the
level of business activity.
 Variable costs – Expenses directly tied to the level of business activity.
TC = FC +VC* X
TC = total cost
FC = fixed cost
VC = variable cost per unit of business activity
X = amount of business activity
This understanding of the FC and Variable cost can be critical in choosing

between capacity alternatives

Example – Ellison Seafood Company
• Ellison Seafood Company ships fresh

seafood to customers in a nearby city.
The logistics manager has identified
three shipping alternatives:
 Common Carrier
 Contract Carrier
 Leasing own refrigerated trucks

Blank Common Carrier Contract Carrier Leasing
Fixed cost None $5,000 $21,000

Variable cost $750 $300 $50

Find the Point of Indifference - Total cost of common

carrier option = Total cost of contract carrier option
$0  $750 X  $5,000  $300 X

X  11.11 or 11 shipments
Find the indifference point (the output level at which the
two capacity alternatives generate equal costs.)
Total cost of contract carrier option = Total cost of leasing
$5,000  $300 X  $21,000  $50 X
X  64 shipments
Total Cost per Shipment of Three Capacity Alternatives

Total Cost of Three Capacity Alternatives at Different Demand Levels
15 Shipments 40 Shipments 75 Shipments

Total Cost Equation (Low Demand) (Medium Demand) (High Demand)
Common carrier: $0 + $750X $11,250 $30,000 $56,250
Contract carrier: $5,000 + $300X $9,500 $17,000 $27,500
Leasing: $21,000 + $50X $21,750 $23,000 $24,750

• Expected value – A calculation that summarizes

the expected costs, revenues, or profits of a
capacity alternative, based on several demand
levels, each of which has a different probability.
I
EV j   PC
i i
i 1
where:
EVj = expected value of capacity alternative j
Pi = probability of demand level i
Ci = financial result (cost, revenue, or profit) at demand level i

• Suppose Ellison Seafood wants to know the

expected cost of one of the options, contracting. The
management has identified some potential demand
scenarios and assigned probabilities to each.
Low demand → 30 shipments per year

Medium demand → 50 shipments per year
High demand → 80 shipments per year
Low demand → 30 shipments per year → 25%

Medium demand → 50 shipments per year → 60%
High demand → 80 shipments per year → 15%
blank blank
blank Total 100%

C(low demand) = $5,000 + $300(30) = $14,000

C(medium demand) = $5,000 + $300(50) = $20,000
C(high demand) = $5,000 + $300(80) = $29, 200
* Lowest Expected Value

• Decision tree – A visual tool that decision makers use

to evaluate capacity decisions and to enable users to see
the interrelationships between decisions and possible
outcomes.
1. Draw the tree from left to right starting with a decision
point or an outcome point and develop branches from
there.
2. Represent decision points with squares.
3. Represent outcome points with circles.
4. For expected value problems, calculate the financial
results for each of the smaller branches and move
backward by calculating weighted averages for the
branches based on their probabilities

Decision Tree for Transportation Decision

Break-even analysis
 Break-even point – The volume level for a business at
which total revenues cover total costs.
FC
BEP 
R  VC
where:
BEP = break-even point
FC = fixed cost
VC = variable cost per unit of business activity
R = revenue per unit of business activity

Example – Ellison’s Seafood Company
• Ellison makes a $1,000 profit on each shipment before

transportation costs are considered.
• What is the break-even point for each shipping option?
FC
BEP 
R  VC
Contracting: BEP  $5,000 / $700  7.1 or 8 shipments
Common: BEP  $0 / $250  0 shipments
Leasing: BEP  $21,000 / $950  22.1 or 23 shipments
 The Common Carrier has the lowest BE point – however, they will earn ($1000-750)
$250 on each shipment.
 Leasing will bring in about ($1000-$50) $950 after 23 shipments to the bottom line
 Careful consideration of risk and expected demand will be necessary

Chapter 5 Capacity Management

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Capacity

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

• Capacity – The capability of a worker, a machine, a work

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Organization Capacity Measure Factors Affecting Capacity

Textile-spinning Spinning hours per shift; Number of machines running; quality

Airline (Seats) × (miles flown) Number of jets, pilots, and terminals

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

• Capacity decisions that managers face:

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Efficiency : Capacity Used

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

• Effective Capacity: 40 cars/day given the complexities

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Let us suppose that fabrication of a product can be divided in 5 elemental

Start:: .1 Start: 8 Start: 23

1 Min 7 min 10min 5 min 2 min

Start:: .1 Start: 8 Start: 23

1 Min 7 min 10min 5 min 2 min

1 Min 7 min 10 2 min

1 Min 7 min 10min 5 min 2 min

1 Min 7 min 10 2 min

1 Min 7 min 10min 5 min 2 min

Start: 1 Start: .8: Start:: 18 Start: 28 Start: 33

1 Min 7 min 10min 5 min 2 min

Utilization: .1 / 1 = 10% .1/.143 = 69.9% 100% .1/.2 = 50% .1/.5=20%

Process Capacity: .1 Unit/minute

AI, PMBA 6040

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Capacity and Cost Data for Workers at Tracy’s Hair Salon

Average processing time per customer 10 minutes 15 minutes 3 minutes

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

blank Shampoo Cut and Style Collect Money

Average processing time per customer 10 minutes 15 minutes 3 minutes

blank Shampoo Cut and Style Collect Money

Average processing time per customer 10 minutes 15 minutes 3 minutes

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Process Capacity – Little’s Law

Typically, we would like to have “Throughput (R) high” and

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Process Capacity – Little’s Law

Throughput Rate = Inventory / Flow Time

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

More units flowing through a process is generally

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

During a typical Friday, the West End Donut Shop serves

A customer spends (on average) 5-minutes in the shop.

On average, how many customers are in the shop

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Flow Time: 5 minutes

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.

Patient Arrival Departure Flow Time

Patient Arrival Departure Flow

Congress Has 435 members

Introduction to Materials Management, 8e Copyright © 2017 by Pearson Education, Inc.