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Measuring Capacity: The Basics

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Measuring Capacity: The Basics By: Cameron Tidwell December 12, 2006 Marriott School of Business - Brigham Young University So What is Capacity? What do YOU think ... – PowerPoint PPT presentation

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Title: Measuring Capacity: The Basics


1
Measuring Capacity The Basics
  • By Cameron Tidwell
  • December 12, 2006
  • Marriott School of Business - Brigham Young
    University

2
SoWhat is Capacity?
  • What do YOU think Capacity is?
  • Google the term Measuring Capacity what comes
    up?

3
Google search results
  • Possible finds
  • Math activities
  • Units of measurements
  • Cups, Gallons, Ounces etc.
  • Ideas for teachers
  • Measuring Capacity fisheries and Web Servers

4
What is going to be covered
  • What is Capacity?
  • Difference Between Measuring and Calculating
  • Efficiency
  • Utilization
  • Real World Examples
  • Applications

5
Capacity Defined
  • Capacity is the capability of a worker, machine,
    plant, organization to provide goods and services
    (output) per period of time.

6
An easy way to remember
  • Capacity is like a Funnel.
  • Wrights Funnel was developed by Oliver Wright
    demonstrate the idea of capacity.
  • (Blackstone, 1989)

7
However
  • The Funnel only focuses on OUTPUTS. Capacity can
    also be measured by an organizations INPUTS.
  • (Blackstone, 1989)

8
Units of Measurements
  • INPUTS
  • Number of Labor Hours available in a time period
  • Number of Machines Hours available in a time
    period
  • Seats on an airplane
  • Beds in a Hospital
  • OUTPUTS
  • Number of units produced in a time period
  • Cars washed per hour
  • Beds assembled per day
  • Oil changes per hour

9
What are Possible units of measure of Capacity
for the following?
  • A Bottling Company?
  • Work Hours, Bottles Filled
  • An Car Dealership?
  • Cars sold, Cars serviced
  • What about your Organization?
  • ?

10
Lets Think
  • What is the benefit of knowing capacity?
  • How could it help an organization?
  • How could knowing how to measure capacity benefit
    this organization?

11
Measuring/Calculating Capacity
  • John H. Blackstones Capacity Management,
    distinguishes between the two
  • Measuring Capacity
  • One averages some set of historical data.
  • Calculating Capacity
  • One sets capacity equal to the product of time
    available (T), efficiency (E), and utilization
    (U).
  • C T x E x U
  • (Blackstone, 1989)

12
Measuring Capacity
  • This part is easy
  • 1. Take historical outputs from equal time
    periods and add them together.
  • (output 1 output 2 output N)
  • 2. Divide the total output by the number of
    periods.
  • (output 1 output 2 output N)/ periods

13
Measuring Capacity
  • Example
  • Louisville Sluggers factory in Louisville, KY
    produced an output of 2700 bats, 2000 bats, 1900
    bats, and 2400 bats. What is the measured
    capacity?

14
Louisville Slugger
  • Step one Add the Historical Data
  • 2700200019002400 9000 bats
  • Step two Divide the total by the number of
    periods, 4.
  • 9000/4 2250 bats
  • Thus, 2250 bats is the average capacity.

15
Calculating Capacity
  • Now it gets a little tricky
  • Capacity ( of shifts) x ( of hours a day) x
    ( of machines) x ( of days a week)
  • (Provides Mins and Maxs in the ability to
    produce)
  • Important! Variables are subject to change
    depending on information

16
Calculating Capacity
  • Example
  • Ford has a factory in Detroit which produces
    transmissions. The factory has 2 shifts which man
    4 machines, 8 hours day, 6 days a week. What is
    the factorys calculated capacity?

17
Ford cont.
  • Remember the Equation
  • Capacity ( of shifts) x ( of hours a day) x
    ( of machines) x ( of days a week)
  • There were 2 shifts, 4 machines, 8 hours a day,
    and 6 days wk
  • Capacity (2) x (4) x (8) x (6)
  • Capacity 384 standard hours per week

18
Even more Ford.
  • As mentioned Capacity T x E x U.
  • This calculated capacity is also call Rated or
    Nominal Capacity.
  • Example cont.
  • Say that Ford historically has a utilization of
    93 and a efficiency of 98 then what would
    their capacity equal?

19
Even more Ford cont.
  • Capacity T x E x U
  • Time Available 384 hrs Efficiency .98
    Utilization .93
  • Capacity (384) x (.98) x (.93)
  • Capacity 349.98
  • Capacity 350 standard hours

20
Efficiency
  • Definition
  • A measure (usually expressed as a percentage)
    of the actual output to the standard output
    expected.
  • (APICS Dictionary, 1998)

21
Calculating Efficiency
  • Efficiency Standard hours x 100
  • Hours worked
  • -or-
  • Efficiency Actual units produced x 100
  • Standard rate of production expected

22
Calculating Efficiency
  • Example
  • At company X work is measured in hours. It took
    employees 12.75 hours to produce 12 standard
    hours of work. What is the companies efficiency?

23
Calculating Efficiency
  • Efficiency Standard hours x 100
  • Hours worked
  • (Standard Hours 12 Hours worked 12.75)
  • Efficiency 12 .9412 x 100
  • 12.75
  • Efficiency 94.12

24
Lets try a different one
  • Example
  • Company Y produces a standard of 250 units per
    hours. Today, in one eight hour shift the company
    produced 1925 units. What was the companys
    efficiency for the shift today?

25
Calculating Efficiency
  • Efficiency Actual units produced x 100
  • Standard rate of production expected
  • Actual units produced 1925 units
  • Standard rate of production expected ?
  • (250 units per hour x 8 hours per shift 2000)

26
Calculating Efficiency
  • Efficiency Actual units produced x 100
  • Standard rate of production expected
  • Efficiency 1925 .9625 x 100
  • 2000
  • Efficiency 96.25

27
Utilization
  • Definition
  • A measure (usually expressed as a percentage) of
    how intensively a resources is being used to
    produce a good or service.
  • (APICS Dictionary, 1998)

28
Calculating Utilization
  • Utilization Hours available hours down x 100
  • Hours available
  • Utilization Hours worked x 100
  • Hours available

29
Calculating Utilization
  • Example
  • Your company has 4 machines which are staffed by
    2 eight hours shifts 6 days a week. Lately
    information has shown that there are about 20 per
    week in which machines are not in use due to
    breakdowns. Calculate your companies machine
    utilization.

30
Calculating Utilization
  • Capacity ( of shifts) x ( of hours a day) x
    ( of machines) x ( of days a week)
  • Utilization Hours available hours down x 100
  • Hours available
  • Utilization Hours worked x 100
  • Hours available

31
Calculating Utilization
  • First step, the companys machine hour capacity?
  • Capacity ( of shifts) x ( of hours a day) x
    ( of machines) x ( of days a week)
  • Capacity (2 shifts) x (8 hours a day) x (4
    machines) x (6 days a week)
  • Capacity 384 machine hours

32
Calculating Utilization
  • Second Step
  • Utilization Hours available hours down x 100
  • Hours available
  • Utilization (384 machine hours) (20 hours
    down) x 100
  • 384 machine hours
  • Utilization 364 machine hours x 100 .9479 x
    100
  • 384 machine
    hours
  • Utilization 94.79

33
Real World Example
  • Fisheries in Europe
  • A measure that has gained increase use in
    fisheriesis capacity utilization
  • (Pascoe, 2004)
  • Capacity and Utilization are being determine
    based on the same ideas but much more in depth.

34
One final point on Utilization
  • Note that
  • Over Utilization
  • Machine Breakdown
  • Decrease in quality
  • Lost time injuries
  • Under Utilization
  • Increase Costs
  • Employees downtime (standing around)

35
Applications cont.
  • What is the right utilization and efficiency
    level for your organization?
  • Companies need to find their Best Operating
    Level

36
Review
  • What is Capacity?
  • What is the Difference between Measuring and
    Calculating Capacity?
  • How does one determine Efficiency?
  • How does one determine Utilization?

37
Readings List
  • Blackstone, J.H. (1989). Capacity Management.
    Ohio South-Western Publishing.
  • Bozarth, C.C. Handfield R.B. (2005).
    Introduction to Operations and Supply Chain
    Management. New Jersey Pearson Education
  • Cox, J.F. Blackstone, J.H. eds. (1998). APICS
    Dictionary (9th ed.) Virginia APICS

38
Readings List
  • Fare, R., Grosskopf, S., Kokkelenberg, E. C.
    (1989). Measuring Plant Capacity, Utilization
    and Technical Change A Nonparametric Approach.
    International Economic Review, 30 (3), 655-666.
  • Newman, M. (2006). Empty wards and
    promises. Hospital Doctor, 20-22.
  • Mahanti, T. K. (2006, October 2). Higher capacity
    utilisation raises global competitiveness. Knight
    Ridder Trinbune Business News. pg 1.

39
Readings List
  • Morlok, E. K., Chang, D. J. (2004). Measuring
    capacity flexibility of a transportation system.
    Transportation Research Part A Policy
    Practice, 38 (6), 405-420.
  • Pascoe, S., Greboval, D., Kirkley, J., Lindebo,
    E. (2004) Measuring and appraising capacity in
    fisheries framework, analytical tools and data
    aggregation. Rome FAO Fisheries Circular. No.
    994
  • Ruist, E., Söderström, H. T. (1975). Measuring
    Capacity Utilization and Excess Demand. European
    Economic Review, 6 (4), 369-386.
  • Taverna, M. A. (1998). BMW Rolls-Royce Targets
    Development Capacity Issues. Aviation Week
    Space Technology, 149 (16), 77.
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