Lecture 2: Capacity Management Flashcards Preview

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Flashcards in Lecture 2: Capacity Management Deck (13):

What is capacity?

Capacity of an operation is the max level of value added activity over a period of time

that the process can achieve under normal operating conditions


Can be an input: number of seats at hospital

Can be an output: litres of beer/week at brewery


What is utilisation?

What is efficiency?

What is capacity planning?

Utilisation: measure of the number of hours worked by equipment

Efficiency: comparing actual output to level of output expected

Capacity planning: the task of setting the effective capacity of the operation so that it can respond to demand


What are the challenges for capacity planning?

Capacity depends on everything

Requires large investment

Measuring and valuing capacity shortfall is not obvious

Capacity investment involves planning under uncertainty


What are the capacity sizing drivers?


Shortage cost

Safety capacity cost


What are the main factors which restrict capacity

Lost time (planned)



Lost time (unplanned)

Reduced Yield

Variable Conditions


What is the impact of reducing set up time

Smaller batch sizes are economical

Cost of setup labour is reduced

Production capacity is increased on bottlenecks

Reduce scale of potential quality problems


Explain what the

Availability rate

Performance rate

and Quality rate is.

Use these to explain what the overall equipment effectiveness is


What are the long term capacity planning strategies?

Capacity lead

Capacity lag

Smoothing with inventory


What are the four options for medium-term capacity planning?

Level capacity plan: processing capacty set at uniform level, regardless of fluctuations in forecast demand

Chase demand: attempts to match capacity closely to varying levels of forecast demand

Optimal capacity plan: balances the costs of levelling and varying the capacity

Demand management: change demand to suit capacity


What are the advantages of a level capacity plan?

  • Same number of staff
  • Finished goods transferred to inventory
  • Suitable for non-perishable goods


  • Stable employment
  • High utilisation
  • High productivity, low unit costs


  • Inventory costs
  • Decision making
  • High over utilisation levels for service operations


What are the ways to manage demand?

Yield management (varying service types: class)

Price as a controlling mechanism

Introduce counter-cyclical product


What are the various factors in short term capacity planning?

Manage order mix

Schedule downtime appropriately

Overtime planning