Capacity

9 Key excerpts on "Capacity"

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  eBook - ePub

  Operations Management: Policy, Practice and Performance Improvement

  • Steve Brown, Kate Blackmon, Paul Cousins, Harvey Maylor(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Capacity decisions are one of the key policy decision areas for operations. Like other policy decisions, this involves making trade-offs between investing in productive resources and making the best use of them. On the one hand, transforming resources such as facilities, technology, and people are generally expensive and take time to acquire or create, so the organization wants to use them wisely. On the other, materials, information and effort may be wasted if they are acquired or transformed when there is no demand for them, while sales may be lost if outputs are not available when needed by consumers.

  Defining Capacity

  In operations management, the term Capacity describes the level of output that the organization can achieve over a specified period of time. Capacity can be defined in several different ways, and some of these are described below.

  Theoretical Capacity

  One definition of Capacity is the maximum level of output that can be attained by the organization, theoretical Capacity, which is the level of output that can be achieved if the organization's resources are used fully. This would mean operating 24 hours per day, 7 days per week, 365 days per year, and for all but continuous production this is clearly unrealistic.

  Many manufacturing operations and most service operations operate either during fixed hours, such as 9 am to 5 pm, Monday to Friday, or have some periods where operations are minimal. A university might be able to double or triple the level of students through scheduling lectures around the clock, including weekends and holidays, which would make very efficient use of its lecture theatres; however, it wouldn't be very popular with students or faculty!

  Design Capacity

  Even facilities running continuously find it difficult to achieve 100 per cent productive time; they must generally shut down at least periodically for maintenance and cleaning. A second definition of Capacity is design Capacity

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  eBook - ePub

  The Routledge Companion to Cost Management

  • Falconer Mitchell, Hanne Nørreklit, Morten Jakobsen(Authors)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  When a company acquires a production factor, it becomes the owner of a resource capable of producing a specific output, whether tangible or intangible. More generally, the company can be considered a system of resources that exists for the production of goods or services. If we are talking of a resource of a company, the maximum amount of output that can be obtained from it is its maximum Capacity.The level of resources needed is related to the ‘potential income’ that a company can obtain and therefore is a measure of its ability to create value (McNair, 1994).

  The available Capacity has an influence on several competitive dimensions, namely quality , cost and time (Ansari et al., 1997): product/service quality required by customers can be affected by the Capacity available to fulfil demands for product/service features; investments in Capacity create a cost structure that determines production efficiency; and Capacity and output rates (production speed) contribute by achieving short time to market and adequate flexibility of production systems.

  The root of the Capacity issue lies in the fact that most of the resources in a business are committed resources . Organizations incur an actual cash outlay to acquire such resources needed for current or future activities. For example, the acquisition of buildings and equipment supplies a Capacity for work in future years. The committed resources generate costs that represent long-term activity Capacity. We can refer to this potential provision in term of the ‘activities’ these resources make it possible to perform in each of the periods considered, according to the following equation (Cooper and Kaplan, 1992):

  Available Activities = Used Capacity + Unused Capacity

  From an economic standpoint, the value of acquired resources is a committed cost that is independent from its level of use. The latter influences the level of profitability and of course will be the maximum (i.e. converging with the potential) when full Capacity is used effectively. A level of less than optimum use gives rise to costs of unused Capacity – missed opportunities, wasted resources. Capacity utilization, on the other hand, is not good per se: output produced has to be sold and revenues converted to cash in order to gain benefit and effective performance.1

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  eBook - ePub

  An Introduction to Operations Management

  The Joy of Operations

  • Ajay Das(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  Capacity planning is the acquisition and development of Capacity to meet anticipated user demand. Capacity planning does not always target 100 percent fulfillment of user demand or 100 percent utilization of available Capacity.

  • The goal of Capacity planning is to minimize the discrepancy between demand and Capacity in a cost-effective, revenue-effective, quality-effective, and safety-effective manner.
• Capacity is the upper limit of a system’s ability to make, store, deliver, or receive products or services at a point in time.
  • Design or peak Capacity is the maximum output Capacity possible, usually sustainable for a short period of time.
  • Effective Capacity or the best operating Capacity level is the Capacity of the resource under normal operating conditions
  • Fixed Capacity represents investments in assets that cannot be reversed easily such as land, equipment, and permanent hires (or classroom Capacity by law).
  • Variable Capacity represents investments that can be recovered or changed relatively easily, such as outsourcing contracts, personnel overtime, and temp hiring.
• With standard products, Capacity can be measured in terms of finished product or service output, e.g. number of cars/year; number of pizzas/day, number of rooms.
  • With multiple products, Capacity can be measured in terms of input resource availability, e.g. number of ER doctors available per shift, number of beds.
• Capacity utilization is the amount of design Capacity that is utilized on average in fulfilling demand. Capacity utilization cannot exceed design Capacity:
  Capacity Utilization %   =  

  Actual average output or extent of resource use Design Capacity

    *   100
  Efficiency is the amount of effective Capacity that is utilized on average in fulfilling demand:
  Efficiency %   =  

  Actual average output or extent of resource use Effective Capacity

    *   100
  A high efficiency ratio is not necessarily good news if the effective Capacity is low relative to design Capacity on account of poor maintenance, poor quality, or worker mismanagement. A high utilization ratio may also increase costs exponentially under conditions of high uncertainty.