The Concept Of Capacity And Capacity Utilization

This paper will provide an analysis of 2 production scenarios. We will calculate costs associated with running a production facility. Furthermore, the analysis will be used to provide a basic understanding of how changes in staffing and productivity impact profit and loss.

The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of labor-intensive resources.

Alex comes up with the consensus that the “Goal” of his business and many others is to increase net profit while simultaneously increasing return on investment and their cash flow at the plant. This basically means to make money. These three measurements can be achieved by looking closer into his second set of measurements. Alex specifically must find a way to increase throughput while at the same time decreasing it inventory and operational expenses. All three of these measurements must be cautiously monitored since they all rely on each other to be obtained in balance. Factors that cause throughput, inventory, and operational expenses to become unbalanced are excess manpower and balance capacity of the demand of resources in the market.

Answer: Capacity is the maximum rate of output of a process or a system. And utilization is measured as the ratio of average output rate to maximum capacity. In Southwest, capacity can be measured in available seat-miles (AMS) pre month. Therefore, utilization can be measured as the ratio of average seat-mile rate to maximum

It is stressed in the Goal that there is a massive difference between throughput and efficiency. The novel makes the case that having an efficient operation does not equate to profitability. What does equate to profitability is to increase the throughput of any given operations system. Jonah tells Alex, “Throughput, is the rate in which the system generates money through sales.” (Goldratt, E.M. (2014), The Goal, pg. 60). Jonah goes on to explain to Alex that inventory is all the money that was invested in purchasing things that the system intends to sell. (Id). Furthermore, operational expenses are those costs that are required to turn inventory into throughput. (Id, at pg. 61). The definitions of these three measurements are not standard definitions for an MBA student. It is an interesting perspective on how to view operations.

In an article published on the Harvard Business Review website we see that “a factory needs to be flexible and respond to customer orders quickly” (Upton 1995). As the global market for products is growing factories need to be able to keep up with the demand of products in many more countries than they had in years past. Managers have to make decisions on whether or not to expand a factory or build a new factory and the decision between the two have large differences in cost. Forecasting can help managers decide if they should expand or not expand. Capacity does not need to be crowded because that can lead to decrease in quality of products and can cause underproduction. Capacity decisions are one of the toughest decisions manager have to

Alex comes up with the consensus that the “Goal” of his business and many others is to increase net profit while simultaneously increasing return on investment and their cash flow at the plant. This basically means to make money. These three measurements can be achieved by looking closer into his second set of measurements. Alex specifically must find a way to increase throughput while at the same time decreasing it inventory and operational expenses. All three of these measurements must be cautiously monitored since they all rely on each other to be obtained in balance. Factors that cause throughput, inventory, and operational expenses to become unbalanced are excess manpower and balance capacity of the demand of resources in the market.

“The business environment has never been more challenging than it is right now. The foundation that is required to react to dynamic changes in supply and demand is based on understanding your supply chain’s capacities.” By planning out in advance with capacity planning, Riordan

Throughout the entirety of the book, The Goal: A Process of Ongoing Improvement, author Eliyahu M. Goldratt focuses on demonstrating the importance of the Theory of Constraints and what corporations should do in order to increase profits. A major term used throughout the novel is “throughput,” which according to the text, is “the rate at which the system generates money through sales” (Goldratt 60). Once a bottleneck machine in a production process is identified, there are multiple ways to increase throughput without expanding the physical capacity of the machine.

Eliyahu M Goldratt purpose of writing this book is to introduce individuals to how to manage and measure effectively. Goldratt illustrates how the accounting cost figures and productivity per machine can actually be problematic for it misleads individuals into thinking they’re achieving the goal. Rather all attention should be focused on strategy planning and managing the bottlenecks because they are the true driving metric of production. One major takeaway message from this novel is that there is always room for improvement. This philosophy of ongoing improvement originated in a Toyotas production system and is better know as the Kaizen theory. The Novel, stresses the Kaizen theory, which starts with an indication, then an in-depth analysis, followed by a diagnosis, eventually arrive ate a hypothesis and ending with

Capacity is a factories ability to produce items explained as follows, consider a factory that has a capacity of 10,000 " machine hours" in each 40 hour week. This factory should be capable of producing 10,000 "standard hours of work" during a 40-hour week. The actual volume of product that the factory can produce will depend on:

capacity for a considerable time without intervention and, hence, the market is not fully efficient

It is a common desire to have a balanced plant, but this cannot be reached if there are problems with the levels of capacity in the plant. If there is not enough capacity in the plant, it almost seems as if the possibility of having throughput is being lost and if there is an excessive amount of capacity there is money that is being wasted, which would be a problem when trying to reduce the operating expenses. However, in reality the closer that a plant comes to being balanced, the closer they get to losing money. “ Look at this obsession with trimming capacity in terms of the goal,

Capacity planning is a necessary function of an organization to ensure that the highest rate of output is reached through the current processes taking place within an organization. These strategically defined processes must have the ability to provide flexibility to meet future capacity demand, whether due to opportunity growth or adjustments to make decreases to maximize profits. “Capacity decisions related to a process need to be made in light of the role the process plays within the organization and the supply chain as a whole, because changing the capacity of a

Even when the demand for an operations products can be reasonably well forecast, the inherent uncertainty in all estimates of future demand may inhibit the business from investing capital to meet the most likely level of demand. Contrastingly, this principle can be linked to the concept of economies of scale. For BCF the addition of one unit of capacity i.e. from the extra capacity provided by the conventional technology option, the total fixed costs per unit of potential production output will decrease. For the new technology option, the addition of one unit of capacity will increase unit costs – a diseconomy of scale. Initially, this claim is based on the capital cost of implementing the new technology option, as well as diseconomies of over using capacity having the effect of increasing unit costs above a certain level of output. As a result, more operations activities