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CHAPTER 4:
LEAN TOOLS:
CAPACITY AND LAYOUT
MANAGEMENT

Capacity

• The throughput, or the

number of units a facility
can hold, receive, store, or
produce in a period of time
• Determines fixed costs
• Determines if demand will
be satisfied
• Three time horizons

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Planning Over a Time Horizon

Figure S7.1 Time Horizons and Capacity Options

Design and Effective Capacity (1 of 4)

• Design capacity is the maximum theoretical output of a

system
– Normally expressed as a rate
• Effective capacity is the capacity a firm expects to
achieve given current operating constraints
‒ Often lower than design capacity

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Design and Effective Capacity (2 of 4)

Capacity Measurements

Measure Definition Example

Design capacity Ideal Machines at Frito-Lay are designed to produce
conditions 1,000 bags of chips/hr., and the plant operates
a photo of a machine exist during 16 hrs./day.
ling a surface. the time that
the system is
Design
Design Capacity
capacity = 1,000bags
= 1,000 bags per hour/ multiplied
hr. ×16hrs.by
available 16 hours = 16,000=bags per day. / day
16,000bags

Design and Effective Capacity (3 of 4)

Measure Definition Example

Effective capacity Design capacity minus Frito-Lay loses 3 hours of output per day
lost output because of (= 0.5 hrs./day on preventive
a photo of two men, planned resource maintenance, 1 hr./day on employee
wearing hard hats, unavailability (e.g., breaks, and 1.5 hrs./day setting up
talking while one is
sitting on the driver
preventive machines for different products).
seat of a truck. maintenance, machine
setups/changeovers, Effective Capacity
Effective capacity = 16,000bags
= 16,000 / day
bags per day minus
changes in product 1,000 bags per hours at -3(1,000bags
hours per day =
/ hr.)
mix, scheduled breaks) 16,000 bags per day minus 3,000 bags per day
= 13,000 bags per day. (3 hr. / day)
= 16,000bags / day
- 3,000bags / day
= 13,000bags / day

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Design and Effective Capacity (4 of 4)

Measure Definition Example

Actual output Effective capacity On average, machines at Frito-Lay are
a photo of a man, minus lost output not running 1 hr./day due to late parts
wearing a hard had, during unplanned and machine breakdowns.
working on suspended resource idleness
wires. Actual output = 13,000 bags
(e.g., absenteeism, Actual output = 13,000 bags per day/ day
minus
machine breakdowns, 1,000 bags per hours = 13,000 bags
- (1,000bags per day
/ hr.)
unavailable parts, minus 1,000 bags per day = 12,000 bags per
day.
= 13,000bags / day
quality problems) - 1,000bags / day
=12,000bags / day

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Utilization and Efficiency

Utilization is the percent of design capacity actually

achieved
Actual output
Utilization =
Design capacity

Efficiency is the percent of effective capacity actually

achieved

Actual output
Efficiency =
Effective capacity

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Bakery Example: Design Capacity (1 of 2)

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Designcapacity = (7  3  8)  (1,200) = 201,600 rolls

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Bakery Example: Utilization

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7  3  8)  (1,200) = 201,600 rolls

Utilization = 148,000 / 201,600 = 73.4%

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Bakery Example: Efficiency

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 1,200 rolls per hour
Bakery operates 7 days/week, 3 - 8 hour shifts

Design capacity = (7  3  8)  (1,200) = 201,600 rolls

Utilization = 148,000 / 201,600 = 73.4%

Efficiency = 148,000 / 175,000 = 84.6%

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Bakery Example: Design Capacity (2 of 2)

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600  2 = 403,200 rolls

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Bakery Example: Effective Capacity

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600  2 = 403,200 rolls

Effective capacity = 175,000  2 = 350,000 rolls

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Bakery Example: Actual Output

Actual production last week = 148,000 rolls

Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls

Design capacity = 201,600  2 = 403,200 rolls

Effective capacity = 175,000  2 = 350,000 rolls
Actual output = 148,000 + 130,000 = 278,000 rolls

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Bakery Example: Utilization Efficiency

Actual production last week = 148,000 rolls
Effective capacity = 175,000 rolls
Design capacity = 201,600 rolls per line
Efficiency = 84.6%
Expected output of new line = 130,000 rolls
Design capacity = 201,600  2 = 403,200 rolls
Effective capacity = 175,000  2 = 350,000 rolls
Actual output = 148,000 + 130,000 = 278,000 rolls
Utilization = 278,000 / 403,200 = 68.95 %
Efficiency = 278,000 / 350,000 = 79.43%

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Capacity and Strategy

• Capacity decisions impact all 10 decisions of operations

management as well as other functional areas of the
organization
• Capacity decisions must be integrated into the
organization’s mission and strategy

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Capacity Considerations

1. Forecast demand accurately

2. Match technology increments and sales volume
3. Find the optimum operating size (volume)
4. Build for change

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Economies and Diseconomies of Scale

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Managing Demand

• Demand exceeds capacity

‒ Curtail demand by raising prices, scheduling longer
lead times
‒ Long-term solution is to increase capacity
• Capacity exceeds demand
‒ Stimulate market
‒ Product changes
• Adjusting to seasonal demands
‒ Produce products with complementary demand
patterns

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Complementary Demand Patterns

Figure S7.3 By Combining Products That Have Complementary
Seasonal Patterns, Capacity Can Be Better Utilized

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Tactics for Matching Capacity to Demand

1. Making staffing changes

2. Adjusting equipment
– Purchasing additional machinery
– Selling or leasing out existing equipment
3. Improving processes to increase throughput
4. Redesigning products to facilitate more throughput
5. Adding process flexibility to meet changing product
preferences
6. Closing facilities

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Service-Sector Demand and Capacity

Management

• Demand management
‒ Appointment, reservations, FCFS rule
• Capacity management
‒ Full time, temporary, part-time staff

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Bottleneck Analysis and the Theory of

Constraints (1 of 2)

• Each work area can have its own unique capacity

• Capacity analysis determines the throughput capacity of
workstations in a system
• A bottleneck is a limiting factor or constraint
‒ A bottleneck has the lowest effective capacity in a
system
• The time to produce a unit or a specified batch size is the
process time

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Bottleneck Analysis and the Theory of

Constraints (2 of 2)

• The bottleneck time is the time of the slowest

workstation (the one that takes the longest) in a
production system
• The throughput time is the time it takes a unit to go
through production from start to end, with no waiting

Figure S7.4 Three-Station Assembly Line

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Capacity Analysis (1 of 5)

• Two identical sandwich lines

• Lines have two workers and three operations
• All completed sandwiches are wrapped

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Capacity Analysis (2 of 5)

• The two lines are identical, so parallel processing can

occur
• At 40 seconds, the toaster has the longest processing
time and is the bottleneck for each line
• At 40 seconds for two sandwiches, the bottleneck time of
the combined lines = 20 seconds
• At 37.5 seconds, wrapping and delivery is the bottleneck
for the entire operation

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Capacity Analysis (3 of 5)

• Capacity per hour is

3,600 seconds
= 96 sandwiches per hour
37.5 seconds / sandwich

• Throughput time is 30 + 15 + 20 + 40 + 37.5 = 142.5

seconds

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Capacity Analysis (4 of 5)

• Standard process for cleaning teeth

• Cleaning and examining X-rays can happen
simultaneously

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Capacity Analysis (5 of 5)

• All possible paths must be compared

• Bottleneck is the hygienist at 24 minutes

• Hourly capacity is 60 / 24 = 2.5 patients
• X-ray exam path is 2 + 2 + 4 + 5 + 8 + 6 = 27 minutes

• Cleaning path is 2 + 2 + 4 + 24 + 8 + 6 = 46 minutes

• Longest path involves the hygienist cleaning the teeth,

patient should complete in 46 minutes

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Theory of Constraints

• Five-step process for recognizing and managing

limitations
Step 1: Identify the constraints
Step 2: Develop a plan for overcoming the constraints
Step 3: Focus resources on accomplishing Step 2
Step 4: Reduce the effects of constraints by offloading
work or expanding capability
Step 5: Once overcome, go back to Step 1 and find new
constraints

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Bottleneck Management

1. Release work orders to the system at the pace of set by

the bottleneck’s capacity
‒ Drum, Buffer, Rope
2. Lost time at the bottleneck represents lost capacity for
the whole system
3. Increasing the capacity of a nonbottleneck station is a
mirage
4. Increasing the capacity of a bottleneck increases the
capacity of the whole system

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Strategic Importance of Layout Decisions

The objective of layout strategy is to develop an

effective and efficient layout that will meet the firm’s
competitive requirements

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Layout Design Considerations

• Higher utilization of space, equipment, and people

• Improved flow of information, materials, or people
• Improved employee morale and safer working conditions
• Improved customer/client interaction
• Flexibility

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Types of Layout (1 of 4)

1. Office layout
2. Retail layout
3. Warehouse layout
4. Fixed-position layout
5. Process-oriented layout
6. Work-cell layout
7. Product-oriented layout

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Types of Layout (2 of 4)
1. Office layout: Positions workers, their equipment, and
spaces/offices to provide for movement of information
2. Retail layout: Allocates display space and responds to
customer behavior
3. Warehouse layout: Addresses trade-offs between
space and material handling

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Types of Layout (3 of 4)

4. Fixed-position layout: Addresses the layout

requirements of large, bulky projects such as ships and
buildings
5. Process-oriented layout: Deals with low-volume, high-
variety production (also called job shop or intermittent
production)

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Types of Layout (4 of 4)

6. Work cell layout: Arranges machinery and equipment

to focus on production of a single product or group of
related products
7. Product-oriented layout: Seeks the best personnel
and machine utilizations in repetitive or continuous
production

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Table 9.1 Layout Strategies (1 of 2)

Blank Objectives Examples

Office Locate workers requiring Allstate Insurance
frequent contact close to Microsoft Corp.
one another
Retail Expose customer to high- Kroger’s Supermarket
margin items Walgreen’s
Bloomingdale’s
Warehouse Balance low-cost storage Federal-Mogul’s warehouse
(storage) with low-cost material The Gap’s distribution
handling center
Project (fixed Move material to the limited Ingall Ship Building Corp.
position) storage areas around the Trump Plaza
site Pittsburgh Airport

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Table 9.1 Layout Strategies (2 of 2)

Blank Objectives Examples

Job Shop Manage varied material flow Arnold Palmer Hospital
(process for each product Hard Rock Cafe
oriented) Olive Garden

Work Cell Identify a product family, Hallmark Cards

(product build teams, cross-train Wheeled Coach
families) team members Ambulances

Repetitive/ Equalize the task time at Sony’s TV assembly line

Continuous each workstation Toyota Scion
(product
oriented)

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Good Layouts Consider

• Material handling equipment

• Capacity and space requirements
• Environment and aesthetics
• Flows of information
• Cost of moving between various work areas

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Office Layout (1 of 2)

• Grouping of workers, their equipment, and spaces to

provide comfort, safety, and movement of information
• Movement of information is main distinction
• Typically in state of flux due to frequent technological
changes

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Office Relationship Chart

Figure 9.1 The Muther Grid for a software firm.

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Office Layout (2 of 2)

• Three physical and social

aspects
– Proximity
– Privacy
– Permission
• Two major trends
– Information technology
– Dynamic needs for space
and services

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Retail Layout

• Objective is to maximize profitability per square foot of

floor space
• Sales and profitability vary directly with customer
exposure

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Five Helpful Ideas for Supermarket Layout

1. Locate high-draw items around the periphery of the

store
2. Use prominent locations for high-impulse and high-
margin items
3. Distribute power items to both sides of an aisle and
disperse them to increase viewing of other items
4. Use end-aisle locations
5. Convey mission of store through careful positioning of
lead-off department

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Store Layout
Figure 9.2 Store Layout with Dairy and Bakery, High-Draw Items, in
Different Areas of the Store

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Slotting

• Manufacturers pay slotting fees to retailers to get the

retailers to display (slot) their product
• Contributing factors
– Limited shelf space
– An increasing number of new products
– Better information about sales through POS data
collection
– Closer control of inventory

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Servicescapes
1. Ambient conditions - background
characteristics such as lighting,
sound, smell, and temperature
2. Spatial layout and functionality -
which involve customer
circulation path planning, aisle
characteristics, and product grouping
3. Signs, symbols, and
artifacts - characteristics of building
design that carry social significance

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Warehouse and Storage Layouts

• Objective is to find the optimum trade-offs between

handling costs and costs associated with warehouse
space
• Maximize the total "cube" of the warehouse – utilize its
full volume while maintaining low material handling costs

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Warehousing and Storage Layouts (1 of 2)

Material Handling Costs

• All costs associated with the transaction
– Incoming transport
– Storage
– Finding and moving material
– Outgoing transport
– Equipment, people, material, supervision, insurance,
depreciation
• Minimize damage and spoilage

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Warehousing and Storage Layouts (2 of 2)

• Warehouse density tends to

vary inversely with the number
of different items stored
• Automated Storage and
Retrieval Systems (ASRSs) can
significantly improve warehouse
productivity
• Dock location is a key design
element

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Cross-Docking

• Materials are moved directly

from receiving to shipping and
are not placed in storage in the
warehouse
• Requires tight scheduling and
accurate shipments, bar code or
RFID identification used for
advanced shipment
notification as materials are
unloaded

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Random Stocking

• Typically requires automatic identification systems (AISs)

and effective information systems
• Allows more efficient use of space
• Key tasks
1. Maintain list of “open” locations
2. Maintain accurate records
3. Sequence items to minimize travel, “pick” time
4. Combine picking orders
5. Assign classes of items to particular areas
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Customizing

• Value-added activities performed at the warehouse

• Enable low cost and rapid response strategies
– Assembly of components
– Loading software
– Repairs
– Customized labeling and packaging

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Fixed-Position Layout

• Product remains in one place

• Workers and equipment come to
site
• Complicating factors
– Limited space at site
– Different materials required
at different stages of the
project
– Volume of materials needed
is dynamic

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Alternative Strategy

• As much of the project as

possible is completed off-site
in a product-oriented facility
• This can significantly improve
efficiency but is only possible
when multiple similar units
need to be created

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Process-Oriented Layout (1 of 4)

• Like machines and equipment are grouped together

• Flexible and capable of handling a wide variety of
products or services
• Scheduling can be difficult and setup, material handling,
and labor costs can be high

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Process-Oriented Layout (2 of 4)
Figure 9.3 An Emergency Room Process Layout Showing the Routing
of Two Patients

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Process-Oriented Layout (3 of 4)

• Arrange work centers so as to minimize the costs of

material handling
• Basic cost elements are
– Number of loads (or people) moving between centers
– Distance loads (or people) move between centers

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Process-Oriented Layout (4 of 4)
n n
Minimize cost =  X ij Cij
i=1 j=1

where n = total number of work centers or

departments

i, j = individual departments
Xij = number of loads moved from
department i to department j

Cij = cost to move a load between

department i and department j

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Process Layout Example (1 of 8)

• Arrange six departments in a factory to minimize the

material handling costs. Each department is 20 × 20 feet
and the building is 60 feet long and 40 feet wide.
1. Construct a "from-to matrix"
2. Determine the space requirements
3. Develop an initial schematic diagram
4. Determine the cost of this layout
5. Try to improve the layout
6. Prepare a detailed plan

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Process Layout Example (2 of 8)

Figure 9.4 Interdepartmental Flow of Parts

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Process Layout Example (3 of 8)

Figure 9.5 Building Dimensions and One Possible Department Layout

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Process Layout Example (4 of 8)

Figure 9.6 Interdepartmental Flow Graph Showing Number of Weekly
Loads

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Process Layout Example (5 of 8)

n n
Cost =  xij Cij
i=1 j=1

Cost = $50 + $200 + $40

(1 and 2 ) (1 and 3 ) (1 and 6 )
+ $30 + $50 + $10
( 2 and 3 ) ( 2 and 4 ) ( 2 and 5 )
+ $40 + $100 + $50
( 3 and 4 )( 3 and 6 )( 4 and 5 )
= $570
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Process Layout Example (6 of 8)

Figure 9.7 Second Interdepartmental Flow Graph

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Process Layout Example (7 of 8)

n n
Cost =  xij Cij
i=1 j=1

Cost = $50 + $100 + $20

(1 and 2 ) (1 and 3 ) (1 and 6 )
+ $60 + $50 + $10
( 2 and 3 ) ( 2 and 4 ) ( 2 and 5 )
+ $40 + $100 + $50
( 3 and 4 )( 3 and 6 )( 4 and 5 )
= $480

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Process Layout Example (8 of 8)

Figure 9.8 A Feasible Layout for Walters Company

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Computer Software (1 of 3)

• Graphical approach only works for small problems

• Computer programs are available to solve bigger
problems
– Craft
– Aldep
– Corelap
– Factory Flow
– Proplanner

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Computer Software (2 of 3)
• Proplanner flow path calculator
– Generate material flow diagrams
– Calculate material handling distances, times, costs
– Color-coded flow lines
– Helps identify excessive material handling

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Computer Software (3 of 3)

• Three dimensional
visualization software
allows managers to view
possible layouts and
assess process, material
handling, efficiency, and
safety issues

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Work Cells

• Reorganizes people and machines into groups to focus

on single products or product groups
• Group technology identifies products that have similar
characteristics for particular cells
• Volume must justify cells
• Cells can be reconfigured as designs or volume changes

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Advantages of Work Cells

1. Reduced work-in-process inventory

2. Less floor space required
3. Reduced raw material and finished goods inventories
4. Reduced direct labor cost
5. Heightened sense of employee participation
6. Increased equipment and machinery utilization
7. Reduced investment in machinery and equipment

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Requirements of Work Cells

• Identification of families of products

• A high level of training, flexibility and empowerment of
employees
• Being self-contained, with its own equipment and
resources
• Test (poka-yoke) at each station in the cell

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Improving Layouts Using Work Cells (1 of 2)

Figure 9.9 Improving Layouts by Moving to the Work Cell Concept

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Improving Layouts Using Work Cells (2 of 2)

Figure 9.9 [continued]

U-shaped line may reduce employee movement and space

requirements while enhancing communication, reducing the
number of workers, and facilitating inspection
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Staffing and Balancing Work Cells

Determine the takt time

Total work timeavailable

Takt time =
Units required to satisfy customer demand

Determine the number of operators required

Total operation time required

Workers required =
Takt time

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Staffing Work Cells Example (1 of 2)

• 600 mirrors per day required
• Mirror production scheduled for 8 hours per day
• From a work balance chart total operation time = 140 seconds

Figure 9.10 Work Balance Chart for Mirror Production

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Staffing Work Cells Example (2 of 2)

(8hrs x 60mins)
Takt time =
600units
= .8 min = 48 seconds

Total operation time required

Workers required =
Takt time
140
= = 2.92
48

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Work Balance Charts

• Used for evaluating operation times in work cells

• Can help identify bottleneck operations
• Flexible, cross-trained employees can help address labor
bottlenecks
• Machine bottlenecks may require other approaches

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Focused Work Center and Focused Factory

• Focused Work Center

– Identify a large family of similar products that
have a large and stable demand
– Moves production from a general-purpose, process-
oriented facility to a large work cell
• Focused Factory
– A focused work cell in a separate facility
– May be focused by product line, layout, quality, new
product introduction, flexibility, or other requirements

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Repetitive and Product-Oriented Layout

Organized around products or families of similar high-

volume, low-variety products
1. Volume is adequate for high equipment utilization
2. Product demand is stable enough to justify high
investment in specialized equipment
3. Product is standardized or approaching a phase of life
cycle that justifies investment
4. Supplies of raw materials and components are
adequate and of uniform quality

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Product-Oriented Layouts (1 of 3)

• Fabrication line
– Builds components on a series of machines
– Machine-paced
– Require mechanical or engineering changes to
balance
• Assembly line
– Puts fabricated parts together at a series of
workstations
– Paced by work tasks
– Balanced by moving tasks

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Product-Oriented Layouts (2 of 3)

Both types of lines must be balanced so that the time to

perform the work at each station is the same

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Product-Oriented Layouts (3 of 3)
Advantages
1. Low variable cost per unit
2. Low material handling costs
3. Reduced work-in-process inventories
4. Easier training and supervision
5. Rapid throughput

Disadvantages
1. High volume is required
2. Work stoppage at any point ties up the whole operation
3. Lack of flexibility in product or production rates
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McDonald's Assembly Line

Figure 9.11 McDonald's Hamburger Assembly Line

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Assembly-Line Balancing
• Objective is to minimize the
imbalance between machines or
personnel while meeting required
output
• Starts with the precedence
relationships
– Determine cycle time
– Calculate theoretical
minimum number of
workstations
– Balance the line by assigning
specific tasks to workstations

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Wing Component Example (1 of 6)

Table 9.2 Precedence Data for Wing Component

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Wing Component Example (2 of 6)

480 available mins per day

40 units required

Figure 9.12 Precedence Diagram

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Wing Component Example (3 of 6)

Production time available per day
Cycle time =
Units required per day
480
=
40
= 12 minutes per unit
n

Minimum number  Time for task i

i =1
=
of workstations cycle time
65
=
12

= 5.42, or 6 stations

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Wing Component Example (4 of 6)

Table 9.3 Layout Heuristics That May Be Used to Assign Tasks to
Workstations in Assembly-Line Balancing

1. Longest task time From the available tasks, choose the task
with the largest (longest) task time
2. Most following tasks From the available tasks, choose the task
with the largest number of following tasks
3. Ranked positional From the available tasks, choose the task for
weight which the sum of following task times is the
longest
4. Shortest task time From the available tasks, choose the task
with the shortest task time
5. Least number of From the available tasks, choose the task
following tasks with the least number of subsequent tasks

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Wing Component Example (5 of 6)

Figure 9.13 A Six-Station Solution to the Line-Balancing Problem

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Wing Component Example (6 of 6)

480 available mins per day
40 units required
Cycle time = 12 mins
Minimum workstations = 5.42 or 6

Efficiency =
 Task times
( Actual number of workstations ) × (Largest cycle time )
65 minutes
=
( ( 6 stations ) × (12 minutes ) )
= 90.3%
Idle Time = ( ( 6 stations ) × (12 minutes ) ) - 65 minutes = 7 minutes

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