Bottleneck

Operation
Bottleneck operation: An operation
in a sequence of operations whose
capacity is lower than that of the
other operations
 Capacity planning
Capacity is the maximum output rate of a production
or service facility.

 Capacity also includes

 Equipment
 Space
 Employee skills

04/09/25 3
The basic questions in capacity
planning
Capacity planning is the process of establishing
the output rate that may be needed at a facility.

04/09/25 5
Reasons of capacity
planning
 Importance of Capacity Decisions

Impacts ability to meet future demands

Affects operating costs
Major determinant of initial costs
Involves long-term commitment
Affects competitiveness
Affects ease of management

04/09/25 7
 Measuring Capacity Examples

Input Measures of Output Measures

Type of Business
Capacity of Capacity
Car manufacturer Labor hours Cars per shift
Hospital Available beds Patients per month
Pizza parlor Labor hours Pizzas per day
Floor space in
Retail store Revenue per foot
square feet
04/09/25 8
 Capacity terminology
 Design capacity ( Max. Capacity )
is the maximum theoretical output of a
system
 Normally expressed as a rate
 Under ideal conditions
 Effective capacity ( Best Operating Level )
is the capacity a firm expects to achieve
given current operating constraints
 Often lower than design capacity
 Under ideal conditions
 Actual output ( Capacity Used )
is rate of output actually
 Utilization and Efficiency

Utilization is the percent

of design capacity
Utilization
achieved = Actual Output/Design Capacity

Efficiency is the percent of

effective capacity
Efficiency
achieved = Actual Output/Effective Capacity

Both measures expressed as percentages

 Calculating Capacity Utilization

Measures how much of the available capacity is

actually being used:
actual output rate
Utilization  100%
capacity

Measures effectiveness
 Use either effective or design capacity in
denominator
04/09/25 11
Ex. Efficiency/Utilization
Design capacity = 50 trucks/day
Effective capacity = 40 trucks/day
Actual output = 36 units/day

Actual output 36
units/day
Efficiency = = =
90%
Effective capacity 40 units/ day

Actual output 36 units/day

Utilization = = = 72%
Design capacity 50 units/day
 Determinants of Effective
Capacity
Facilities (size, location, layout, heating, lighting,
ventilations)
Product and service factors (similarity of
products)
Process factors (productivity, quality)
Human factors (training, skills, experience, motivations,
absentation, turnover)
Policy factors (overtime system, no. of shifts)
Operational factors (scheduling problems,
purchasing requirements, inventory shortages)
Supply chain factors (warehousing, transportation,
distribution)
External factors (product standards, government
agencies, pollution standard)
 Calculating Processing
Requirements
A dept. works 8-hour shift, 250
days/year SS t taa nn dd aa r rdd
AA nn nn uu aa l l pp r roo c cee s ss si ni n gg t ti mi m ee PP r roo c cee s ss si ni n gg t ti mi m ee
PP r roo dd uu c ct t DD ee mm aa nn dd pp ee r r uu nn i ti t ( (hh r r. .) ) nn ee ee dd ee dd ( (hh r r. .) )

## 11 44 00 00 55 . .00 22 , ,00 00 00

## 22 33 00 00 88 . .00 22 , ,44 00 00

## 33 77 00 00 22 . .00 11 , ,44 00 00
55 , ,88 00 00

annual capacity is 250*8 = 2000 hours,

number of machines required = 5,800 hours/2,000 hours =
2.90 machines
then we need three machines to handle the required volume
Capacity Planning Process
Develop Quantitative
Forecast
Alternative Factors
Demand
Plans (e.g., Cost)

Compute Evaluate Qualitative

Rated Capacity Factors
Capacity Plans (e.g., Skills)

Compute Select Best

Implement
Needed Capacity
Best Plan
Capacity Plan
 Planning Over a Time Horizon
Long-range Add facilities
planning Add long lead time equipment
*
Intermediat Subcontract Add personnel
e-range Add equipment Build or use inventory
planning Add shifts

Schedule jobs
Short-range
planning
* Schedule personnel
Allocate machinery

Modify capacity Use capacity

* Limited options exist

04/09/25 16
Economies of Scale
Economies of scale
If the output rate is less than the optimal level,
increasing output rate results in decreasing
average unit costs
Diseconomies of scale
If the output rate is more than the optimal
level, increasing the output rate results in
increasing average unit costs
Production units have an optimal rate of output for minimal cost.

Average cost per unit

Minimum average cost per unit

Minimum
cost

0 Rate of output
 Minimum cost & optimal operating rate are
functions of size of production unit.
Average cost per unit

Small
plant Medium
plant Large
plant

0
Output rate

5-19
04/09/25 20
Cost Volume Analysis:
Breakeven Analysis
Technique for evaluating process & equipment
alternatives
Objective: Find the point at which total cost
equals total revenue
Assumptions
•Revenue & costs are related linearly to volume
•All information is known with certainty
•No time value of money
Break-Even Analysis
Fixed costs: costs that continue even if no
units are produced: depreciation, taxes, debt,
mortgage payments
Variable costs: costs that vary with the
volume of units produced: labor, materials,
portion of utilities

22
Breakeven Chart
Total revenue line
Breakeven point Profit
Total cost = Total revenue
Cost in Dollars

Total cost line

Variable cost

Loss Fixed cost

Volume (units/period)
 Assumptions of Cost-Volume
Analysis
1.One product is involved
2.Everything produced can be sold
3.Variable cost per unit is the same
regardless of volume
4.Fixed costs do not change with volume
5.Revenue per unit constant with volume
6.Revenue per unit exceeds variable cost per
unit

5-24
Decision Theory
Helpful tool for financial comparison of
alternatives under conditions of risk or
uncertainty
Suited to capacity decisions

5-25
 Small Box Office
ER .3 200,000
690,000
Sign with Movie Co. .6 Medium Box Office
1,000,000
ER .1
900,000 Large Box Office
300,000

Small Box Office

ER .3 900,000
900,000
Sign with TV Network .6 Medium Box Office
900,000
.1
Large Box Office
900,000
 Financial Analysis
Cash Flow - the difference between cash
received from sales and other sources, and
cash outflow for labor, material, overhead,
and taxes.
Present Value - the sum, in current value,
of all future cash flows of an investment
proposal.

5-27
Net Present Value
F = future value
P = present value
i = interest rate
F
P N
N = number of years (i  1)
Waiting-Line Analysis
Useful for designing or modifying service
systems
Waiting-lines occur across a wide variety of
service systems
Waiting-lines are caused by bottlenecks in
the process
Helps managers plan capacity level that will
be cost-effective by balancing the cost of
having customers wait in line with the cost of
additional capacity
5-29
PROCESS PLANNING
Design Machine
Tool
Process
Planning

Scheduling and Production Control

What methods were used?
Machining methods
Pressworking
Welding/fabrication
Casting
Powder materials
Layered deposition
Others
 Welding/fabrication:
Additive techniques

Final Product
Weld Weld
Initial
Add-on Add-on
Stock
 Machining Methods:
Subtractive techniques

Final Product
Initial Slottin Drillin
Stock g g
Casting:
Form Methods
ENGINEERING DESIGN MODELING
2" +0.01
-0.01 0.001 A B

10" +0.01
-0.01

4" +0.01
-0.01

7" +0.05
-0.05

3" +0.01
-0.01 B
1'-4" +0.01
-0.01 5" +0.01
-0.01

U*
S.F. 64 u inch

Fa c e

Lo o p - *

Ed g e

V e rt e x
CSG MODEL
B-REP MODEL
INTERACTION OF
PLANNING FUNCTIONS
SETUP PLANNING
GEOMETRIC REASONING • feature relationship
• global & local geometry • approach directions
• process constraints
PROCESS SELECTION • fixture constraints
• process capability
• process cost FIXTURE PLANNING
• fixture element function
• locating, supporting, and
CUTTER SELECTION clamping surfaces
• available tools • stability
• tool dimension and geometry
• geometric constraints
CUTTER PATH GENERATION
MACHINE TOOL SELECTION • feature merging and split
• machine availability, cost • path optimization
• machine capability • obstacle and interference
avoidance