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Management (formerly LSCM 4403) (Lscm 3403) Capacity Planning

Sandra Watson
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Mount Royal University

Operations Management (formerly LSCM 4403) (Lscm 3403)

input measures of capacity are preferred when there

Measures of Capacity. No single capacity measure is applicable to all types of
situations. Hospitals measure capacity as the number of patients that can be treated per
day; a retailer measures capacity as annual sales dollars generated per square foot; an
airline measures capacity as available seat-miles (ASMs) per month; a theater measures
capacity number of seats; and a job shop measures capacity as number of machine hours.
In general, capacity can be expressed in one of two ways: output measures or input
Output measures are the usual choice for facilities that produce standard products
in high volumes, in a limited number of models using production processes with rigid
flow patterns. Nissan Motor Company states capacity at its Tennessee plant to be
450,000 vehicles per year. The plant produces only one type of vehicle, making capacity
easy to measure. However, the Navistar plant in Springfield Ohio produces vehicles that
range from heavy-duty trucks to school busses. The inherent variation in production time
requirements makes a single figure for capacity much less meaningful.
Input measures are the usual choice for facilities that produce custom products in
low volumes using processes with flexible flow patterns. For example, in a photocopy
shop, capacity can be measured in machine hours or number of machines. Demand,
which invariably is expressed as output rate, must be converted to an input measure. Only
after making the conversion can a manager compare demand requirements and capacity
on an equivalent basis. For example, the manager of a copy center must convert its
annual demand for copies from different clients to the number of machines required.
Utilization. Capacity planning requires knowledge of current capacity and utilization.
Utilization, or the degree to which equipment, space, or labor is currently being used, is
expressed as a percentage:
Utilization=100%*(Average Output Rate/Maximum Capacity)
The average output rate and the capacity must be measured in the same terms (time,
customers, units, or dollars). The utilization rate indicates the need for adding extra
capacity or eliminating unneeded capacity. The greatest difficulty calculating utilization
lies in defining maximum capacity, the denominator in the ratio. Two definitions of
maximum capacity are useful: peak capacity and effective capacity.



 Management (formerly LSCM 4403) (Lscm 3403) Capacity Planning

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