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 Capacity is Infinite!

After reading the title of this article, you probably have one of two reactions ...
your curiosity is piqued or you are convinced I am in desperate need of professional help!
Please read on with an open mind and cast your ballot at the end of this article!

by Dave Garwood


Before addressing the infinite capacity issue, let's first reach a consensus on the definition of the term "capacity." Here are three choices. Pick one and only one ... no write-in ballots!

Capacity is:

1. The number of hours worked?
2. The volume of work completed?
3. The advertised or nameplate capability of the equipment?

When given these three choices to a group of 20 or more, the responses usually split evenly among all three. Obviously, we are debating capacity and don't even have a consensus of what the term means!

Think about the question from the customer's point of view. If I am receiving 22 per week, evidently your capacity is currently 22 per week! Sure, you worked overtime, had some unfortunate power outages and could have made more if a couple of people had showed up for work, but I am only getting 22 per week. I can only depend on getting 22 per work until you do something significantly different. So the correct answer is #2. The definition of capacity is:

The volume of work done or to be done over time.
It is a flow or velocity measurement.

Every resource has both a Required Capacity and a Demonstrated Capacity. Required Capacity is the volume of work we need to get done. Demonstrated Capacity is the volume of work we are capable of getting done. Let's discuss each separately.

Demonstrated Capacity -- Sometimes an Ugly Truth!
Demonstrated Capacity is reality. It is a reflection of true capability ... and it can look ugly! The formula for validating Demonstrated Capacity is experience! For example, in work center 101 (or manufacturing cell 101) ten people were scheduled to work 8 hours per day for 5 days, for a total of 400 clock hours. Sometimes during those 400 hours, we were making product. However, many of those hours were soaked up making changeovers, looking for material, trying to locate tools, fixing broken equipment, asking questions, reworking defective material, reporting labor, and the list goes on and on.

The last five week's actual output has been:

Week Actual Work Completed
-5 250
-4 350
-3 300
-2 275
-1 325
Total 1500

During these last 5 weeks, the average output was 300 per week. This is the historical Demonstrated Capacity. Will these same interferences repeat in coming weeks? Probably not all of the same ones, but only an eternal optimist would believe no interferences will occur.

What is your best guess about the demonstrated capacity in the coming weeks? I suggest it will be 300 per week, unless we do something different. I am not suggesting we are locked into the historical number. It can be changed. Demonstrated Capacity is a function of the number of scheduled hours and effectiveness (or productivity) of those hours. The formula for calculating Demonstrated Capacity is:

Demonstrated Capacity = Scheduled Hours x Productivity

The future demonstrated capacity will only be different if we work more hours or eliminate some of the interferences, i.e., work more effectively.
What can our demonstrated capacity be in the future? Anything we want it to be! The two variables are scheduled hours and productivity. Scheduled hours can be increased with overtime, subcontracting, outsourcing (tolling in chemical company terms), buying equipment and the list goes on. Demonstrated Capacity can also be increased by eliminating some of the interferences with process improvements, i.e., increasing productivity. The only constraints on increasing Demonstrated Capacity are time and money.

Required Capacity -- How Much Work Needs to Get Done?

Required Capacity is the amount of work required to make everything the customers have ordered plus everything we think they might order (aka sales forecast), independent of whether we have the capability to produce it or not! Required Capacity is a function of the Supply Plan (aka master schedule). If we are really going to meet the customer's needs, the Required Capacity is a specific statement of the amount of work needed to be done to produce that volume of products, i.e., meet the master schedule.

Beware of the Infinite Capacity Debate!
So, how does this resolve the infinite vs. finite capacity debate? In most, except for a very few extremely high-growth businesses, what are the odds the Required Capacity will increase this year more than 30 to 50%? I suggest almost none. If given a reasonable peek into the future with a good planning system and by the way, we need to anticipate capital purchases, financial expectations, human resources and material needs) what are the odds we can increase scheduled hours, effectiveness or both to increase Demonstrated Capacity to meet a 30-50% or less increase in the Required Capacity? I say nearly 100%!

Therefore, from a practical, realistic point of view, capacity can be "infinitely" adjusted to meet the customer's future needs. The proper management directive is to adjust the factory to meet customer needs, not adjust the customer to what the factory would like to make. Flexibility is a factory responsibility, not the customer's responsibility! This raises an interesting question ... do we need expensive software to automatically adjust the schedule to fit the "capacity?" I don't think so!

Beware! Debating the infinite vs. finite capacity issue is often a self-serving argument from someone selling finite or OPTimization scheduling software. The debate can divert attention from focusing on important issues and stall efforts to make meaningful progress. Put your efforts in improving the visibility of the Required Capacity!

Calculate the future Required Capacity. Measure recent Demonstrated Capacity. Compare and adjust. Armed with these facts and visibility, the problems are clearly anticipated and trained people are experts at finding solutions! On-time delivery, reduced inventories and elimination of firefighting are the inevitable outcomes. Guaranteed.
All Contents Copyright � 2002 R. D. Garwood, Inc. All Rights Reserved.