Information | Understanding | Best Practice.

Manufacturing Capacity.

The capacity of a manufacturing process is the maximum level of output possible. Clearly this is heavily influenced by decisions such as the number of manufacturing shifts to be employed, equipment run rates, availability of input and support resources, actual and projected demand, etc.. The maximum available capacity, may be determined by setting all the input factors to operate at an optimum level, i.e. 24  hour a day operation 7 days a week, zero unplanned equipment breakdowns, raw materials are all available and to hand, etc.. Alternatively, the maximum capacity may be set under realistic current conditions, i.e. operation of one 8 hour shift per day, 5 days per week, 98% quality yields, equipment OEE (overall equipment effectiveness) levels of 80%, etc..

Capacity analysis will be based on understanding the gap which may exist between the potential capacity and actual output.

For example, consider a manufacturing process outputting mobile phones. The theoretical maximum capacity under optimized conditions from a manufacturing facility may be 100,000 phones per week. In reality the maximum capacity is measured as 70,000 phones per week. The current actual output is 50,000 phones per week.


Manufacturing Capacity measures:

Maximum capacity with all inputs and resources optimized = 100,000

Maximum capacity under current operating conditions = 70,000

Current actual output = 50,000


In the above example, the current output may be constrained by the level of demand. There may only be a need for 50,000 phones per week, therefore run rates have consciously been reduced. Equally, this level of operation below actual capacity may be due to unplanned equipment breakdowns, lower than expected yield levels etc..

The above leads onto three capacity measures, namely the “optimized capacity”, the “design capacity” and the “effective capacity”

Optimized capacity is the theoretical capacity of a process, with all inputs optimized, i.e. a decision to operate a facility 24/7/365 (24 hours a day, 7 days pre week, 365 days per year), plus all other factors being optimum. This measure becomes a reference number, which helps keep a focus on the potential for capacity increases.

Design Capacity is the theoretical capacity of a process based on how the process is designed. The design capacity is affected by factors such as maintenance schedules, change over frequency etc.. For example, a decision may be to only operate a facility on a single 8 hour shift pattern, then the design capacity will reflect this decision and show the potential capacity output under the existing process design decisions.


Actual capacity is the actual ability of a process to output product. This measure shows the actual output of the process being achieved on an average day to day basis.

Manufacturing Capacity

– Basic working practices
– Total Productive Maintenance
– Operations focus
– Total staff involvement
– Overall Equipment Effectiveness (OEE)
– Etc. Etc..
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Process utilization and Process efficiency.

Process utilization = Actual output (or actual capacity)/ Optimized capacity

Process efficiency = Actual output (or actual capacity) /Design capacity

In theory you want to drive both towards 100%


The actual manufacturing capacity measure will normally be applied when considering the longer term. For example, when building production schedules for the coming months, the average actual capacity will be applied.

At the end of a shift, or the end of a week, if producing a measure of process efficiency achieved over the week, the actual output numbers will be compared to the design capacity. In the longer term, both measures will give the same result.

The objective of measuring process utilization and process efficiency will be to create a force towards increasing output from a fixed level of investment.


Increasing Manufacturing Capacity through minimal investment.

Capacity Planning
“Achieving the maximum level of value added activities over a period of time from a given set of resources.”

The objectives of capacity planning are:


To reduce product, service and operating costs.

To maximize revenue from a given set of resources.

To minimize working capital requirements.

To optimize quality.

To deliver products and processes as fast as possible.

Ensure a dependable process is established.

Achieve flexibility to stakeholder demands (including customer demands).


Optimized capacity planning is dependent on three factors:
Process Utilization, Process Efficiency and Demand Management.

As outlined previously both process utilization and process efficiency need to continuously improve towards 100%. Process utilization tends to be the responsibility of senior management. Process efficiency belongs in the realm of process operators, engineers, equipment designers, product development, etc.. Improvements in output are only worthwhile if there are customers to purchase product. Equally important, for optimized utilization and efficiency, customer demand needs to be balanced. It tends to be the role of marketing (in conjunction with management, product design, regulatory personnel, etc.) to ensure a growing and balanced level of customer demand.

Achieving high levels of efficiency and utilization requires concerted cross functional efforts with unified goals.


Can the supplier of a product or service influence demand?

In capacity management, we need to understand if we can influence demand.  Demand levels, for a product or service will be unique to that product or service category, however, there are a range of options available to help balance overall demand, reduce demand peaks and increase lower demand periods.

Options for demand management:

Pricing (e.g. off peak reductions, peak level surcharges- airlines, electricity, phones…)

Marketing (e.g. promotions – two for one, weekend breaks…)

Rationing (e.g. hospital appointments, concert tickets, …).

Alternative markets (e.g. student accommodation used by tourists in the summer).


Demand management is widely applied across industries, accepted and often expected by consumers, e.g. lower costs hotel rooms during the “off” season.


Can the sub-supplier of the product or service impact capacity?

When seeking to increase the % utilization, the potential for outsourcing activities needs to be considered. If sub-suppliers can engage in either increased levels of activity and/or in higher level activity, then the opportunity to improve the overall optimized and design capacities exist. Such decisions, need to consider the organizational strategy especially with respect to the maintenance and development of core competences within the organization.


Factors influencing process utilization.

The objective of management should be to extract the maximum return from fixed levels of investment. However, there may be valid reasons for varying from such an approach. For example, where a manufacturing plant is located close to residential housing, a decision may be taken to avoid night-time and weekend operation in order to retain more positive community relations. The effect of such a decision will be to significantly limit the opportunity to achieve utilization figures above 50%.

Decisions on utilization will be influenced by ongoing and projected demand levels. Demand levels will drive the opportunity to increase utilization, therefore where utilization is less than 100%, and customer demands is being met, then the focus must be on increasing demand, then subsequently increasing utilization.


Factors influencing process efficiency.

The influences on the efficiency of a process are usually widely recognizable.

Yields below 100% resulting in scrap, rework, repair.

OEE (overall equipment effectiveness) measures below equipment design expectations.

Interruptions to process flows due to “rush lots” which need to be prioritized over routine production, resulting in lost time.

Poor production scheduling resulting in inventory build-ups throughout the process.

Frequent technical product revisions, requiring in-process product modification and reprocessing.



Organizations seeking to improve process efficiency will often implement Lean and Just in Time programs. This will involve measuring and reducing process variability, implementing sigma improvement programs, driving down WIP (work in progress) throughout all stages of the supply chain.


Lean, Just In Time and Manufacturing Capacity Utilization.

Process utilization, process efficiency and demand management must all be considered in tandem. Improvements in efficiency can often reduce utilization as more output is achieved with fewer resources in less time. In such a situation, the decrease in utilization will be beneficial. Conversely, short term ramping up of production to meet spikes in demand, which drives down overall yields, will increase utilization and decrease efficiency resulting in some instances in an overall decrease in organizational performance.

The role of management is to balance utilization, efficiency and demand, with a view to optimizing their interrelationship and hence optimize long term organizational performance.

“Lean” & “Just-In-Time”.

Lean Manufacturing, Just In Time Full Details

– Basic working practices
– Total Productive Maintenance
– Design for manufacture
– Set-up reduction
– Operations focus
– Total staff involvement
– Overall Equipment Effectiveness (OEE)
– Visual management
– Flow layout
– Just-In-Time Supply
– Pull scheduling & Push systems of control
– Kanban control
– 5S method of control
– Levelled scheduling
– Etc. Etc..