PRODUCTION CAPACITY: TYPES, HOW IT IS CALCULATED, EXAMPLES - DUDAS - 2025

The production capacity is the volume of products that can generate a plant or manufacturing company in a given period using current existing resources.

Insufficient production capacity will lead to poor delivery performance, increased work-in-process inventories, and frustrated manufacturing staff. This can lead to reduced customer satisfaction and reduced profitability prospects.

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On the other hand, excess capacity can charge the company with unnecessary expenses. Capacity planning can help optimize resource utilization.

Understanding production capacity will allow a company to estimate future financial performance and create a reliable timeline for the delivery of products.

Limitations

Capacity can be calculated based on a single product type or a mix of products.

It relates to production and how a manufacturer balances raw materials, machinery, labor, and storage to meet the demand for its products.

These factors that affect production capacity are related at such a level that a change in one factor potentially affects the others.

Capacity planning requires management to accept the constraints in the production process.

No system can operate at full capacity for an extended period of time. Inefficiencies and delays make it impossible to achieve a theoretical maximum level of production in the long term.

What is productive capacity?

The production capacity is the maximum performance that can be produced in a company with the available resources. It is generally calculated in a month or in days and is compared with the same pattern. It is a measure of efficiency such that production can be adjusted according to existing demand.

There is no such term as maximum production, but it is the maximum return that a company can produce in a given period of time, taking into account the available resources.

Capacity is generally measured in units of production. For example, 1,000 cars per month or 50,000 meals per day.

The productive capacity can change, for example, when a machine is undergoing maintenance, the capacity is reduced. It is linked to workforce planning. For example, by working more production shifts, capacity can be increased.

You must take into account seasonal changes or unexpected situations in demand. For example:

- Chocolate factories need to have more capacity to make Easter eggs in November and December, before sending them to stores after Christmas.

- Ice cream factories need to rapidly increase capacity during a heat wave.

Types

Design Capability

It refers to the theoretical maximum production that can be achieved. Design capacity is the achievable capacity of a design if sufficient resources are allocated to it.

For example, a data center can be designed with enough space for 12,500 compute units.

Effective capacity

Effective capacity is the capacity that can be achieved given your design and current resources.

It is the maximum possible throughput taking into account constraints such as quality requirements, product mix composition, machine maintenance, and scheduling issues.

For example, a data center that is designed for 12,500 computing units, which only has enough grid and solar power for 9,100 computing units.

Actual production

It is the percentage of effective capacity that is actually being used. It is the rate of production actually achieved. It is normally less than the actual production, caused by factors such as machine breakdown.

For example, a data center with an effective capacity of 9,100 computing units, which currently has 3,400 units in service, has a capacity of use of 37.4%.

How is it calculated?

One of the easiest ways to calculate capacity is by using the total amount of production for a given period of time. For example, if a plant can produce an average of 20,000 items per week, that is its total weekly capacity.

However, if the system is running at less than capacity, this amount cannot be taken. For example, if 20,000 weekly articles were produced, but half the time people were inactive.

The formula for production capacity is the machine-hour capacity divided by the time it takes to manufacture a product.

Machine-hour capacity

The first step is to calculate the machine-hour capacity of the manufacturing plant.

For example, a plant has 50 machines and workers can use them from 6 a.m. until 10pm, for 16 hours a day.

The daily capacity of the plant in hours would be 16 hours multiplied by 50 machines: 800 machine-hours.

Production capacity with a single product

It determines how long it takes to produce a unit of product. Then the daily capacity of the plant in hours is divided by the time to produce a product, thus reaching the daily production capacity.

For example, suppose that a worker spends 0.5 hours on a machine to make an item and the daily capacity is 800 hours. The production capacity will be 800 divided by 0.5: 1,600 items per day.

Production capacity with multiple products

Suppose that in addition to producing items that take 0.5 hours, the company also makes buttons that take 0.25 hours on the machine.

So the number of items multiplied by 0.5 plus the number of buttons multiplied by 0.25 will equal the total capacity per hour (800).

It is solved for the two variables: number of articles and number of buttons. For 800 machine hours, a possible combination would be to produce 800 items and 1,600 buttons.

Utilization rate

By knowing the production capacity, you can measure how well it is being used. The formula for the capacity utilization rate is actual production divided by potential production.

For example, a company has the capacity to produce 1,600 items per day, but only produces 1,400. The capacity utilization rate will be 1,400 out of 1,600: 87.5%.

How is production capacity increased?

Capacity is increased to meet an immediate or future increase in customer demand. Immediate capacity increases are generally achieved by:

- Use of existing equipment for longer, adding shifts or overtime.

- Subcontract of the equipment of another company.

On the other hand, future increases in production capacity are generally achieved by:

- Use of existing equipment more effectively.

- Purchase of new equipment, implying a higher expense.

Before considering adding shifts, outsourcing or purchasing new equipment, consider the untapped potential in the factory. This potential can be divided into two categories:

Equipment losses, which is the capacity lost by equipment to operate at less than its full potential.

Scheduling losses, which is the capacity lost due to the time the computer is not scheduled to work.

Six big losses

A comprehensive and practical way to address team losses is through the Big Six Losses. They are assigned to specific improvement tools:

- Configurations and adjustments (planned stops).

- Breakdowns (unplanned stops).

- Reduced speed (slow cycles).

- Small stops.

- Production rejections.

- Rejects of the startup configuration.

Improving manufacturing productivity leads to a virtuous cycle of higher capacity. Equipment can be programmed more efficiently, with greater precision and for smaller batches.

Theory of constraints

It is a set of improvement techniques based on the fact that each manufacturing process has a restriction that acts as an obstacle to the entire process.

Focusing improvement efforts on constraint helps ensure that resources are optimized and that it is one of the fastest avenues to increase capacity.

By emphasizing constraint, staff are focused on quickly unlocking additional capacity at the bottleneck of the manufacturing process.

The theory of constraints is closely related to increasing capacity, as its main emphasis is on increasing performance.

Lean Manufacturing

It is a set of improvement techniques based on the fact that all forms of waste must be eliminated from the manufacturing process. There is a long list of effective tools associated with lean manufacturing.

Some of the most important are 5S, continuous flow, just in time, kaizen, kanban, root cause analysis, standardized work, total productive maintenance, etc.

Examples

Capacity is related to the fact that all production operates within a relevant range. No machinery can operate above that relevant range for long.

Suppose that ABC Manufacturing manufactures pants, and that a commercial sewing machine can operate effectively when it is used between 1,500 and 2,000 hours per month.

If the company needs an increase in production, the machine could operate at more than 2,000 hours per month, but the risk of a breakdown increases considerably.

Management should plan production so that the machine can operate within a relevant range. The following are illustrative examples of production capacity.

Information technology

A software platform has a production capacity for 14,000 concurrent users, depending on constraints such as network infrastructure.

Infrastructure

A solar power plant has a production capacity of 30 megawatts based on equipment, such as the solar modules that are currently in operation on the site.

Manufacturing

A production line has a production capacity of 350 units per hour, depending on the speed of the slowest work station on the line.

References

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4. Madison Garcia (2018). How to Calculate Production Capacity. Bizfluent. Taken from: bizfluent.com.
5. John Spacey (2017). 3 Examples of Production Capacity. S Taken from: simplicable.com.
6. Vorne (2018). Increase Manufacturing Production Capacity. Taken from: vorne.com.
7. John Spacey (2016). 3 Types of Capacity. Simplicable. Taken from: simplicable.com.
8. Investopedia (2018). Capacity. Taken from: investopedia.com.