Manufacturing Process and Capacity

Manufacturing Process Selection

Capacity planning begins with manufacturing process selection. Essentially it involves choice of technology and related issues. Key aspects include make or buy decisions, capital intensity (the mix of equipment and labour) and process flexibility. Process selection often requires engineering expertise to ensure that manufacturing flexibility is attained for long term competitive advantages. The net present value technique can be used to determine the most efficient equipment/labour mix as well as aiding in make or buy decisions. Process strategies can be divided into three broad categories:

  1. Process focus (intermittent processes) refers to making low-volume, high-variety products in "job shops".
  2. Product focus (continuous processes) describes high-volume, low-variety production.
  3. Repetitive processes use modules which are parts or components previously prepared e.g. assembly line manufacturing.

Each of these categories has different characteristics that must be considered in the planning phase.

Plant Layout

Closely associated with process strategies is planning the layout of the manufacturing facility. The "job shop" layout planning process attempts to minimize costs of moving loads from department to department, taking into consideration number of loads and distances. A special case of repetitive processes is the work cell idea. The concept of this model is to organize people and machines in a small group so that they can focus on making a single product or closely related products. Work cells are sometimes organized in a U-shape. The requirements of cellular production include group technology codes, high level of employee training (and flexibility) and staff support. Planning product-oriented layouts centers around assembly line balancing. The object is to minimize imbalance between machines or personnel while meeting a required output from the line. There are other layout strategies such as fixed-position, office, retail/service and warehouse. Several computer models are shown in appendix B that can assist the layout planner.

Capacity and Utilization

Capacity refers to an upper limit or ceiling on the load that an operating unit can handle. Many manufacturers operate at less that 100% capacity to avoid over-straining the system. This is known as effective capacity or utilization.

Utilization = expected capacity / total capacity

Efficiency is another consideration, generally measured as the actual output/effective capacity. Putting it all together results in a calculation called the rated capacity.

Rated capacity = capacity x utilization x efficiency

This is a useful figure since it is a measure of the maximum usable capacity of a particular manufacturing plant. An example might help to understand this calculation. Assume that a plant can manufacture 25 units per day (7 days per week), with a utilization rate determined by management to be around 80%. Actual efficiency is estimated at 85%. Therefore, the rated capacity is [(25)(7)(.80)(.85)] = 119 units of product per week. This calculation can then be used in making more precise capacity decisions. Two models are frequently used by planners to select desired capacity levels, namely decision trees and break-even analysis.

  1. Decision trees require specifying alternative capacity levels and various market outcomes. By assigning probability values to the various market outcomes (states of nature beyond the control of the manufacturer), it is possible to arrive at capacity decisions that maximize profits or minimize costs.
  2. Break-even analysis has as its objective to calculate the point, in dollars and units, at which costs equals revenues. In order to perform these calculations, costs must be broken down into fixed and variable costs. Fixed costs or sunk costs are costs that continue even if no units are produced. The DIRTI-5 include depreciation, interest/principal payments, repairs & maintenance (can also be variable costs), taxes and insurance on facilities. Variable costs are those that vary with the volume of units produced. Examples include labour, materials, utilities, etc. The formula for calculating breakeven in units = total fixed costs/(product price variable cost).