Calculating Capacity Utilization and improving Profitability

Capacity in production is one of the key criteria that is set from the inception of the Factory. Irrespective of whether it is a product line or a job work, the installation starts with defining a capacity - X pieces per day or $XYY in production output. Internal supply chain, warehouse, individual machine, and every other appliance capacity is calculated based on the overall goal with the necessary allowance to ensure the estimated capacity in production is achieved day over day.

What is Capacity in Production?

Capacity in production is a term used to represent the maximum output the particular machine or plant can produce when run at the maximum available production time. By production time, we are ignoring the management loss like lunch and other breaks provided as part of the human working standards.

For example, consider a process for a particular part that is 100% automated with Robots for loading and unloading and no need for any intermediate cleaning. Let's set the parts cycle time to be 60 seconds. In an ideal environment, the capacity of the process will be 1440 parts in a day. Every firm works hard to increase the capacity in the production shop floor by doing Research for the part and decreasing the cycle time from 60 to 30 to double the output. The material inward has to be monitored and assured that the inflow is perfect to meet the capacity.

The above illustration is done keeping a one-piece flow machining process like turning, drilling, or something similar without accounting for tool change or other maintenance in the day.

Capacity in production relies on two key factors : part-time as well as cycle time. Part-time represents the duration to produce a unit, including activities like material handling, setup, machining, and inspection. Reducing part-time allows manufacturers to increase their capacity by producing more units within the same timeframe. Cycle time, on the other hand, refers to the time for a complete production cycle, including part-time and additional tasks like loading/ unloading and quality control. For the actual capacity calculation, all the allowances like tool change, daily scheduled checks (if any), Quality correction based on RM, have to be accommodated to get the right capacity in production.

What is Capacity Utilization?

Manufacturing a part involves a diversified set of operations to create the final product. Not every step involved in the process is the same and equal. If we take an example of a Bolt or a screw, it involves wire formation, Cold Forging, Head formation, Threading, Heat Treatment, Surface treatment, Quality Control, and packing. All these processes are different. At a broad category, Heat Treatment, Surface Treatment, and packing can be put in a batch process, and all others can be categorized as one piece flow. The batch process has longer cycles but can take multiple parts at a time, while the others can take one or a limited piece at a time and have shorter cycle time. Also, the cycle time for each process varies for a single part and will be different based on the part.

In the production cycle, none of the processes can be skipped. Having ideal capacity utilization is a myth and is not possible. In the above deception, the heat treatment may run only for 15 days while the other need to work for 30 days to provide feed for the heat treatment.

The combined effect of the overall need for productivity and the underutilization of necessary resources is often referred to as the output gap. The output gap represents the difference between the actual level of output and the potential level of output that can be achieved with the available resources. In today's world, there is a lot of underutilized equipment in manufacturing, creating this output gap.

Capacity Utilization is nothing but the ratio of both the parameters (the actual production and the maximum production) that represents the output gap. The objective of every plant is to have the planning team and sales team ensure that most of the resources are utilized to the maximum possible with orders, job works, and partial works.

Capacity utilization plays a vital role in line processes by optimizing the production output and minimizing inefficiencies. It ensures that resources are effectively utilized, reducing idle time and maximizing productivity. By achieving high capacity utilization, line processes can meet customer demands efficiently, increase profitability, and maintain a competitive edge in the market.

Capacity utilization in assembly line production streamlines material flow, minimizes delays, and enhances efficiency, enabling manufacturers to meet customer demands effectively.

Optimizing capacity utilization in machining operations through efficient tool changeover, advanced cutting techniques, and proper line setting reduces idle time, maximizing productivity and the number of parts produced.

Efficient capacity utilization in molding, achieved by minimizing mold changeover time and implementing real-time process monitoring, reduces downtime and maximizes the production of quality parts, meeting customer demands promptly.

Capacity utilization is essential as it measures how much of the available capacity is actually utilized. It provides insights into the efficiency and effectiveness of resource utilization in manufacturing processes. While capacity cannot be increased to 100%, measuring capacity utilization helps identify the gap between actual production and the maximum potential output.

Calculating Capacity Utilization Formula for different process

The capacity utilization rate is crucial in manufacturing as it indicates the level of resource efficiency and productivity. It helps manufacturers identify underutilized or overutilized resources, enabling them to optimize production planning and resource allocation. By monitoring and improving capacity utilization, manufacturers can maximize their output, minimize costs, and meet customer demands efficiently. As stated initially in the article, we can broadly divide the manufacturing process into two categories.

• Single piece or a few piece flow.
• Batch Process

For Single piece or short run operations:

The utilization rate is a measure of how effectively a resource or system is being utilized or utilized compared to its maximum capacity. It is typically expressed as a percentage. The formula for calculating utilization rate is:

For Batch Process:

The capacity of the batch that is getting loaded and the production cycle time based utilization have both to be considered for the capacity calculation. Take an example of the heat treatment for the bolts; the pieces are loaded in trays, and a fixed number of trays are placed inside a bin. The number of parts that can be loaded in a tray and the number of trays that can be loaded into a bin depends on the size of the bolt. Keeping the size of the bin to be fixed, the capacity utilization of the bin is calculated based on the volumetric equivalent of the parts loaded against the maximum volume of parts that can be loaded.

The utilization rate helps determine the efficiency and effectiveness of resource utilization. In ideal scenarios, the utilization rate is 100% when the resource is operating at its maximum capacity without any downtime or idle time. However, in practical situations, achieving the ideal utilization rate may not be feasible due to factors like maintenance, setup time, dependency in other operations, or variability in demand. The achievable utilization rate represents the rate that can realistically be attained considering these factors, and it is crucial for organizations to find a balance between maximizing utilization and maintaining flexibility to adapt to changing conditions.

Measuring Capacity Utilization Rate

Measuring the actuals is the first step towards improving it. The recording of the data is feasible by creating a foolproof data strategy. The tools that we have today as part of the Digital Transformation help maintain all the production-related information of the shop floor as digital records. Educate the operations team from Factory head to the last level operator and helper about the importance of the data that is being collected so that we get the genuine data on the manufacturing execution system. The platform provides pre-built Manufacturing charts, including Capacity Utilization to track the day to day machine utilization trend.

When you start recording the capacity utilization of each batch, the digital transformation application also enables complete traceability of parts from the first to the last process.

How to Improve Capacity in Production?

In this article, we have already discussed capacity in production, capacity utilization, and how to calculate and measure it in the various processes. Knowing the status is equal to getting 50% of the work done. Here's how we can improve the overall capacity by using these data and additional analysis:

• As part of the MES Software, the live status of the machine is continuously monitored. Every machine needs to be closely monitored and made sure the downtime of a single machine does not impact the overall capacity utilization of the plant. Monitor every stoppage in relation to the machine and the target capacity utilization.
• Set the right target for the everyday Overall Equipment Effectiveness (OEE) for the plant and individual machines. Track it closely and analyze Root cause analysis (RCA) on the daily stand-up meeting.
• Address quality defects through quality improvement initiatives like Six Sigma, aiming to reduce defects and improve overall process efficiency.
• Regular periodic maintenance of the machines will keep the uptime of the machines to the maximum. Optimize equipment and resource allocation to ensure maximum uptime and minimize idle time.
• WIP Inventory management & planning helps internal logistics to be smooth and at the right levels for each process eliminates bottlenecks in the material availability to keep the capacity utilization at the maximum levels.
• A semi-automated process efficiency is defined by the proficiency and the capacity of the manual operator. This swings the Capacity utilization both ways based on the operator. It is better to automate all the crucial processes, which need to be on the higher capacity utilization for the overall line to run without any stoppages.
• Train the workforce on the importance of the adopting the Industry 4.0 and empower them collaborate closely in the shop floor and allow them to identify and address issues promptly, ensuring smooth operations.
• Regularly monitor and analyze all manufacturing key performance indicators (KPIs) to identify areas for improvement and make data-driven decisions. Identify and group these KPIs and involve stake holders at each level for different groups. For example, for Availability and performance, the operators, line supervisors, and the department heads should have a clear analysis and target setting.
• Define a strict and rigorous review process Continuous review with everyone involved on a daily, weekly, and monthly basis based on the predefined process.

Capacity optimization is a critical aspect of a manufacturing factory success. By implementing a strategic Smart factory solution that is apt for your shop floor, and focusing on KPIs and refining the process, manufacturers can tactically reduce the production cost without compromising the quality and the delivery timeline by increasing capacity in the production line. Understanding these key components of capacity and their impact on various manufacturing processes enables organizations to make informed decisions and continually improve their production systems. By doing so, manufacturers can maintain a competitive edge in today's dynamic and sustainable environment.