Capacity Utilization

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.

Real-world 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:

Capacity (units/day) = —————————————————————————— Available Production Time (seconds/day) Cycle Time (seconds/unit)

Capacity = ————————— = 480 units/day 28,800 60

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 seconds 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.

Key factors affecting capacity

• Part-time: Represents the duration to produce a unit, including activities like material handling, setup, machining, and inspection.
• Cycle time: Refers to the time for a complete production cycle, including part-time and additional tasks like loading/unloading and quality control.

Formula for Production Capacity

Production Capacity (units) = ————————————————————— Available Production Time (seconds) Cycle Time (seconds per unit)

For the actual capacity calculation, all allowances like tool change, daily scheduled checks (if any), and quality correction based on raw material have to be accommodated to get the right capacity in production.

What is Capacity Utilization?

Capacity utilization is the percentage of a resource's available production capacity that is actually used to produce good (acceptable) output during a defined time period. It compares Actual Output to the Maximum Possible Output for that same period (based on the plant's rated or effective capacity) and is expressed as a percentage. 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 times. 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 description, the heat treatment may run only for 15 days while the others need to work for 30 days to provide feed for the heat treatment.

The Output Gap

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 Formula

Capacity Utilization (%) = —————————————————— x 100 (Actual Output) (Maximum Possible Output)

Example: If a factory has a capacity of 10,000 units per month but produces only 7,500 units, the capacity utilization is:

Capacity Utilization = ————————— x 100 = 75%. 7,500 10,000

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 utilization of available capacity 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 Processes

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 the utilization of capacity, 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 compared to its maximum capacity. It is typically expressed as a percentage.

Utilization (%) = —————————————————————— x 100 (Actual Production) (Theoretical Maximum Production)

Example: A CNC machine can theoretically produce 500 components per shift. If it produces 400 components, utilization is:

Utilization = ————————— x 100 = 80% 400 500

For Batch Processes

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.

Example: 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 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.

Maximum trays per bin: 10

Parts per tray: 100

Maximum Capacity of bin: 10 × 100 = 1,000 parts.

If only 8 trays are loaded with 100 parts each,

Capacity Utilization = —————————————— = 80% 1,000 × 100 8 × 100

Formula:

Capacity Utilization (%) = ———————————————————————— × 100 (Actual Parts Loaded) (Maximum 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 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.

Key KPI Formula:

KPI = ————————————————— × 100 Actual Performance Target Performance

How to Improve Capacity in Production?

Following are some of the tactics on how we can improve the overall capacity by using these data and additional analysis:

• Real-Time Machine Monitoring: 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 OEE: 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) during the daily stand-up meeting.
• Address Quality Defects: Through quality improvement initiatives like Six Sigma, aim to reduce defects and improve overall process efficiency.
• Regular Periodic Maintenance: Regular maintenance of machines will keep the uptime of the machines at the maximum level. 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, eliminating bottlenecks in material availability to keep the capacity utilization at the maximum levels.
• Automation: 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: Train the workforce on the importance of adopting Industry 4.0 and empower them to collaborate closely on the shop floor and allow them to identify and address issues promptly, ensuring smooth operations.
• Monitor and Analyze KPIs: 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 stakeholders at each level for different groups. For example, for availability and performance, the operators, line supervisors, and department heads should have a clear analysis and target setting.
• Continuous Review Process: Define a strict and rigorous review process. Continuous review with everyone involved on a daily, weekly, and monthly basis based on the predefined process.

Maximize Output with Smart Capacity Planning

Capacity optimization is a critical aspect of a manufacturing factory's 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.