Manufacturing Capacity Control

It's a rare plant that operates around the clock. You decide to operate one, two or three shifts, five or six days, etc.

When we're running we aren't running! The internal circles represent cholesterol blocking the pipes. They take time to perform but no salable output is created.

At the bottom of the outside ring is obsolete and slow moving inventory. Here is where the required capacity was deliberately, or perhaps in error, inflated to keep the machine busy.

Now a critical thought. Does it cost more to operate a piece of equipment or keep it idle? The answer, it costs to operate a machine. It costs zero to leave it idle. Don't confuse sunk costs with operating costs. The cost of the machine was paid or committed to when you bought the machine. It won't cost you one penny more if you leave it idle.

But to operate it you must buy raw materials, people, maintain it, pay for energy, etc. All this is incremental out of pocket.

Based on this you should have a program to keep every machine idle. Run them just enough to meet every customer demand, no more, no less. You should do this even if it means idle people. Direct labor is a small fraction of your total business costs, certainly compared to purchases. Why spend lots for material to save a small amount of direct labor? This is foolhardy to say the least. And cluttering up your machine capacity just to keep people busy is one way to create a false bottleneck.

The other items on the two outer rings are self explanatory. The only important thing to remember is these are all detracting from your ability to make salable product. Shrink these circles and your ability to produce goes up, with the same operating capacity.

You need the middle circle, labeled recovery capacity, to recover from the slings and arrows of outrageous fortune you put in. You might need to break into a run to replace scrap, with consequent loss of production. Or you have to produce something in a hurry on a non productive piece of equipment.

Nonstable demand means peaks and valleys, feast or famine. Bottlenecks can be created when the peaks occur, to disappear during the valleys. Level out the demand if you can (reference my talk in the 1992 Conference Proceedings, "A World Class Manufacturing Business Demands World-Class Sales and Mar­keting") and you will reduce the peaks, stop­ping bottlenecks from being caused.

You need idle capacity today to grow the busi­ness tomorrow. Hence the fifth circle labeled Growth.

The small circle in the middle, labeled actual output, is what is trying to make money for the business. It is what the plant or machine could be operating at if all the outer rings were shrunk to zero. This is obviously impossible but does suggest that any shrinking of the outer rings frees up time to produce, increasing salable capacity with little or no capital investment.

Few companies have the data to draw Figure 1. They have pieces of it, but nowhere is it pulled together into one composite picture. And these same companies complain about bottlenecks, justify buying machinery and tooling, hire addi­tional people but they don't know how well their existing productive resources are performing.

The best way to develop Figure 1 is to get the operators to create a 24-hour log of what is happening to a machine or process. Figure 2 is an example of such a log. It identifies when the machine is adding value and codes the reasons why time was lost. This won't pick up the time lost making scrap that is identified at a later operation, warranty returns, obsolete and slow moving inventory, etc., but it will give you a start on identifying the time lost in the plant. You will have to back into these other numbers to get a complete picture.

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