Operations Management Basics: Capacity, bottleneck, process capacity, flow rate and utilization
In order to perform the following calculations, processing time has to be defined as the time that is spent on a certain task (e.g. one station in a sandwich restaurant). We will also need the previously introduced definitions of flow rate and flow time.
Capacity: The capacity can be calculated for every station in a business process. It is always m / processing time with m being the number of resources (e.g. workers) being devoted to the station. If, for example, one worker needs 40 seconds to put together a sandwich, the capacity of this station is 1/40 per second or 1,5 sandwiches per minute. If there are two workers on the same station, the capacity increases to 2/40 per second or 3 sandwiches per minute.
Bottleneck: The bottleneck is defined as the process step (station) in the flow diagram with the lowest capacity (the “weakest link”). Although the bottleneck is often the process step with the longest processing time, it is important to always look at the capacities for making a judgement.
Process capacity: The process capacity is always equivalent to the capacity of the bottleneck. It is useful, to calculate a comprehensible number, such as customers per hour or parts per day (instead of a hard to comprehend number such as 1/40 customer per second or 1/345 part per second).
Flow rate: Even though the flow rate was previously defined, the definition needs to be augmented as the flow rate being the minimum of demand and process capacity. While the flow rate logically can never be higher than the capacity of the bottleneck, it can very well be lower, if the demand is insufficient.
Utilization: The utilization tells us, how well a resource is being used. It is calculated as flow rate divided by capacity (e.g. 1/40 / 1/25). The utilization always lies between 0% and 100%.
These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at Coursera.org.