Introduction to Operations Management - I

Prof. B Mahadevan
Analyzing Capacity in Operations
Week 02 C01_A

Let us begin first by understanding the notion of capacity. We use the term capacity in our
common parlance quite often. We say for example, there is not enough capacity to hold the
water or a shopkeeper may say we have no capacity to store beyond hundred items in
stock. So these are some of the commonly heard examples of usage of the word capacity.
Let's look at some of the examples of capacity in organisations. Associated Cements
Corporation (ACC) has an installed capacity of 17.65 million tonnes of cement
manufacturing. Bharat Petroleum Corporation Limited (BPCL) has a refining capacity of
260,000 barrels of crude every day. Recently, Tata Consultancy Services (TCS), one of the
India's leading software firm, announced that it will double its capacity at its largest delivery
centre in Hyderabad with an addition of 28,000 employees over a period of three to four
years. So how do we make sense of these statements? And what does it mean to us from an
operations perspective? What exactly we understand by these references and utterances
related to capacity? So in this module, we shall understand the term capacity more formally
and relate it to the notion of operations, improvement, competitiveness and so on. So these
are issues which . . . we are very concerned about. So we need to connect the notion of
capacity to all this. We shall also develop a basic understanding as to how to assess capacity
in a system and identify specific alternatives one can deploy to improve capacity. So let's
look at some examples to understand why we need to worry about capacity in the first place
and how it affects competitiveness of business firms. When we go for executive health
check-up to a multi-specialty hospital we may find too many people waiting in the system
for their turn and it happens to us at times and perhaps we may choose to postpone or even
abandon the idea altogether. Firms also find it difficult to deliver products and services on
the promised date simply because of a huge backlog in customer orders. You know, we
often hear this, "You know there is a backlog of customer orders, I'm unable to deliver, can I
deliver it a couple of weeks later?" We keep hearing this. Also, in a manufacturing shop floor
we sometimes find that components pile up in front of some machines while in some other
machines downstream, they starve for want of components for processing. So this is very
strange. Somewhere you find a lot of inventory waiting, cueing and somewhere down they
are waiting for some work to do. So all these are in some sense related to capacity. So from
these examples, we can infer two issues. First, when capacity choices have not been made
appropriately it can result in market share loss, loss of goodwill, customer dissatisfaction,
think about it, you know it is too crowded I decided not to do executive health check-up or I
decided to go elsewhere. I mean it affects market share. There is a loss of goodwill. All these
happen.

All Rights Reserved, Indian Institute of Management Bangalore

Introduction to Operations Management - I

Prof. B Mahadevan
Analyzing Capacity in Operations
Week 02 C01_A

Also secondly, there is a greater motivation to use some tools and techniques to address
these issues. So therefore, can we use some intelligent ways by which we can address the
notion of capacity and avoid these kinds of problem. So these are two important inferences
that one can get out of these examples.

All Rights Reserved, Indian Institute of Management Bangalore