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Capacity of a system depends on the level of resource deployed by the system and on the
effectiveness at which these resources are utilized
Capacity is difficult to analyze due to the subtle and complicated ways in which the various
resources can interact
Activities are performed by capital and labor resources
Resource Pool – A collection of interchangeable resources that can perform an identical set of
activities
o Resource Unit – Each unit in a resource pool
Resource Pooling – Combining separate resource pools into a single, more flexible, pool able to
perform several activities
o A powerful operational concept that can significantly affect not only process flow rate
and process capacity but also flow time
Unit Load of a Resource Unit – The average amount of time required by the resource unit to
process one flow unit, given the way the resource is utilized by the process
o Effective Capacity of a Resource Unit – The inverse of the unit load. Represents the
maximum sustainable flow rate through the resource unit, if it were to be observed in
isolation
Effective Capacity of a Resource Pool – The sum of the effective capacities of all the resource
units in that pool.
Effective Capacity (of a resource pool i) = Ci/Ti
o I: Resource Pool
o Ti: Unit load at resource pool
o Ci: # of resources
o If the various resource units are not identical in terms of their effective capacities, then
the affective capacity of the resource pool will be the sum of the effective capacities of
each resource unit in the pool
o Since all resource pools are required to process each flow unit, no process can produce
output any faster than its bottleneck
Bottleneck – The ‘slowest’ resource pool of the process
Effective capacity of a process – The effective of the bottleneck
5.3 Effect of Product Mix and Effective Capacity and Probability of a Process
o Effective capacity depends on the products produced and their proportions in the mix
o Unit Contribution Margin of each flow – its revenue less all of its variable costs
o Theoretical Unit Load of a Resource Unit – The minimal amount of time required to process a
flow unit, if all waste were eliminated
o Theoretical Capacity of the Resource Unit – The reciprocal of the theoretical unit load
o Represents that maximum sustainable flow rate through the resource unit, if it were
utilized without any waste
o Theoretical Capacity of a Process – Provides a highly idealized and seldom attainable notion of
capacity
o Usefulness devices from the fact that it provides an estimate of the waste in the system
and forms the basis for any action plan for waste elimination
o Theoretical Capacity: Effective Capacity / (1-CWF)
o Theoretical Capacity Utilization of a Resource Pool = Throughput / theoretical capacity of the I
th resource pool
o Defined by the bottleneck resource pool
5.2 Reconsider the law firm in the POW, assu me the prevailing revenues per shopping and medical
projects are $4000, and $5000 per project, respectively, and that tout of pocket expenses associated
with each project are negligible. The fixed cost of operating the office is $500,000 per month.
5.3 Three hairstylists, Francois, Bernard, and Mimi run a hair salon. They stay open from 6:45 to 9pm.
They only perform shampooing and hairstyling activities. On average, it takes 10 minutes to shampoo,
15 minutes to style, and 5 minutes to bill the customer. When a customer arrives, he or she checks in
with the receptionist Lulu. This takes only 3 minutes. One of the three stylist then takes charge of the
customer and performs all three activities – shampooing, styling, and billing consecutively
5.5 An insurance company processes two types of claims, Life and Property. The capacity of processing
life claims is 500 P/month. The capacity of processing property claims is 1000 per month.
What is the capacity per month – assuming a cmmon bottle neck and a processing mix of 50-
50%
o 750
o (500 + 1000)/2 = 1500/2 = 750
Reexamine POW, assume that the capacity waste factors of the paralegals, tax lawyers, and senior
partners are 20%, 30%, and 35%.
o What is the theoretical capacity of Paralegal (contracts per day)?
o 6
o 4.8/(1-0.2)= 6.00
What is the theoretical capacity of Tax lawyer (contracts per day)?
o 17.14
o 12/(1-0.3)= 17.14
What is the theoretical capacity of Senior partner (contracts per day)?
o 12.31
o 8/(1-0.35)=12.31
What is the theoretical capacity of the process (contracts per day)?
o 6 bottle neck
POW
1. A law firm specializes in the issuance of insurance policies covering large commercial real estate
projects. The projects fall into two categories: shopping centers, and medical complexes. The typical
work involved in each transaction is quite predictable and repetitive. The time requirements (unit
loads) for preparing a standard contract of each type are given in the below table. Also listed are the
number of professionals of each type and the number of available hours per professional per day (the
rest of the time is taken by other office activities). For the month of March, 2015, the firm has
generated 150 orders, 75 of each type. Assume one month equals 20 days.