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Structure for Increasing/Evaluating Production Capacity

Anonymous A asked on Jul 16, 2018 - 3 answers

Hi all - I realize I'm asking fairly generic questions here and these would certainly need to be blended into the fabric of the specific case, however, would love to solicit your ideas on a typical case on production/manufacturing.

1. How would we structure a production capacity problem, what are some key elements to consider? (let's say in a case where current production is not meeting demand)

2. What are some of the things we'd do to evaluate current capacity?

3. What ways would we increase capacity?


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Benjamin replied on Jul 18, 2018
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Hi Anonymous,

For production issues, value chain is always a good start.

I would break down issue in the typical blocks of value chain, and investigate one by one where are the bottlenecks

1. Supply : Do we have enought raw material stock / or can we order enough raw materials from our supplier to increase our production ?

2. Production : How is the process operated and are we operating at full capacity at every step of the process ? Are there opportunity to increase capacity without material investments (increase work duration, teams, number of shift, production planning ) ? If we decide to invest in equipment what is the step of the process on the critical path to prioritize

3. Transport : if we are able to produce more, are we able to deliver more ?

Hope this helps



replied on Jul 16, 2018
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Answering the 1st and the 2nd question, the several things that I will look at:

1) Demand - look at the current demand and the demand growth projections

2) Capacity - understand the current capacity in the number of units / labor time / machine time

3) Utilization - understand if the capacity is underutilized. If so - go through the value chain and try to find the bottlenecks

4) Costs and benefits - estimate the potential benefits of the capacity increase vs the investments needed

Answering your 3rd question there are the two levers:

  1. Increasing capacity via labor / machine time - more total working hours / shifts, more people, more machines, etc
  2. Improving utilization by removing the bottlenecks, improving demand planning, removing peaks, etc


Hi Benjamin, may I ask what does "removing peaks" mean? thanks! — Ada on Nov 02, 2018

replied on Jul 16, 2018
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Hi Anonymous!

Quick answer to your 3 questions (and yes, the questions are very broad and unspecific ;))

1. The central notion to consider should always be value creation. Hence, you need to ensure that the additional value that can be created by means of a capacity expansion significantly exceeds the corresponding investment cost over a focal time frame. This additional value can stem from additional revenues (due to higher output) or higher cost efficiency (due to better yield/output per input unit).

2. Here I would recommend to analyze each step of the value process chain and identify the bottlenecks that determine capacity.

3. Rank the bottlenecks in inverse order of current capacity and identify the cost of removing each bottleneck relative to the additional output that can be generated (unit cost of additional output). as long as these unit costs are lower than the expected revenue per additional unit, it makes sense to remove the bottleneck and hence expand the capacity.

Cheers, Sidi

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