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Production Capacity

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What is Production Capacity?

Production capacity is defined as the maximum number of units that a factory is able to produce in a given time period with a set amount of time, labor and materials. This is an important figure for manufacturers to know so that they can provide customers with accurate lead times, predict their cash flow and optimize production planning. 

Manufacturers aim to operate at their full manufacturing capacity, with all machines working at the optimal level without any unnecessary downtime, and many use a production monitoring system in order to track their efficiency. 

How to Calculate Production Capacity

A simple production capacity formula can be used to calculate the production capacity of a factory. Depending on the specific industry, processes and end products, the calculation may differ slightly, but all are based on the same principles:

  • Machine-Hour Capacity – first, simply multiply the total number of machines by the number of hours that they can run. The hours are likely limited by shift times and available human resources. 
  • Production Capacity for One Product – if the factory only produces one type of item, their manufacturing capacity is calculated by dividing the machine hour capacity by the time it takes to produce one item.
  • Production Capacity for Multiple Products – when a factory produces more than one type of product, they use the production capacity formula for each product and then add them together.

Once the production capacity is determined, manufacturers can start to identify issues that are constraining the capacity of machines and explore ways to expand production capacity. 

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What Constrains Production Capacity?

There are six losses that can lead to a reduced production capacity:

  1. Equipment failure and breakdowns
  2. Setting up and making adjustments to machines that requires taking them offline for a period of time
  3. Jams or other obstructions that cause a machine to idle
  4. Maintenance issues or human errors that cause the process to operate at a reduced speed
  5. Human or machine errors that lead to defects in the process
  6. Defective parts that do not meet quality standards and need to be discarded 

A production monitoring system can help manufacturers identify which of these losses are contributing to a decrease in production capacity. 

How to Increase Production Capacity 

Manufacturers may want to expand production capacity in an effort to grow their business or in response to spikes in demand. In order to expand production capacity, they may need to purchase additional equipment and/or hire more workers. But, in many cases, manufacturing capacity can be increased with better utilization of existing resources. For example:

  1. Add additional shifts or pay employees for overtime hours.
  2. Outsource some production to other manufacturers instead of buying new equipment.
  3. Use a production monitoring system to identify ways to optimize the production process to make it more efficient.

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