How to calculate production capacity of a factory

How to calculate production capacity of a factory

What is Manufacturing Capacity?

Manufacturing capacity is the maximum production that a factory or manufacturing plant is capable of. Generally measured in output units per time period, the purpose of identifying a factory’s manufacturing capacity is to then be able to improve planning and scheduling, provide accurate lead times to customers, and better forecast cash flow.

Unfortunately, Many manufacturers are unaware of their true manufacturing capacity and will estimate without being sure. Because many business decisions are based on manufacturing capacity, it is important to calculate the exact number as much as possible.

Capacity Utilization Rate

In addition to knowing how much capacity a factory has, it is also important to know how much of that capacity is being used at any given time and how much still remains. This number is calculated using this formula:

Capacity Utilization Rate = (Actual Output / Production Capacity) * 100

An 85% capacity utilization rate is what to strive for, with the higher the rate meaning the lower the cost per unit. Knowing both manufacturing capacity and then capacity utilization rate makes it easier to assess overall operational efficiency and make better decisions about pricing.


How to Calculate Manufacturing Capacity

There are three different ways that a factory may use in order to determine its manufacturing capacity: manual measurement, rough-cut capacity planning (RCCP), or capacity planning and scheduling.

Manual Capacity Measurement

This is the most simplistic and the least accurate method. It involves simply  counting the number of products produced during a certain time period when the assembly line is working at its maximum. Using this method does not work when a large mix of goods are being produced, and it only offers information on historical capacity with no indication as to whether or not it will change.

Rough-Cut Capacity Planning (RCCP)

This method employs calculations that take into account how many productive hours each machine has per day (including how many people work per shift, how long the shifts are, average downtime, etc.) as well as how long it takes to make one complete product from the very start of the process to the very end. Once all these variables are known, it is possible to determine the maximum possible output given the current circumstances. This information can then be used to determine which products to produce when in order to meet demand.

It is important to keep in mind that RCCP does not take into account the order in which processes take place, any changeover times when switching which product is being made or the availability of materials. Therefore, it is possible that bottlenecks may develop, increasing production time and reducing the overall manufacturing capacity.

Capacity Planning and Scheduling

This method is used in order to help predict what the capacity will be in the future, which requires significant planning. The manufacturing process of each product has to be broken down into the smallest steps, the availability of each workstation and machine must be identified including setup times, and the availability of materials and lead times expected by customers must also be known.

This approach is extremely time intensive if done manually, and most manufacturers will use an MRP system to manage this process. Matics’ solution can connect to the MRP system and transform it from a static system that uses information that has to be input manually to a dynamic system that is constantly pulling information from the machines in real time.


How to Improve Manufacturing Capacity

Manufacturing capacity can easily be increased with the purchase of newer or more equipment and/or the hiring of additional staff. But, it can also be optimized without adding new resources in the following ways:

  • Better planning – unexpected events can send even the most carefully planned process into a tailspin resulting in large delays. It is important to consider and plan for all scenarios.
  • Improved processes – different scheduling methods can be used to ensure that materials are available as needed so that production can be completed “just in time” in order to reduce cost of storing inventory and increase cash flow.
  • Implementation of manufacturing methodologies – methodologies like Lean Manufacturing can be implemented in order to eliminate waste and improve efficiency.

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Manostaxx – Industrial Management Consulting


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