One of the most frequently asked questions we hear is "How can you have valid schedules if you don't know your capacity?" You can't! But knowing your capacity isn't as difficult as it might first appear. Let's start with a definition of the term "capacity." Capacity is the amount of work that gets done, or needs to get done, over some period of time. "Work" can be measured in several units of measure; some industries use dozens; others use pounds, feet, bottles, units, and so on per hour, day or week. Standard hours per day is the most common measurement.

Every work center or cell has a Required Capacity. This is the amount of work that needs to get done in the future to keep the customers happy, regardless if the capability to do it is there or not. If you plan to make more product, more work must get done. A simple fact! Required Capacity is a function of the master schedule - how much product you want to make.

Every work center or cell also has a Demonstrated Capacity. The historical Demonstrated Capacity is the amount of work that has actually been completed in the past. For example, work center 101 (or manufacturing cell 101) scheduled 10 people to work 8 hours per day for 5 days, for a total of 400 clock hours last week. During that week, they completed 250 units (or whatever unit of measure is used). The prior weeks, it was 350, 300, 275 and 325, respectively. The average amount of work completed over the past 5 weeks was 300 units of work per week. This is their capacity right now. This historical demonstrated capacity is reality. And it's sometimes ugly!

What happened during the 400 scheduled hours? Some of them were used to make product. But many of those hours were soaked up making changeovers, looking for material, trying to locate tools, fixing broken equipment, asking questions, reworking defective material, reporting labor, and the list goes on and on. Will these same interferences repeat in coming weeks? Probably not all of the same ones, but only an eternal optimist would believe no interferences will occur in the future.

What is your best guess of work center 101's capability, i.e. Demonstrated Capacity, in the coming weeks? While it will likely vary each week, I suggest it will average 300 per week unless they do something different. While I am not suggesting they are locked into the historical number, the future Demonstrated Capacity will only be different if they work more hours or more effectively. The formula for demonstrated capacity is:

Demonstrated Capacity = No. Hours Scheduled x Effectiveness of Hours

What can the Demonstrated Capacity be in the future? The answer is it can be anything you want it to be! Either increase the scheduled hours or improve the effectiveness. The only constraints to changing them are time and money (or our creative limits). Perhaps some innovative problem solving, such as Kaizen, can improve effectiveness without spending a dime). However, before accepting a schedule for the future that requires more than 300 units per week, I would insist on a very specific, credible plan for eliminating some of the interferences or working additional hours. If nothing changes, i.e. schedule the same number of hours and live with the same volume of interferences, the output will be the same .... 300 units!
Understanding the concept of Demonstrated Capacity is critical to effectively managing the Supply Chain. Once understood, the endless, fruitless search for an answer to the question "What is our capacity?" ends. The energy becomes focused on a more productive journey to find a way to cost-effectively change the historical Demonstrated Capacity to meet the customer's needs.

Try the idea out right now. Take a dunk in the reality tank! Start by measuring the Demonstrated Capacity in a key work center or cell each week. Compare this reality with how much the customers need. Don't be surprised if you find a big gap!