Please show all work and how you derived at each answer, include formulas. Selec

Question

Please show all work and how you derived at each answer, include formulas.
Select a process and describe it briefly. Estimate the capacity of this process. Would you use input or output measures to measure capacity? Estimate the demand placed on this process. How does the capacity compare relative to the demand - adequate, high, low? For this process, what would be some reasons to maintain a capacity cushion? Discuss, with examples, the advantages and disadvantages of holding a large versus small capacity cushion. Based on your analysis, what level of capacity cushion is appropriate?

Explanation / Answer

I will explain the concept using a very common process which happens in organizations. This also helps organizations decide the number of resources based on the capacity and actual demand requirement.

Let us consider the purchasing process in an organization. Any organization will have a set of buyers or purchase officers. They basically act on purchase requisitions or PRs which come from their manufacturing units. These PRs might be requisitions or requests for raw material or maintenance equipment.

To calculate capacity, let us assume we have 4 buyers in the purchase department.

Now, each person works for 8 hours per day. Hence, we have 32 man hours per day available with us.

Since processing a PR involves multiple activities such as analysing it, identifying the right suppliers, getting quotes, etc, each PR on an average can be allotted around 1 hour for complete end to end processing.

Hence, since 1 buyer works for 8 hours (excluding breaks), 1 buyer processes 8 PRs per day.

Hence, 4 buyers process 32 PRs per day. This translates to a capacity of 640 PRs per month, considering 20 working days

If we look at the demand, the there are 4 factories, and each factory raises 20 PRs per day (there are 5 departments, and each department raises 4 PRs per day). This translates to 400 PRs per month.

By industry norms, this is medium sized demand. As we can see, we have a capacity buffer and we could have actually done well with just 3 buyers.

However, it becomes important to have a capacity buffer as raw materials are very critical for the manufacturing line to keep running. If the supply chain does not act fast enough, the entire manufacturing line could be stopped. Hence, a cushion of atleast 20% would be required to ensure the raw materials are delivered on time, and also to take care of demand spikes, which can happen in seasonal industries.

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