{"id":9547,"date":"2011-12-01T05:27:26","date_gmt":"2011-12-01T11:27:26","guid":{"rendered":"https:\/\/staging.opexlearning.com\/resources\/?p=9547"},"modified":"2014-09-26T12:15:19","modified_gmt":"2014-09-26T17:15:19","slug":"capacity-analysis-cost-production-analysis","status":"publish","type":"post","link":"https:\/\/staging.opexlearning.com\/resources\/capacity-analysis-cost-production-analysis\/9547\/","title":{"rendered":"Capacity Analysis, Cost and Production Analysis: A Lesson From Hamburgers"},"content":{"rendered":"<div class=\"a296a24fa2fc69ef5487857f02f111e8\" data-index=\"9\" style=\"float: none; margin:10px 0 10px 0; text-align:center;\">\n<script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\r\n<!-- Single Post readerboard -->\r\n<ins class=\"adsbygoogle\"\r\n     style=\"display:inline-block;width:728px;height:90px\"\r\n     data-ad-client=\"ca-pub-8207522353004717\"\r\n     data-ad-slot=\"1144967431\"><\/ins>\r\n<script>\r\n(adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script>\n<\/div>\n<p>Let&#8217;s assume that you are the head of process improvement at your company. And, you were given the task of answering the following question:<\/p>\n<blockquote><p>Should our employees walk or run to get their job done?<\/p><\/blockquote>\n<p>How would you answer that?<\/p>\n<p>This question is a classic Operations Analysis, Cost Analysis, and Capacity Analysis question. To illustrate how I&#8217;d answer this, I&#8217;m going to use an example of a meat processing process: Fresh Hamburgers.<\/p>\n<p>PS: I also consider this question while inside of a hamburger restaurant where I looked at capacity on servers and the <a title=\"hamburger making process and constraints\" href=\"https:\/\/staging.opexlearning.com\/resources\/bottlenecks-and-fast-food\/445\/\">actual hamburger making process<\/a>.<\/p>\n<p>PS: If you are vegetarian, please forgive the example. Just replace the meat example with one that is more suited to your liking.<\/p>\n<p>Okay, back to the illustration. Suppose the process to produce fresh hamburgers is the following:<\/p>\n<ol>\n<li>Cows Enter<\/li>\n<li>Meat is Processed<\/li>\n<li>Meat is Delivered<\/li>\n<\/ol>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-9548 aligncenter\" title=\"cost-production-analysis-meat-processing\" src=\"https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2011\/11\/cost-production-analysis-meat-processing.jpg\" alt=\"cost and production analysis, meat processing, capacity analysis\" width=\"591\" height=\"186\" srcset=\"https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2011\/11\/cost-production-analysis-meat-processing.jpg 739w, https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2011\/11\/cost-production-analysis-meat-processing-600x188.jpg 600w, https:\/\/staging.opexlearning.com\/resources\/wp-content\/uploads\/2011\/11\/cost-production-analysis-meat-processing-300x94.jpg 300w\" sizes=\"(max-width: 591px) 100vw, 591px\" \/>The manager of the meat processing plant is curious to know the following:<\/p>\n<ol>\n<li>Should the cows run into the processing room?<\/li>\n<li>Should the cows walk into the processing room?<\/li>\n<\/ol>\n<p>Under the surface, the question is really about Capacity and the Cost implications for Walking or Running. Given this, let&#8217;s now ask more detailed questions:<\/p>\n<ol>\n<li>How much meat can be processed (capacity analysis) when the cows walk versus run?<\/li>\n<li>What is the cost involved (cost analysis) when the cows walk versus when the cows run?<\/li>\n<\/ol>\n<hr \/>\n<h2>Capacity Analysis \/ Production Analysis<\/h2>\n<hr \/>\n<p>Okay, a couple of assumptions to make our example a bit easier to deal with:<\/p>\n<ul>\n<li>Each cow can make 20 hamburgers.<\/li>\n<li>The shop is open for 10 hours, 5 days a week.<\/li>\n<li>Given the current labor, when the cows walk, 10 cows can be processed in 1 hour. This means that roughly 2000 hamburgers can be processed in one day if the cows were to walk (20 hamburgers \/ cow * 10 cows\/hour * 10 hours\/Day).<\/li>\n<li>Given the current labor, when the cows run, 25 cows can be processed in 1 hour. That means 5000 hamburgers can be processed in one day.<\/li>\n<\/ul>\n<hr \/>\n<h2>Cost Analysis<\/h2>\n<hr \/>\n<p>Assuming that labor increases in proportion to the increase in processed meats and overhead increases\u00a0disproportionally (because of sunk costs, equipment, and other expenses). Here is the assumed costs analysis:<\/p>\n<div align=\"center\">\n<table border=\"1\">\n<tbody><!-- Results table headers --><\/p>\n<tr>\n<th><\/th>\n<th>Walk<\/th>\n<th>Run<\/th>\n<\/tr>\n<tr>\n<td>Overhead<\/td>\n<td>$5000<\/td>\n<td>$10,000<\/td>\n<\/tr>\n<tr>\n<td>Labor<\/td>\n<td>$1,000<\/td>\n<td>$2,500<\/td>\n<\/tr>\n<tr>\n<td>Total Cost<\/td>\n<td>$6,000<\/td>\n<td>$12,500<\/td>\n<\/tr>\n<tr>\n<td>Burgers Per Week<\/td>\n<td>$10,000<\/td>\n<td>$25,000<\/td>\n<\/tr>\n<tr>\n<td>Cost Per Burger<\/td>\n<td>$0.60<\/td>\n<td>$0.50<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>The conclusion, then, to the question of whether the Cows should walk versus run, the cost analysis shows us that by the cows running, we reduce costs by $0.10 on each hamburger.<\/p>\n<p>So, if we were to base our decision on costs alone, it makes sense for the cows to run. But, of course there are other considerations. For now, we&#8217;ll leave the analysis as it stands and move on to other business applications.<\/p>\n<hr \/>\n<h2>Business Applications<\/h2>\n<hr \/>\n<p>It&#8217;s not often that one needs to manage cows running, so here are a few other business problems for which the analysis above can apply:<\/p>\n<ol>\n<li>In a build to order operation such as Bike Assembly, Personal Computers, etc.<\/li>\n<li>In any restaurant operation<\/li>\n<li>In a fulfillment operation, having pickers walk versus run (safety aside), etc.<\/li>\n<\/ol>\n<div>There are more. What other processes or business applications can you think of?<\/div>\n<!--CusAds0-->\n<div style=\"font-size: 0px; height: 0px; line-height: 0px; margin: 0; padding: 0; clear: both;\"><\/div>","protected":false},"excerpt":{"rendered":"<p>Let&#8217;s assume that you are the head of process improvement at your company. And, you were given the task of answering the following question: Should our employees walk or run to get their job done? How would you answer that? This question is a classic Operations Analysis, Cost Analysis, and Capacity Analysis question. To illustrate [&hellip;]<\/p>\n","protected":false},"author":12327,"featured_media":9549,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[9],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Capacity Analysis in Operations Management - an Example<\/title>\n<meta name=\"description\" content=\"Cost, Capacity, and Operations Analysis is an important part of managing and answering the question of whether going faster in a process makes sense.\" \/>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Capacity Analysis in Operations Management - 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