Plant Capacity and Load

Summary

This chapter deals with “mass production”. Mass production means that the same product — for instance a car — is manufactured in very large quantities per year, the million being an order of magnitude.

The subject of plant capacity is therefore a very important one for the cost analyst, as — and this is a very familiar subject — the cost of a product very strongly depends on the produced quantity. This person should then being able to answer the first question: How the cost of the products is going to change when the plant capacity does change?

Unfortunately no plant uses its full capacity all the time: the load (the amount of the capacity which is actually used) depends on the demand for the product and the plant manager must all the time adjust the production to the demand. It is not difficult (the mere existence of the fix costs — such as the depreciation of the investment — is only one side of the subject) to understand that, for a given capacity, the cost of the products will strongly depend on the load. Therefore the second question which can be asked to the cost analyst is: How does the cost of the products is going to change when the plant load does change?

Once this is done, both subjects have to be simultaneously taken into account.

This chapter deals with tangible products, having a physical existence. However, we have the firm conviction that all the rules established between size, capacity, load and the cost are applicable to the services and any other immaterial productions.

Simply, theory had been established earlier, with numerous examples, in the domain of physical objects. We are sure that the reader will be able to make easily the pertinent analogies.

By Gilles Turré in charge of estimation methodologies at PSA (Peugeot-Citroën) Cars Manufacturer, France