Capacity Analysis, Cost and Production Analysis: A Lesson From Hamburgers

Let’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 how I’d answer this, I’m going to use an example of a meat processing process: Fresh Hamburgers.

PS: I also consider this question while inside of a hamburger restaurant where I looked at capacity on servers and the actual hamburger making process.

PS: If you are vegetarian, please forgive the example. Just replace the meat example with one that is more suited to your liking.

Okay, back to the illustration. Suppose the process to produce fresh hamburgers is the following:

1. Cows Enter
2. Meat is Processed
3. Meat is Delivered

The manager of the meat processing plant is curious to know the following:

1. Should the cows run into the processing room?
2. Should the cows walk into the processing room?

Under the surface, the question is really about Capacity and the Cost implications for Walking or Running. Given this, let’s now ask more detailed questions:

1. How much meat can be processed (capacity analysis) when the cows walk versus run?
2. What is the cost involved (cost analysis) when the cows walk versus when the cows run?

Capacity Analysis / Production Analysis

Okay, a couple of assumptions to make our example a bit easier to deal with:

• Each cow can make 20 hamburgers.
• The shop is open for 10 hours, 5 days a week.
• 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).
• 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.

Cost Analysis

Assuming that labor increases in proportion to the increase in processed meats and overhead increases disproportionally (because of sunk costs, equipment, and other expenses). Here is the assumed costs analysis:

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.

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’ll leave the analysis as it stands and move on to other business applications.

Business Applications

It’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:

1. In a build to order operation such as Bike Assembly, Personal Computers, etc.
2. In any restaurant operation
3. In a fulfillment operation, having pickers walk versus run (safety aside), etc.