Capacity, utilization, and the economics of throughput

• Availability: uptime divided by planned production time. Losses come from breakdowns and, critically, setups (changeovers).
• Performance: actual speed divided by ideal speed. Losses come from slow cycles and small stops.
• Quality: good parts divided by total parts. Losses come from scrap and rework.

Worked example: the injection-molding press

Say a press is scheduled for a 480-minute shift.

• Two changeovers eat 60 minutes. Runtime = 420 minutes. Availability = 420 / 480 = 87.5%
• Ideal cycle is 30 seconds; actual averages 33 seconds due to minor stalls. Performance = 30 / 33 = 90.9%
• Of parts molded, 3 percent are scrap (short shots, flash, sink marks). Quality = 97%

OEE = 0.875 x 0.909 x 0.97 = 77.1%

A commonly cited benchmark is that "world-class" OEE sits around 85 percent, though this varies by process and should be treated as a rough reference, not a hard target. The point is not the label. It is that this press wastes roughly 23 percent of its potential, and now we know exactly where: setups, small stops, and scrap.

For a clean primer on the math and the six big loss categories, see this OEE overview from OEE.com.

Find the bottleneck before you spend a dollar

Here is the rule that saves money: you can only increase throughput by improving the bottleneck. Every other improvement is theater.

The bottleneck is the resource with the least capacity relative to demand. In our plant, imagine the flow:

1. Injection molding (5 presses)

2. Trimming and deburring (2 stations)

3. Assembly (3 cells)

4. Packaging (1 line)

Suppose demand is 10,000 parts per day and each stage can produce:

| Stage | Daily capacity |

|---|---|

| Molding | 12,000 |

| Trimming | 9,500 |

| Assembly | 11,000 |

| Packaging | 14,000 |

Trimming is the constraint at 9,500. The whole plant ships 9,500 per day no matter how fast the presses run. Buying a sixth press does nothing. Running molding a second shift just piles work-in-process (WIP) in front of trimming.

This is the core insight of the Theory of Constraints, popularized in Eliyahu Goldratt's book *The Goal*: an hour lost at the bottleneck is an hour lost for the entire plant. An hour saved anywhere else is a mirage.

Setup time is a hidden bottleneck tax

Changeovers matter most at the constraint. If trimming loses 45 minutes per changeover and runs 6 changeovers a day, that is 270 minutes of lost throughput on the one resource that limits the whole plant.

Reducing setup time is called SMED (Single-Minute Exchange of Die), a method for cutting changeover to under ten minutes by converting internal steps (done while the machine is stopped) into external steps (done while it still runs). Prepping the next mold, staging tools, and pre-heating dies before you stop the machine can recover much of that lost time at near-zero capital cost.

Cut trimming changeovers from 45 to 15 minutes and you may free 180 minutes a day on the constraint. At a 30-second effective cycle, that is 360 extra good parts per day. Free capacity, no new tooling.

The decision: second shift or new tooling?

Now the 6 a.m. question. Demand has risen to 11,000 parts per day; the plant ships 9,500. The gap is 1,500 parts short daily.

Both options must attack the trimming constraint. Anything aimed at molding is wasted.

Option A: second shift on trimming

• Adds labor cost (wages, shift premium, supervision).
• Raises variable overhead (utilities, consumables).
• No capital outlay, and it is reversible if demand drops.
• Roughly doubles trimming capacity, more than covering the gap.

Reversibility is the quiet advantage. If the order surge is seasonal or a single large contract, you do not want a permanent asset you cannot unwind.

Option B: invest in new tooling

• Faster trimming fixtures or automated deburring cut the cycle time, raising capacity within the existing shift.
• Large upfront capital expenditurecapital expenditureCapital Expenditure (CapEx) is money spent to acquire, upgrade, or extend long-lived assets like equipment, property, or software that deliver value over multiple years.Voir la définition complète → (capexcapexCapital Expenditure (CapEx) is money spent to acquire, upgrade, or extend long-lived assets like equipment, property, or software that deliver value over multiple years.Voir la définition complète →).
• Permanent unit-cost reduction: the benefit compounds every future shift.
• Right choice if demand is structural and durable.

How to compare them

Compare on contribution margin per bottleneck hour, not on machine cost.

Contribution margin is price minus variable cost per unit. Multiply by the extra good units each option delivers, then subtract the option's own cost.

• Second shift: extra units x contribution margin, minus incremental labor and overhead. This is an operating-expense decision you can evaluate monthly.
• New tooling: extra units x contribution margin over the tool's life, minus capexcapexCapital Expenditure (CapEx) is money spent to acquire, upgrade, or extend long-lived assets like equipment, property, or software that deliver value over multiple years.Voir la définition complète →, discounted to today. This is an investment decision. A simple payback period (capexcapexCapital Expenditure (CapEx) is money spent to acquire, upgrade, or extend long-lived assets like equipment, property, or software that deliver value over multiple years.Voir la définition complète → divided by annual net benefit) is a fast first screen.

A practical rule of thumb: if the demand increase is uncertain or short-lived, favor the reversible second shift. If demand is durable and the tooling permanently lowers cost per part, the capital investment usually wins because its benefit never stops.

And always run SMED first. Recovering 360 parts a day for the cost of a staging cart and a checklist can shrink or erase the gap before you spend on either option.

Watch the second-order effects

Two traps catch smart teams.

The bottleneck moves. Add a second shift to trimming and suddenly assembly (11,000 capacity) becomes the new constraint above 11,000 units. Model the next bottleneck before committing, or you will solve one problem and immediately buy another.

Utilization theater inflates WIP. If you reward supervisors for keeping presses busy, they will overproduce upstream of the constraint. That WIP costs cash, floor space, and quality (parts age, warp, or get damaged). Throughput accounting says: measure the plant on parts shipped and on inventory held, not on how busy each island of equipment looks.

A useful discipline is to schedule the whole plant to the pace of the constraint (a "drum-buffer-rope" approach): the bottleneck sets the drum beat, a small buffer of WIP protects it from starving, and a rope holds back material release upstream so inventory does not balloon.

A quick throughput sanity check

You can sketch the whole decision on one line before opening a full model:

Effective capacity = Theoretical capacity x OEE
Throughput         = min(Effective capacity across all stages)
Gap                = Demand - Throughput
Best fix           = lowest cost-per-recovered-unit action AT the bottleneck

Run this before any capital request lands on the finance team's desk. It reframes the conversation from "buy us a machine" to "here is the constraint, here is the gap, here is the cheapest way to close it."

Key Takeaways

• Throughput, not utilization, pays the bills. A busy machine building unneeded inventory is waste, not productivity.
• Only the bottleneck matters. Improve the constraint and the plant gains; improve anything else and you just grow WIP.
• Attack setup time first. SMED often recovers real capacity at the constraint for almost no capital, sometimes closing the gap entirely.
• Match the fix to the demand. Uncertain or seasonal demand favors a reversible second shift; durable demand favors tooling that permanently lowers cost per part.
• Model where the bottleneck moves next before you commit, so you solve the system rather than shifting the problem downstream.