.CAPACITY AMOUNT OF OUTPUT A SYSTEM IS CAPABLE OF ACHIEVING OVER A SPECIFIC PERIOD OF TIME. Capacity planning Capacity planning is central to the long-term success of an organization. Capacity plans are made at two levels: (i) Long-term capacity plans : which deal with investments in new facilities and equipments covering the requirements for at least two years into the future and (ii) Short-term capacity plans : which focus on work-force size. overtime budgets. inventories etc.

. ii. When to increase capacity and iii.CAPACITY PLANNING A long term strategic decision that establishes a firm’s overall level resources. Three major capacity decisions are: How much capacity to be installed. How much to increase i.

Effective capacity: The maximum output given a product mix.TYPES OF CAPACITY 1) Production capacity: Maximum rate of 2) 3) 4) production or output of an organization. machine maintenance. absenteeism etc. Maximum capacity: The maximum output that a facility can achieve under ideal conditions. (e.. quality factors. Also known as peak capacity . 100 cars per day etc .g. scheduling difficulties.. ) Design capacity: The maximum output that can possibly be attained.

.DETERMINANTS OF EFFECTIVE CAPACITY  Many decisions about design of the production system and operation of the production system may have an impact on capacity. The main factors relate to the following: (i) Facilities. (ii) Product or services. (iii) Process (iv) Human resource considerations. (v) Operations and (vi) External forces.

ECONOMIES AND DISECONOMIES OF SCALE  Economies scale: The concept which states that “the average unit cost of product can be reduced by increasing the rate of output”. This phenomenon is referred to as diseconomies of scale. operating level: The annual output which results in the least average unit cost. additional volume of output results in ever-increasing average unit costs. of scale: Above a certain level of output.  Best  Diseconomies .

the following approaches to capacity alternatives could be developed: 1) 2) Designing flexibility into the system Differentiating between new and mature products or services Taking a “big-picture” approach to capacity changes 3) 4) 5) Preparing to deal with “chunks” of capacity Attempting to smooth out capacity requirements .DEVELOPING CAPACITY ALTERNATIVES  To enhance capacity management.

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