CAPACITY PLANNING

Capacity Planning is the process of determining the production capacity needed by an organization to meet changing demands for its products.

WHAT IS CAPACITY?
Capacity is the maximum amount of work that an organizations capable of completing in a given period of time. Capacity= (number of machines or workers) x (number of shifts) x (utilization) x (efficiency)

MEASURES OF CAPACITY
BUSINESS Auto-manufacturing Oil refinery Restaurant theater INPUTS Labor hours, machine hours Refinery size Number of tables, seating capacity Number of seats OUTPUTS Number of cars per shift Gallons of fuel per day Number of meals served per day Number of tickets sold per performance

CAPACITY MANAGEMENT
A discrepancy between the Capacity of an organization and the demands of its customers. The goal of Capacity Planning is to minimize this discrepancy

DETERMINANTS OF EFFECTIVE CAPACITY

Facilities Product and service factors Process factors Human factors Policy factors Supply chain factors External factors

STEPS IN THE CAPACITY PLANNING PROCESS

Estimate future capacity requirements Evaluate existing capacity and facilities and identify gaps Identify alternatives for meeting requirements Conduct financial analyses of each alternative Assess key qualitative issues for each alternative Select the alternative to pursue that will be best in the long-term Implement the selected alternative Monitor results

CAPACITY STRATEGIES

Lead capacity strategy Lag capacity strategy Match capacity strategy

LEAD STRATEGY
Lead strategy is adding capacity in anticipation of an increase in demand. The possible disadvantage to this strategy is that it often results in excess inventory, which is costly and often wasteful.

LAG STRATEGY
This is the opposite of Lead Strategy. With the Lag capacity strategy the company will ramp up capacity only after the demand has occur. There are some advantages of this method:

It reduces a companys risk The company will enjoy a more stable relationship with their bank and investors It reduces the risk of wastes

MATCH STRATEGY
Match strategy is also known as tracking strategy. In this strategy we add capacity in small amounts in response to changing demand in the market. Although this method tries to minimize the over and under capacity of the other two methods.