Capacity Planning

it is viewed as the amount of output a system is capable of achieving over a specific period of time. the type of markets it can enter & its ability to compete in those markets.Capacity Planning Capacity: In general business sense. Capacity Planning: It is concerned with defining the i) long term & ii) short term capacity needs of a firm & determining how these needs will be met. It is the ability of a plant to meet the demand in terms of products or services offered by the plant. It represents the maximum rate of output of a facility It affects the company’s ability to meet market demand. .

material & financial resources of the organisation .Capacity Planning: The need for capacity planning It is necessary when an organization decides to i) increase its production or ii) introduce new products in to the market Once capacity is evaluated & a need for new or expanded facilities is determined. economical & technological capacity alternatives e) Selecting a capacity alternative most suited to achieve the strategic mission of the firm. Capacity planning involves capacity decisions that must merge consumer demands with human. decision regarding facility location & process technology selection are taken Capacity Planning Decisions: Involves activities such as : a) Assessing existing capacity b) Forecasting future capacity needs c) Identifying alternate ways to modify capacity d) Evaluating financial.

Capacity Planning: Capacity planning decisions are based on the consumer demand & this is merged with human. material & financial resources of the organization. The process of capacity planning is shown in the following figure: Environmental Scanning Demand Forecasting Estimation of present capacity Alternate capacity to meet the demand Quantitative & Economic Analysis of various plans Select the best plan Implement .

Capacity Planning: Input to capacity planning Market Considerations Resources available Capacity decision Classification of Capacity planning: a) Long term capacity planning ] b) Short term capacity planning ] Based on time horizon c) Finite capacity planning ] Based on amount of d) Infinite capacity planning ] resources employed .

Major changes could be to i) develop new product lines. over time work schedule to meet peak demands . Ways to adjust capacity under this are: i) use of overtime or idle time ii) Increase the number of shifts / day to meet temporary strong demand & iii) Sub-contracting to other firms Service industries use flexible working hours. part time employees. capacity concerns involve the fluctuations in demand due to seasonal or economic factors. ii) expand existing facilities & iii) construct or phase out production plants Short term capacity planning It is concerned with responding to relatively immediate variation in demand In short term planning horizon.Capacity Planning: Long term capacity planning It s concerned with accommodating major changes that affect the overall level of output.

-Maintenance: Temporarily discontinue routine maintenance so that this time can be utilised for production.Capacity Planning: Short term capacity strategies -Inventories: Stock finished goods during slack period to meet demand during peak period -Backlogs: During peak periods. the willing customers are requested to wait & their orders are fulfilled after the peak demand period. -Employment level (hiring & firing): Hire additional employees during peak demand period & lay off employees as demand decreases. -Employees training: Develop multi-skilled employees through training so that they can be rotated among different jobs. -Workforce utilisation: Employees are made to work over time during peak hours & work fewer hours during slack period ( Flexible work hours) -Subcontracting: During peak periods. hire the capacity of other firms temporarily to make the component parts of products. This helps as alternative to hiring employees. -Process design: Change job content by redesigning the job. .

shifts worked per day. tooling. preventive maintenance. ii) Less controllable factors – e. subcontracting. Factors affecting capacity planning: i) Controllable factors .Capacity Planning: Finite capacity planning & Infinite capacity planning In operation planning two conflicting constraints are i) time & ii) capacity If time is fixed by the customer’s required delivery date. facilities installed. it is possible to accept time as the primary constraint & plan backwards to accommodate these times. labour performance.e. or processing cycle.e based on available resources. machine breakdowns. absenteeism.g. days worked per week. fire accidents etc.g amount of labour employed. overtime work. & number of production set ups. alternative routing of work. lock out. unexpected problems like strike. In such cases planning backwards to infinite capacity offers a potential solution to the problem If processing time is not a constraint -cases where products are produced to stock & sell. material shortage. machines. it is simpler to use a forward plan based on finite capacity i. scrap & rework. .

Production activity control . work force re-allocation. subcontracting. Managing thru’ work force re-allocation ii) CRP of labour & equipment in key work centers (uses finite loading) managing through employment & work force re-allocation. idle time. 3) Short i) Capacity control of inputs-output & operation Range sequencing (Uses finite loading) Managing via over time. alternative routing & more tooling. make buy decisions. inventory. equipment & human resources Involves strategy of changing facilities& employment levels over long range time horizon Applies to Business / corporate objectives Aggregate plans & MPS items & products MRP items 2) i) Resources requirement planning of total resources Medium needed to satisfy master production schedule (MRPrange II). subcontracting. facilities. uses load profiles of each product & simulation of alternate MPS. alternative tooling.Capacity time horizon Time Frame 1) Long Range Technique & Strategies Resources planning of land.

iv) Re-activating facilities on stand-by status. ii) Developing & Phasing in new products as demand for other products decline. buying new equipments. 2 Reduction i) Selling off existing facilities. constructing new buildings. . selling inventories & laying off or transferring employees to other units.Ways of Changing Long-range Capacity Type of capacity change 1 Expansion Ways of accommodating Long-range Capacity changes i) Subcontracting with other companies to become suppliers of the expanding firm’s components or entire products ii) Acquiring other company’s facilities or resources iii) Developing new sites.

v) There is a economic capacity size below which it is not economical to operate the plant. The forecasted demand will be either higher or lower than the actual demand. This gives rise to either over capacity or under capacity.Capacity Planning: Factors favoring over capacity & Under capacity: It is very difficult to forecast demand as there is uncertainty associated with the demand.e the rate of obsolescence of plant & equipment is high. The under capacity is preferred when: i) The time to build capacity is short. ii) Shortage of products does not affect the company. . iii) Time required to add capacity is long. iv) The cost of creating the capacity is prohibitively high. The over capacity is preferred when: i) Fixed cost of the capacity is not very high. ii) Subcontracting is not possible due to secrecy of design &/or quality requirements. There fore there is a risk involved in creating capacity based on projected demand. iv) The company cannot afford to miss the delivery & cannot afford to loose the customer. iii) Technology changes fast i.

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