Polytechnic

University of the Philippines

Pulilan, Bulacan Campus

BUMA 20013

ACTIVITY # 7

Submitted by: Submitted to:

Galuza, Bryan James V. Prof. Marvin Espiritu

Year and Section:

BSE 3-1
1.WHAT IS CAPACITY PLANNING?

Capacity Planning

Capacity can be defined as the maximum output rate that can be achieved by a facility. The facility may be an
entire organization, a division, or only one machine. Planning for capacity in a company is usually performed at
two levels, each corresponding to either strategic or tactical decisions. The first level of capacity decisions is
strategic and long-term in nature. This is where a company decides what investments in new facilities and
equipment it should make. Because these decisions are strategic in nature, the company will have to live with
them for a long time. Also, they require large capital expenditures and will have a great impact on the company’s
ability to conduct business. The second level of capacity decisions is more tactical in nature, focusing on short-
term issues that include planning of workforce, inventories, and day-to-day use of machines.

Capacity planning is the process of establishing the output rate that can be achieved by a facility. If a company
does not plan its capacity correctly, it may find that it either does not have enough output capability to meet
customer demands or has too much capacity sitting idle. In our university example, that would mean either not
being able to offer enough courses to accommodate all students or having too few students in the classrooms.
Both cases are costly to the university. Another example is a bakery. Not having enough capacity would mean not
being able to produce enough baked goods to meet sales. The bakery would often run out of stock, and
customers might start going somewhere else. Also, the bakery would not be able to take advantage of the true
demand available. On the other hand, if there is too much capacity, the bakery would incur the cost of an
unnecessarily large facility that is not being used, as well as much higher operating costs than necessary.

Planning for capacity is important if a company wants to grow and take full advantage of demand. At the same
time, capacity decisions are complicated because they require long-term commitments of expensive resources,
such as large facilities. Once these commitments have been made, it is costly to change them. Think about a
business that purchases a larger facility in anticipation of an increase in demand, only to find that the demand
increase does not occur. It is then left with a huge expense, no return on its investment, and the need to decide
how to use a partially empty facility.

2.HOW IS CAPACITY MEASURED?

3 Measuring capacity

When measuring capacity the unit of measure can be either an input or an output to the process. The key is to
take the most logical unit that reflects the ability of the operation to create its product or service. However, where
the input is more complicated to measure, such as machine hours on a process layout, then output is a more
suitable measure. The unit of time could be a minute, an hour, a day or a week, or whatever time scale fits the
operation, but the unit of output and time scale needs to be consistent.

3.1.1 Input measures of capacity

When using input measures of capacity, the measure selected is defined by the key input into the process.
Where the provision of capacity is fixed, it is often easier to measure capacity by inputs, for example; rooms
available in a hotel or seats at a conference venue. Input measures are most appropriate for small processes or
where capacity is relatively fixed, or for highly customised or variable outputs such as complicated services.

3.1.2 Output measures of capacity

The output measures count the finished units from the process such as mobile phones produced in a day or cars
manufactured per week. This measure is best used where there is low variety in the product mix or limited
customisation.
3.WHAT ARE THE STEPS IN CAPACITY PLANNING?

Making Capacity Planning Decisions

The three-step procedure for making capacity planning decisions is as follows:

Step 1 Identify Capacity Requirements

The first step is to identify the levels of capacity needed by the company now, as well as in the future. A company
cannot decide whether to purchase a new facility without knowing exactly how much capacity it will need in the
future. It also needs to identify the gap between available capacity and future requirements.

Step 2 Develop Capacity Alternatives

Once capacity requirements have been identified, the company needs to develop a set of alternatives that would
enable it to meet future capacity needs.

Step 3 Evaluate Capacity Alternatives

The last step in the procedure is to evaluate the capacity alternatives and select the one alternative that will best
meet the company’s requirements.