Factors Influencing Effective Capacity ‘The effective capacity Is influenced by 1. Forecasts of demand. 2. Plant and labour efficiency 3. Subcontracting 4 Multiple shift operation. Management policies. 1. Forecasts of Demand : Demand forecast is going to influence the capacity plan in a significant ‘way. As such, itis very dificult to forecast che demand with accuracy as it changes significantly with the product life cycle stage, number of products. Products with long life cycle usually exhibit steady demand growth compared to one shorter life cycle, Thus the accuracy of forecast influences the capacity planning 2, Plant and Labour Efficiency : It is difficult to attain 100% efficiency of plant and equipment, “he efficiency is loss than 10096 because of the enforced idle time due to machine breakdown, delays due lo scheduling and other reasons. The plant efficiency varies from equipment to ‘equipment and from organisation lo organisation. Labour efficiency conttibutes to the overall ‘capacity utilisation, The standard time set by Industrial engineer is fora representative or normal ‘worker. But the actual workers differ in their speed and efficiency. The actual efficiency of the labour should be considered for calculating efficiency. Thus plant and labour efficiency are very uch essential to arrive at realistic capacity planning. 3. Subcontracting: Subcontracting refers lo offloading. Some of the Jobs contracted to outside ‘vendors thus hiring the capacity to meet the requirements of the organisation. A careful analysis. as to whether to mike or >o shi mid be don, An economic comparison between cost to make ‘the component or buy the component is to make to take the decision, 4, Multiple Shift Operation: Multiple shifts are going to enhance the forms capacity utilisation. But especially in the third shift the rejection rate Is higher. Especially for process industries where Investment Is very high Is recommended to have a multiple shifts 5. Management Policy : The management policy with regards to subcontracting, multiplicity of shifts (decision regarding how may shifts to operate), which workstations or departments to be run for thled shift, machine replacement policy etc. ate going to affect the capacity planning,