Capacity

Planning
Capacity
• Capacity is the maximum amount that
something can contain.

• Capacity is the amount that something can

produce.
Capacity Planning
• Capacity planning is the process of
evaluating all available production
resources, including machinery, staffing,
and work centers to understand if the
manufacturer will be able to meet
customer demand now and in the future.
Capacity Planning
• Capacity planning refers to the process of
determining how much resource are you
going to need to meet demand.
Capacity Planning
• DESIGN CAPACITY: The maximum output rate or service
capacity an operation, process, or facility is designed for.
• EFFECTIVE CAPACITY: Design capacity minus
allowances such as personal time, and maintenance.
• What kind of capacity is needed?
• How much is needed to match the demand?
• When it is needed?
OBJECTIVES:
• To identify and solve capacity problem in a
timely manner to meet consumer needs.
• To maintain a balance between required
capacity and available capacity.
• The goal of capacity planning is to
minimize this discrepancy
 IMPORTANCE:
1. Capacity decisions have a real
impact on the ability of the 2. Capacity decisions affect 3. Capacity is usually a major
organization to meet future operating costs determinant of initial cost.
demands for products or services.

4. Capacity decisions often involve

5. Capacity decisions can affect 6. Capacity affects the ease of
long-term commitment of
competitiveness. management.
resources

8. It is necessary to plan for

7. Globalization has increased the
capacity decisions far in advance as
importance and the complexity of
it often involve substantial
capacity decisions
financial and other resources.
 How is capacity
measured?

•Capacity can be expressed in

terms of input & output,
depending on the nature of
business.
 MEASURING CAPACITY OUTPUTS: products or
INPUTS: resources you services you provide to your
put into your business e.g. customers e.g. number of items
number of machines made

• DESIGN CAPACITY: The

BUSINESS INPUTS OUTPUTS
maximum output rate or service
capacity an operation, process, or Auto manufacturing
facility is designed for. Steel producer
• EFFECTIVE CAPACITY: Design Sugar refinery
capacity minus allowances such as Farming
personal time, and maintenance.
Restaurant
EFFICIENCY: is the ratio of actual Theater
output to effective capacity.
Retail sales
CAPACITY UTILIZATION: is the
ratio of actual output to design capacity.
 MEASURING CAPACITY
• Given the following information, compute
the efficiency and the utilization of the
vehicle repair department:
Design capacity = 50 trucks per day
Effective capacity = 40 trucks per day
Actual output = 36 trucks per day
DETERMINANTS OF
EFFECTIVE CAPACITY
Design, Location,
FACILITIES Layout, POLICY
Environment

Scheduling, materials
PRODUCT/ Design, Product
management, quality
assurance,
OPERATIONAL
SERVICE or Service Mix maintenance
policies, equipment
breakdowns
Quantity
capabilities and SUPPLY
PROCESS Quality CHAIN
capabilities
Job content, job
Product
HUMAN design, training and EXTERNAL standards, safety
experience,
FACTORS motivation, FACTORS regulations,
compensation, unions, pollution
learning rates, control standards
absenteeism and
labor turnover
 STRATEGIES FORMULATION
Builds capacity in
anticipation of future
demand increases
Leading
It adds capacity relatively
in small increments to
keep phase in increasing
demand
• Growth rate and variability of
demand
• Costs of building and operating
facilities of various sizes
• Rate and direction of technological
innovation
• Likely behavior of competitors
• Availability of capital and other
inputs
Following
Builds capacity when the
capacity exceeds current
capacity
Three Steps of Capacity
Planning

1. Determine Service Level Requirements

Is to categorize the work done by systems and to
quantify users’ expectation for how the work gets
down.
• Define workloads
• Determine the unit of work
• Identify service levels for each workload
Three Steps of Capacity
Planning
2. Analyze current capacity
The current capacity of the system must be
analyzed to determine how it is meeting the needs
of the users.
• Measures service levels and compare to objectives
• Measure overall resources usages
• Measure resource usages by workload
• Identify components of response time
Three Steps of Capacity
Planning
3. Planning for future
Using forecasts of future business activity, future system
requirements are determined. Implementing the
required changes in system configuring will ensure that
sufficient capacity will be available to maintain service
level, even a circumstanced change in the future.

• Determine future processing requirements

• Plan future system configuration
Estimating Future Capacity
Needs
Short-term Requirements
• Managers use forecast of product demand to
estimate the short-term work load the facility must
handle.
• Managers anticipate output requirements for
different products or services. Then they compare
requirements with existing capacity and detect
when capacity adjustments are needed.
Estimating Future Capacity
Needs
Long-term Requirements
• Long-term capacity requirement are dependent on
marketing plans, product development, and the
life cycles of products.
• Changing in process technology must also be
anticipated. Even if producers remain unchanged,
the methods for generating them may change
dramatically. Capacity planning must involve
forecasts of technology as well as product.
 Strategies for Modifying
Capacity
Short-term Responses
• For short-term periods up to one year,
fundamental capacity is fixed.

• Adjustment to make depend on whether the

conversion process is primary labor- or capital-
intensive and whether the product is one that can
be stored in inventory.
 Strategies for Modifying
Capacity
Long-term Responses
• The operation manager must consider the costs,
benefits, and risks of each option.
What is done if there in an
imbalanced between demand and
capacity?

• If there is an imbalance in the demand and the

capacity in the short-term then it can be tackled
by temporary measures/adjustments such as
increasing/decreasing the labor force or creating
and carrying inventory in the lean period to be
used up in the peak demand period.
What is done if there in an
imbalanced between demand and
capacity?

• If there is an imbalance in the long-term demand

and the capacity then an organization can respond
by changing/modifying the capacity. If capacity is
short then it can create new facility or expand
existing facility.
What is done if there in an
imbalanced between demand and
capacity?

• If there is excess capacity then it can temporarily

close/sell/consolidate facilities.
 What are the models and
techniques that are useful for
capacity planning?

• Present value analysis: It is used to evaluate the time of

capital investment and fund flows.
• Aggregate planning models: It is useful for examining the
way of using the existing capacity in the short-terms.
• Break even analysis: To determine the minimum break-
even volumes of production.
 What are the models and
techniques that are useful for
capacity planning?

• Linear programming: This is helpful in determining the

optimum product mix for maximizing contribution,
considering the capacity constraints.
• Computers simulation: It is helpful to determine the
effects of various scheduling policies.
• Decision tree analysis: This can be applied for long-term
capacity problems.