Operations Management - 20ME41P 2021-22

Week -4 Session-1
CAPACITY AND AGGREGATE PLANNING

Content Page No.

 Capacity Planning 2
 Need for Capacity Planning 3
 Benefits of Capacity Planning 3

 Types of Capacity Planning 4

 Factors for Effective Capacity 5

Expected Outcomes: - CO-1

Course Outcome: - Production capacity utilization plan based on demand forecast

and available production capacity for a given product.

Linked Programme Outcome: - PO-1

Session Time / Teaching Hours: - 1hour

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Week -4
CAPACITY AND AGGREGATE PLANNING:

CAPACITY PLANNING:

The effective management of capacity is the most important responsibility of

production and operations management. The objective of capacity management i.e.,
planning and control of capacity is to match the level of operations to the level of
demand. Capacity Planning is an integral part of the overall production planning for
an enterprise.

Capacity planning is concerned with finding answers to the basic questions regarding
capacity such as:

(i) What kind of capacity is needed?

(ii) How much capacity is needed?

(iii) When this capacity is needed?

Capacity planning is to be carried out keeping in mind future growth and expansion
plans, market trends, sales forecasting, etc. Capacity is the rate of productive
capability of a facility. Capacity is usually expressed as volume of output per period
of time.

Capacity planning is required for the following:

 Sufficient capacity is required to meet the customers demand in time.

 Capacity affects the cost efficiency of operations.

 Capacity affects the scheduling system.

 Capacity creation requires an investment.

 Capacity planning is the first step when an organisation decides to produce

more or new products.

Capacity is mathematically expressed as:

Capacity is usually expressed as volume of output per time period.

Capacity = (Maximum production rate / Hour) x (Number of hours worked / Period);

Where, Production Rate = Number of units produced / Amount of time

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Need for Capacity Planning:

Capacity planning is to be carried out keeping in mind of future growth and expansion
plans, market trends, sales forecasting, etc. It is a simple task to plan the capacity in
case of stable demand. But in practice the demand will be unstable. The fluctuation of
demand creates problems regarding the procurement of resources to meet the
customer demand. Capacity decisions are strategic in nature.

Production manager are more concerned about the capacity for the following reasons:

 Sufficient capacity is required to meet the customers demand in time.

 Capacity affects the cost efficiency of operations.

 Capacity affects the scheduling system.

 Capacity creation requires an investment.

Capacity planning is the first step when an organisation decides to produce more or
new products.

Benefits of Capacity Planning:

 Reduces costs

 Eliminates excess capacity

 Reduce stock outs

 Identify inefficiencies in your business process

 Increase delivery capacity

 Confirm availability

 Cost monitoring

 Improved profitability

 Reduces production lead time

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Types of Capacity Planning:

1. Product Capacity Planning:

A product capacity plan ensures you have enough products or ingredients for your
deliverables. For a florist, this would be flowers, vases, and cards. For a pool
maintenance company, this would be things like chlorine that are required to do
the job.

2. Workforce Capacity Planning:

Workforce capacity planning ensures you have enough team members and work
hours available to complete jobs. This type of planning will also help you
communicate overall business, resource & man power needs to relevant
stakeholders, show you when you need to hire more employees and help you
determine how far in advance you need to start recruiting based on the length of
your on boarding process.

3. Tool Capacity Planning:

Tool capacity planning ensures you have enough tools to complete jobs. This
includes any trucks, assembly line components, or machinery you need to
manufacture and deliver your product.

The three types of capacity planning make sure you have enough, but not too much,
of three major resources for both the long- and short-term. You’ll want to plan weeks,
months, or even a year in advance.

(i) Long-term capacity plans which are concerned with investments in new facilities
and equipments. These plans cover a time horizon of more than two years.

(ii) Short-term capacity plans which takes into account work-force size, overtime
budgets, inventories etc. for a daily, weekly or quarterly time frame.

Capacity refers to the maximum load an operating unit can handle. The operating unit
might be a plant, a department, a machine, a store or a worker. Capacity of a plant is
the maximum rate of output (goods or services) the plant can produce.

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Factors Considered for Effective Capacity:

 Facilities - design, location, layout and environment.

 Product - Product design and product-mix.

 Process - Quantity and quality capabilities of the process or to be followed.

 Human factors - Job content, Job design, motivation, compensation, training

and experience of labour, learning rates and absenteeism and labour turn over.

 Operational factors - Scheduling, materials management, quality assurance,

maintenance policies, and equipment break-downs.

 External factors - Product standards, safety regulations, union attitudes,

pollution control standards.

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References
1. Production and Operations Management–Creating Value along the Supply
Chain ByRusseland Taylor, Wiley Publications, 7 Editions.
2. Modern Production and Operation ManagementBy Buffa and Sarin, Wiley
Publications, 8 edition
3. Production and Operations ManagementBy Chary, Tata Mc Graw Hill
Publications
4. Production and Operations Management-Concepts, Models and Behavior by
Adam and Ebert, Prentice Hall Publications.

LIST OF SOFTWARE/LEARNING WEBSITES

1. www.youtube.com/watch?v=SF53ZZsP4ik
2. www.youtube.com/watch?v=iPZlQ3Zx5zc

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