UNIT III:

CAPACITY PLANNING
6 HOURS
1. MEANING & TYPES OF CAPACITY,
2. CAPACITY PLANNING PROCESS
(BRIEFING)
3. LONG TERM & SHORT TERM CAPACITY
STRATEGIES FOR MODIFYING CAPACITY
MEANING &
TYPES OF
CAPACITY
MEANING OF CAPACITY

Amount of output a
system is capable
of achieving over a
specific period of
time.
CAPACITY OF PLANT
1. It is the ability of the plant to meet the
demand in terms of products or services
offered by the plant.
2. Represents the maximum rate of output
of the facility.
3. Affects the company’s ability to meet
market demand, the types of market it
can enter and its ability to compete.
TYPES OF CAPACITY
Production • Maximum rate of production or output of an
organisation.
Capacity:
Design • Maximum output that can be possibly be
attained.
Capacity:
Effective • Maximum output given a productmix,
scheduling difficulties, machine maintainence,
Capacity: quality factors, absenteeism etc.

Maximum • Maximum Output that a facility can achieve

under ideal conditions, Also known as Peak
Capacity: capacity.
CAPACITY
PLANNING
PROCESS
CAPACITY PLANNING
Capacity planning determines the
production capacity needed by an
organization to meet changing
product demands.
The purpose of capacity planning is to
ensure that an organization has enough
capacity to meet customer demand while
minimizing excess capacity that results in
waste and increased costs.
CAPACITY
PLANNING
PROCESS
 PROCESS OF
CAPACITY PLANNING
• Capacity planning is concerned with defining the long-term and the short-
term capacity needs of an organization and determining how those needs
will be satisfied.
• Capacity planning decisions are taken based upon the consumer demand
and this is merged with the human, material and financial resources of the
organization
• Capacity requirements can be evaluated from two perspectives—long-term
capacity strategies
and short-term capacity strategies.
• Operations managers use capacity planning to forecast future demand for a
company’s products or services and ensure the necessary resources are
available when demand increases.
CAPACITY PLANNING
PROCESS
Step One: Determine Current Capacity
The first step is to determine the current capacity of the company’s
resources. It is about determining how much output the company
can currently produce with its existing resources. Current capacity
will be affected by factors such as the number of employees,
available space, and the type of equipment being used.
Step Two: Forecast Future Demand
The second step is forecasting future demand for the company’s
products or services. This includes estimating how much demand
will increase in the future and what new products or services the
company will need to meet this demand.
CAPACITY PLANNING
PROCESS
Step Three: Identify Gaps in Capacity
The third step is to identify any gaps in capacity. It is about
identifying any areas where the company’s resources will be unable
to meet future demand. The gaps may be due to a lack of employees,
space, or equipment. With capacity planning, operations managers
can identify these gaps and take steps to address them.
Step Four: Develop a Plan to Fill the Gaps
The fourth step is to develop a plan to fill the gaps in capacity. It
involves hiring new employees, renting additional space, or
purchasing new equipment. By creating a plan to address the
capacity needs of the company, operations managers can ensure that
the company is prepared for future demand.
CAPACITY PLANNING
PROCESS
Step Five: Implement the Plan
The final step is to implement the capacity planning process. It puts
the plan into action and ensures all the necessary resources are in
place. By following the capacity planning process, operations
managers can ensure that their company is prepared for future
growth.
CAPACITY REQUIREMENTS
CAN BE EVALUATED FROM
TWO PERSPECTIVES—
LONG-TERM CAPACITY
STRATEGIES AND SHORT-
TERM CAPACITY
STRATEGIES.
1. LONG-TERM CAPACITY
STRATEGIES
1. Long-term capacity requirements are more difficult to
determine because the future demand and technology are
uncertain.
2. Forecasting for five or ten years into the future is more risky
and difficult.
3. Even sometimes company’s today’s products may not be
existing in the future.
4. Long range capacity requirements are dependent on
marketing plans, product development and lifecycle of the product.
5. Long-term capacity planning is concerned with
accommodating major changes that affect overall level of
the output in long-term.
6. Marketing environmental assessment and implementing the
long-term capacity plans in a systematic manner are the
major responsibilities of management.
FOLLOWING PARAMETERS WILL AFFECT
LONG RANGE CAPACITY DECISIONS.
1. Multiple products: Company’s produce more than one
product using the same facilities in order to increase the profit.
The manufacturing of multiple products will reduce the risk of
failure. Having more than one product helps the capacity
planners to do a better job. Because products are in different
stages of their life-cycles, it is easy to schedule them to get
maximum capacity utilization.
2. Phasing in capacity: In high technology industries, and in
industries where technology developments are very fast, the
rate of obsolescence is high. The products should be brought
into the market quickly. The time to construct the facilities will
be long and there is no much time as the products should be
introduced into the market quickly. Here the solution is phase in
capacity on modular basis. Some commitment is made for
building funds and men towards facilities over a period of 3–5
years. This is an effective way of capitalizing on technological
breakthrough.
FOLLOWING PARAMETERS WILL
AFFECT LONG RANGE CAPACITY
DECISIONS.
3. Phasing out capacity: The outdated manufacturing
facilities cause excessive plant closures and down time. The
impact of closures is not limited to only fixed costs of plant
and machinery. Thus, the phasing out here is done with
humanistic way without affecting the community. The
phasing out options makes alternative arrangements for men
like shifting them to other jobs or to other locations,
compensating the employees, etc.
2. SHORT-TERM
CAPACITY STRATEGIES
1. Managers often use forecasts of product demand to estimate
the short-term workload the facility must handle.
2. Managers looking ahead up to 12 months, anticipate output
requirements for different products, and services.
3. Managers then compare requirements with existing capacity
and then take decisions as to when the capacity adjustments
are needed.
4. For short-term periods of up to one year, fundamental
capacity is fixed. Major facilities will not be changed.
5. Many short-term adjustments for increasing or decreasing
capacity are possible.
2. SHORT-TERM
CAPACITY STRATEGIES
1. The adjustments to be required depend upon the conversion
process like whether it is capital intensive or labour intensive
or whether product can be stored as inventory.
2. Capital intensive processes depend on physical facilities,
plant and equipment. Short-term capacity can be modified by
operating these facilities more or less intensively than normal.
3. In labour intensive processes short-term capacity can be
changed by laying off or hiring people or by giving overtime to
workers.
4. The strategies for changing capacity also depend upon how
long the product can be stored as inventory.
THE SHORT-TERM CAPACITY
STRATEGIES ARE:
1. Inventories: Stock of finished goods during slack periods to
meet the demand during peak period.
2. Backlog: During peak periods, the willing customers are
requested to wait and their orders are fulfilled after a peak
demand period.
3. Employment level (hiring or firing): Hire additional
employees during peak demand period and layoff employees as
demand decreases.
4. Employee training: Develop multi-skilled employees through
training so that they can be rotated among different jobs. The
multi-skilling helps as an alternative to hiring employees.
5. Subcontracting: During peak periods, hire the capacity of
other firms temporarily to make the component parts or products.
6. Process design: Change job contents by redesigning the job