STRATEGIC CAPACITY

PLANNING FOR PRODUCTS

AND SERVICES
Topic V Part 1
 CAPACITY
An UPPER LIMIT or CEILING on the load that an
operating unit can handle. The load might be in
terms of the number of physical units produced, or
the number of services performed. The operating
unit might be a plant, department, machine, store,
or worker. Capacity needs to include equipment,
space, and employee skills.
BASIC QUESTIONS IN CAPACITY PLANNING

1. What kind of capacity is needed?

2. How much is needed?
3. When is it needed?
 WHY ARE CAPACITY DECISIONS
STRATEGIC?
Capacity essentially limits the rate of output possible.
Capacity decisions affect operating costs
Capacity determines initial costs
Capacity decisions often involve long-term
Capacity decisions affects competitiveness
Capacity affects ease of management
Capacity is useful for forecasting purposes
 MEASURES OF CAPACITY
Business Inputs Outputs
Auto Manufacturing Labor Hours, Machine Number of cars per shift
hours
Steel Mill Furnace size Metric tons of steel per
day
Oil Refinery Refinery size Barrels of Fuel/day
Farming Number of hectare or Metric tons of
Farm size; number of grain/hectare/year, liters
farmers and equipment of milk/day
Restaurant Number of seats Tickets sold/performance
Theatre Square meters of floor Revenue generated per
size day
MEASURING CAPACITY
 EFFICIENCY = Actual Output
Effective Capacity

 UTILIZATION = Actual Output

Design Capacity
DETERMINANTS OF EFFECTIVE
CAPACITY
A. Facilities E. External Factors
• Design • Product Standards
• Location • Safety Regulations
• Layout • Unions
• Environment • Pollution Control Standards
B. Product/Service F. Policy
• Design • Organizational
• Product/Service Mix * Functional

C. Process G. Supply Chain

• Quantity Capabilities * Supplier partnerships
• Quality Capabilities
D. Human Factors H. Operational
• Job Content • Scheduling
• Job Design • Materials Management
• Training and Experience • Quality Assurance
• Motivation • Maintenance Policies
• Compensation • Equipment Breakdowns
• Learning Rates
• Absenteeism and labor turnover