CAPACITY PLANNING

 
DETERMINATION OF PLANT CAPACITY
• Production system design is the first level planning for the
inputs, conversion activities and outputs of a production
operation.

•The initial outlay and operating expenses are established based

on design decisions and these in turn affect productivity of the
concern in future. So they affect fixed
cost and variable cost.
 Design Capacity
• Preliminary estimate of capacity is done based on long-range
 forecast extending 5 to 10 years into the future.

• The design capacity of a system is the rate of output of goods

or services under full scale operating conditions.

• For example, a cement factory may be designed to produce 200

tons per day.
• The projected demand for a period anywhere from 5 to 10
years is taken as the estimate for the design capacity, since
frequent expansion will lead to productivity loss.
 System Capacity

In practice, it may not be possible to achieve production

to the extent of design capacity, mainly because of
mismatch between required resources and available
resources.
 
The maximum output of a specific product or product
mix that the system of workers and equipments is
capable of producing as an integrated whole is called
system capacity.

This may be less than that of the design capacity.

 
 
 
 System Efficiency

The actual output may be even less than the system capacity,
since it is affected by short-range factors such as actual demand,
equipment breakdowns, and personal absenteeism or
productivity.
  Actual output
System efficiency = --------------------
System Capacity
 
 
 CAPACITY PLANNING
 
Capacity is a measure of ability to produce goods
or services or it is called as the rate of output.
 
Capacity planning is the task of determining the long
and short-term capacity needs of an organization
and then determining how these needs will be
satisfied.
 
 Long-Term Capacity Strategies
  - Develop new product lines 
- Expand existing facilities  
- Construct or phase out production plants
 Short-term capacity strategies

The purpose of short-term capacity planning is to respond to

variations in demand during the short-term planning horizon,
due to seasonal and economic factors.

Strategies like, overtime, subcontracting, hiring, firing etc., can be

used to cope up with the fluctuations in demand.