MODULE:3 CAPACITY PLANNING

Meaning & Definition of Capacity

 Capacity is the amount of goods that the firm I capable of producing over a
period of time.
 It is the maximum available amount of output that a system is capable of
achieving over a specified duration.
 It is the rate of productive capability of a facility
 Capacity id usually expressed as volume of output per time period.
 It is the process of determining the necessary to meet the production objectives.
 Capacity is calculated:(number of machines or workers)x(number of shifts)x
(utilization) x efficiency
 Efficiency=Actual output/effective capacity
 Utilization=Actual output/Design capacity
Definition
 American production &inventory control society
(APICS) defines “capacity as highest reasonable
output rate which can be achieved with the
current product specification, product mix,
workforce ,plant and equipment”.
TYPES OF CAPACITY
1. MAXIMUM CAPACITY OR DESIGN CAPACITY
2. EFFECTIVE CAPACITY
3. DEMONSTRATED CAPACITY OR ACTUAL CAPACITY
1.MAXIMUM CAPACITY OR DESIGN CAPACITY
 The highest rate of output a process or activity can achieve.
 Operation managers calculate maximum capacity on the basis of
1. Number and duration of available shifts
2. Number of available machines and employees per shift
3. Working days
And this maximum capacity is based on certain assumptions
4. Equally skilled employees
5. No loss of time
6. No loss of capacity to machine breakdown ,worker pblms,scrap and
salvage
7. No overtime work.
 Example,

An automobile production line can assemble 100

trucks per month
A car service center can attend to 10 customers per
hour.
2.EFFECTIVE CAPACITY
 Effective capacity identifies the output rate that managers expect
for a given activity or process.
 It is the actual capacity to reflect current conditions and that could
be less than or more than design capacity.
 Operation managers often plan to operate their system at less than
100 percent of maximum capacity because of following reasons
1. Time allotted for preventive maintenance and other activities that
support capacity. Preventive maintenance reduces the chances of
disruptions in future due to unexpected breakdowns
2. Despite maintenance ,breakdown reduce effective capacity
3. Running at maximum capacity can severely damage equipment and
people.
DETERMINENTS OF EFFECTIVE CAPACITY

 FACILITIES FACTORS
 PRODUCTION OR SERVICE FCTORS
 PROCESS FACTORS
 HUMAN FCTORS
 OPERATION FACTORS
 EXTERNAL FACTORS
 POLICY FACTORS
3.ACTUAL CAPACITY OR DEMONSTRATED
CAPACITY
 It measures the actual level of output for a process over a
period of time
 Actual capacity is the differ from both maximum capacity and
effective capacity because of
1. Product mix
2. Operators skill
3. Conditions of equipment
4. Types of jobs
5. Inaccurate production standards
6. Quality of materials