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Capacity Planning Strategies Guide

Capacity planning involves determining the appropriate level of resources like facilities, equipment, and labor force to support a company's long-term strategy. It considers time horizons like long-range planning over a year or intermediate planning over months. Capacity planning aims to provide the best operating level while avoiding underutilization or overload. It analyzes concepts like capacity utilization rates, economies and diseconomies of scale, learning curves, and flexibility. Capacity requirements are determined through forecasting sales and calculating needed equipment and labor. Decision trees can evaluate capacity alternatives. Service capacity planning is similar but considers factors like peak times, location proximity to customers, and demand variability impacting quality.

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41 views34 pages

Capacity Planning Strategies Guide

Capacity planning involves determining the appropriate level of resources like facilities, equipment, and labor force to support a company's long-term strategy. It considers time horizons like long-range planning over a year or intermediate planning over months. Capacity planning aims to provide the best operating level while avoiding underutilization or overload. It analyzes concepts like capacity utilization rates, economies and diseconomies of scale, learning curves, and flexibility. Capacity requirements are determined through forecasting sales and calculating needed equipment and labor. Decision trees can evaluate capacity alternatives. Service capacity planning is similar but considers factors like peak times, location proximity to customers, and demand variability impacting quality.

Uploaded by

Darshan Patil
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Capacity Planning

Dr . Venkateswara Rao. K
Time Horizons for Capacity Planning
• Long Range
– Greater than one year (involves equipment,
building, facilities) requires management approval
• Intermediate Range
– Monthly or quarterly plan for the next 6-8 months
• Short Range
– Less than one month,
– tied into daily or weekly schedules,
– eliminate variances between planned and actual
output
Objective of capacity Planning
• To provide an approach for determining
overall capacity level of capital intensive
resources-facilities, equipment, overall labor
force size-that best support company’s long
term competitive strategy.
Capacity planning concepts

• Capacity implies attainable rate of output


• Best operating level
• Capacity Utilisaion rate = Capacity Used/ Best
operating Level
=480/500
=0.96%
Economies and diseconomies of scale
• Two advantages
– Large capacities results into cost reduction
– Learning curve capacities
• Advantage of a competitive strategy
Learning Curve
• As plants produce more, they gain experience
in the best production methods, which reduce
their costs of production in a predictable
manner.
Fig5.1 Learning Curve of on production costs of Hamburgers.
Capacity Focus
• The concept of focused factory holds that a
production facility works best when it focuses
on a fairly limited set of production objectives.
• Capacity focus concept can be operationalized
through the mechanism of plants within
plants, PWP
• An area in a large facility that is dedicated to a
specific production objective (eg. Production
group).
Capacity Flexibility
• Flexible plants- zero change over time plants
• Flexible Process
• Flexible workers
Capacity Planning

• Maintaining system balances


• Frequency of capacity additions
• External sources of capacity
Frequent vs infrequent expansion
Determining Capacity Requirements
• Use forecasting technique to predict sales for
individual products within each product line.
• Calculate equipment and labor requirements
to meet product line forecasts.
• Project labor and equipment availabilities over
the planning horizon
Example
Determining capacity requirements
• The Stewart company produces two flavors of
salad dressings: Paul’s and Newman’s. Each is
available in bottles and single-serving plastic
bags. Management would like to determine
equipment and labor requirement for the next
five years
Step1: use forecasting technique to predict sales for
individual products within each product line.
Step2: calculate equipment and labor requirements to meet
product line forecasts.
3 machines, 1500000 bottles, 2,50,000 sachets
Step3: project labor and equipment availabilities over the
planning horizon. We repeat the preceding calculations for the
remaining year.
Using decision trees to evaluate Capacity
Alternatives
• A decision tree is a schematic model of the
sequence of steps in a problem and the
conditions and consequences of each step.
• Decision trees are composed of decision nodes
with branches to and from them.
– Square represents decision points
– Circles represent chance events.
– Branches shows the choices.
– Branches from chance events shows the probabilities
of their occurrences.
– We work from end of the tree backwards to the start
of the tree
Service Capacity Planning

Dr . Venkateswara Rao. K
• Though Service capacity planning is same as
Manufacturing capacity planning, there are
certain differences:
– Service capacity planning is more dependent on
Time & Location
– Also subject to more volatile demand fluctuations
– Utilisation directly impact service quality.
Capacity Utilisation and Service Quality
• Time
– Peak time
– Slack time
• Location
– Location must be near to the customer
• Volatility of Demand
– Service cannot be stored, Inventory cannot smooth
the demand
– Variability in processing time required for each
customer
Capacity Utilisation and Service
Quality
• Planning service capacity levels must consider
the day-to-day relationship between service
utilisaion and service quality.

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