Capacity planning - basic questions in capacity handling

process of determining the production capacity an organization needs to meet its changing demands over a specific period.

1. Capacity planning

2. Capacity planning It is process of determining the production capacity an organization needs to meet its changing demands over a specific period. It involves evaluating the current capacity, forecasting future requirements and making adjustments to ensure optimal resource utilization. This encompasses various aspects like workforce, equipment, facilities, and technology. Overcapacity causes high operating costs , while under capacity causes strained resources and possible loss of customers .

3. Capacity planning

4. Capacity planning The basic questions in capacity handling are: What kind of capacity is needed? –depends on the products and services that management intends to produce or provide. How much is needed? –Forecasts are the inputs When is it needed? –Frequency An example of capacity planning is food manufacturer that has the opportunity to supply a new retailer. They need to understand the impact of increasing production capacity on their resource requirements.  They will need to secure more raw materials to produce a higher volume of product ( product capacity planning ). They may also need to add production line equipment if there’s no spare capacity on the existing line ( tool capacity planning ), as well as recruit more people to operate the equipment ( workforce capacity planning ).

5. Capacity planning is required for the following: Sufficient capacity is required to meet the customers demand in time. Capacity affects the cost efficiency of operations. Capacity affects the scheduling system. Capacity creation requires an investment. Capacity planning is the first step when an organisation decides to produce more or new products.

6. Effective capacity can be determined by the following factors:

7. Capacity decisions are strategic Capacity decisions- Impact the ability of the organization to meet future demands- when a Microsoft introduced its new xbox in late 2005, there were insufficient supplies, resulting in lost sales and unhappy customers. Affect operating costs- costs of over and under capacity. Affect competitiveness- capacity can affect delivery speed. Affect the ease management- often involve long-term commitment of resources. Globalization has increased the importance and the complexity of capacity decisions. Capacity decisions often involve substantial financial and other resources- it may take years for a new power generating plant to be constructed and become operational.

8. Defining and measuring capacity Defining capacity Measuring capacity Defining capacity refers to determining the maximum amount a system can hold, produce, or accommodate . In various contexts, it could apply to physical spaces, manufacturing processes, data storage, or the abilities of individuals. Measuring capacity involves quantifying this maximum amount, often in terms of units relevant to the specific context. For example, measuring the capacity of a warehouse could involve calculating its cubic volume or the number of products it can store. In manufacturing, capacity might be measured in units produced per hour.

9. Design capacity- maximum output rate or service capacity an operation, process, or facility is designed for Effective capacity- design capacity minus allowances such as personal time, maintenance, and scrap. (maintenance of equipment, lunch break, tea break etc) Actual output- rate of output actually achieved- cannot exceed effective capacity. Defining and measuring capacity:

10. Efficiency is the ratio of actual output to design capacity. Capacity utilization is the ratio of actual output to design capacity.

11. Example:

12. Measures of capacity

13. Determinants of effective capacity: Facilities: The size, design, and provision for expansion of the physical space and equipment. (factors: design, location, layout and environment) Product and Service Factors: The uniformity, standardization, and complexity of the output. (factors: design, product or service matrix) Process Factors: The quantity and quality capability of the production methods and materials. ( quantity and quality capabilities) Human Factors: The skills, experience, training, and motivation of the workers. (factors: job content, job design, training and experience, motivation, compensation, labor turn over) Operational Factors: The scheduling, inventory, quality control, and maintenance of the system. ( factors: scheduling, materials management, quality assurance, maintenance policy, equipment breakdown)

14. Policy Factors: The strategic decisions and objectives of the organization. Supply Chain Factors: The availability, reliability, and cost of the suppliers and distributors. External Factors: The legal, social, environmental, and competitive factors that influence the system. (factors: product standards, safety regulations, unions and pollution control standards)

15. Developing capacity alternatives:

16. Take a stage of life cycle into account

17. Take a big picture approach to capacity changes Four operations generate work that must then be processed by the fifth operation. The four operations each have a capacity of units per hour, for a total capacity of 40 units per hour. Consequently, the output of the system will only be 30 units per hour. If the other operations operate at capacity, a line of units waiting to be processed by the bottle neck operation will build rate of 10 per hour.

18. Identify the optimal operating level:

19. Economies of scale:

20. Economies of scale Minimum cost and optimal operating rate For example: as the general capacity of a plant increases, the optimal output rate is increases and minimum cost for the optimal rate decreases. Thus larger plants tend to have higher optimal output rates and lower minimum costs than the smaller plants.