CAPACITY PLANNING

Capacity is measured with different para meters in different industries Automobile Steel Beer Nuclear power Airline Hospitals No. of cars Metric tonnes Cases Megawatts Seat miles Bed-days

Capacity to produce is limited by acilities a!ailable "echnology employed "ime period. #t is difficult to change capacity in short time. Hence capacity building should be planned carefully and properly. #t is a strategic decision Capacity planning is influenced by: $. Mar%et trends &. Mar%et locations '. Mar%et si(e ). "echnological inno!ations *. +roduct,ser!ice design -. +rocess inno!ation .. /0pansion of e0isting unit 1. 2ptimal si(e 3. Alternati!es $4. 5e!enue.6 cost capital $$. "rade off $&. 7emand prediction 1: Common Definition of Capacity Planning A process to predict the types, quantities, and timing of critical resource capacities that are needed within an infrastructure to meet accurately forecasted workload

2: elect a Capacity Planning P!ocess "#ne! "his person will be responsible for designing6 implementing6 and maintaining the process $: Identify %ey &esou!ces To 'e (easu!ed irst tas%s will be to identify the infrastructure resources whose utili(ations or performance need to be measured.
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"his determination is made based on current %nowledge about which resources are most critical to meeting future capacity needs. ): (easu!e t*e Cu!!ent +tili,ations of t*e &esou!ces "he resources identified should be measured as to their utili(ations or performance. "hese measurements pro!ide two %ey pieces of information: ; A utili(ation baseline from which future trends can be predicted and analy(ed "he <uantity of e0cess capacity a!ailable for each component -: Compa!e Cu!!ent +tili,ations to (a.imum Capacities 7etermine how much e0cess capacity is a!ailable for selected components. "he utili(ation or performance of each measured component should be compared to the ma0imum usable capacity. "he ma0imum usable is almost always less than the ma0imum possible. /: Collect (eaningful 0o!1load 2o!ecasts f!om &ep!esentati3e +se!s "his is one of the most critical acti!ities in the entire capacity planning process6 and it=s the one o!er which you ha!e the least control. 4: T!ansfo!m 2o!ecasts into &esou!ce &e5ui!ements After the wor%load forecasts are collected6 pro>ected changes need to be transformed into resource re<uirements. Sophisticated measurement tools Senior analyst=s e0pertise "he wor%sheets to pro>ect the estimated timeframes during which wor%load increases will occur. 6: (ap &e5ui!ements "nto 7.isting +tili,ations "he pro>ected resource re<uirements deri!ed from the wor%load pro>ections are mapped onto the charts of e0cess utili(ation. "his mapping will show the <uantity of new capacity that will be needed by each component to meet e0pected demand. 8: P!edict 0*en t*e *op 0ill 'e "ut of Capacity "he mapping of the <uantity of additional capacity needed to meet pro>ected wor%load demands will also pinpoint the timeframe during which these upgraded resources will be re<uired. 19: +pdate 2o!ecasts and +tili,ations "he process of capacity planning is not a one-shot e!ent but rather an ongoing acti!ity. #ts ma0imum benefit is deri!ed from continually updating the plan and %eeping it current. "he plan should be updated at least once per year. Shops that use this methodology best update their plans
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e!ery <uarter. A firm?s producti!e capacity is the total le!el of output or production that it could produce in a gi!en time period. Capacity utilisation is the percentage of the firm?s total possible production capacity that is actually being used. Capacity utilisation @AB C actual output per month @or per annumB 0 $44A DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD ma0imum possible output per month @or per annumB Capacity +tilisation #f a firm could produce $&44 units per month6 but is actually producing -44 per units per month6 Capacity utilisation A C @-44 units per month 0 $44A B , $&44 units per month C *4A 2inancial implications A firm?s le!el of capacity utilisation determines how much fi0ed costs should be allocated per unit6 so as a firm?s capacity utilisation increases6 the fi0ed costs @and therefore also6 total costsB per unit will decrease. or e0ample6 if the firm abo!e had fi0ed costs of E$&6444 per month6 the fi0ed costs per unit would be E&4 per unit at *4A capacity utilisation6 but only E$4 per unit at $44A capacity utilisation. A firm should be most efficient if it is running at $44A capacity utilisation. Howe!er6 if a firm is running at full capacity6 there are a number of potential drawbac%s. "here may not be enough time for routine maintenance6 so machine brea%downs may occur more fre<uently and orders will be delayed #t may not be possible to meet new or une0pected orders so the business cannot grow without e0panding its scale of production Staff may feel under e0cessi!e pressure6 leading to increased mista%es6 absenteeism and labour turno!er #f the factory space is o!ercrowded6 wor% may become less efficient due to the untidy wor%ing conditions #t may be necessary to spend more on staff o!ertime to satisfy orders6 increasing labour costs Causes of under-utilisation of capacity New competitors ta%ing mar%et share or causing o!er-supply in the mar%et all in mar%et demand due to changes in consumer tastes or fashion Fnsuccessful mar%eting G one or more aspect of the mar%eting mi0 may simply mean that the firm is not successful Seasonal demand G this is especially apparent in the tourist industry where firms li%e hotels and leisure par%s are full in the summer but see much lower utilisation at other times of the year

P!oblems a!ising f!om lo# capacity utilisation

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Higher fi0ed costs per unit reduced profitabilityH if prices were raised to co!er these costs6 this would probably lead to reduced sales Spare capacity can portray a negati!e image6 - signifying loss of popularity Staff can become bored and demorali(ed if they don?t ha!e as much to do6 especially if they fear losing their >obs

'enefits of lo# capacity utilisation A firm may ha!e more time for maintenance and repairs and for staff training6 to prepare for an upturn in trade "here may be less stress for employees than if they were wor%ing at full capacity "he firm can cope with new ordersH firms in e0panding mar%ets may e0pect to ha!e low utilisation whilst they build their sales A unit manufacturing electric motors has . stations. #ndi!idual capacity of critical station is $444,wee%. #f actual output is 144,wee%6 find System capacity and System efficiency A lamp manufacturing line has ' stations with indi!idual capacities of respecti!ely. Actual output is 16$44,shift. ind System capacity and System efficiency $46444636444 and $46*44

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