CAPACITY PLANNING

Presentation by LEELADHAR NAGAR MBA 3rd SEM CURAJ

INTRODUCTION

Capacity is an important aspect of the facility that we set up. If the capacity provided for is less we may lose the opportunity that an increase in market demand may present. On the other hand, if capacity is too much, we will bear the cost of idle resources. The establishment of facilities entails heavy capital outlays which are generally irreversible. It is imperative that adequate consideration is given to capacity. It is equally important to choose the right type of equipment. This will depend on the technology deployed and on the changes anticipated in the future.

DEFINITION

Capacity can be defined as the rate of productive capability of a facility. Capacity depends on the demand for the product or service. The demand is often related to location. For example, the demand for banking services in an urban area is likely to be much higher than the demand in rural area.

MEASURES OF CAPACITY

Capacity is simple to measure in some cases. For instance, the capacity of a car factory may be expressed as number of cars per year. Capacity for Amul Cheese may be stated as tons of cheese per year. In these cases the capacity is being related to output. An airlines capacity may be expressed by the total number of seats. A hospitals capacity is generally stated as in the total number of beds available. A Petrochemical plant Like Bharat Petroleum measures its capacity in terms of the number of barrels of crude oil it can process per day.

CAPACITY UTILIZATION

Capacity Utilization is measured as a ratio of the capacity put to use to the total available capacity in a unit of time.
Capacity put toUse CapacityUtilization TotalCapacityAvailable
Cap acityUtilisation

TYPES OF CAPACITY PLANNING

Long Range Capacity Planning Medium Range Capacity Planning Short Range Capacity Planning

TYPES OF CAPACITY PLANNING

Criterion Time Frame Long Term Planning 2-5 Years Medium Term Planning One Year Short Term Planning One week to three Months

Planning Premise

Augmenting Capacity for future Growth

Capacity Augmentation, Capital Budgeting

Balancing Demand and Supply

Adjusting Demand and Supply Attributes to balance available capacity with requirement

Maximizing Availability and efficient use of resources

Resource development strategies, Maintenance Routines, Improvements

Key Decisions

Tools & Techniques Used

Investment Planning, Break Even Analysis, Capital Budgeting Techniques, Decision Tree

Aggregate Production Planning, Make or Buy

Planning & Scheduling, Total Productive maintenance, Waste Elimination by continuous

DECISIONS IN CAPACITY PLANNING

Capacity planning involves the following Decisions:

Estimating the Existing capacity. Assessing the demand and capacity requirements. Identifying and analyzing sources of capacity to meet future capacity needs Developing capacity alternatives Evaluating alternatives on the basis of financial, economic and technical analysis. Select and implement the most suitable alternative.

ESTIMATING THE EXISTING CAPACITY

Production Capacity is the maximum rate of production of an organization Like 100 cars per day Design Capacity -Maximum Output that can be attained from a given set of input under ideal conditions. Effective Capacity Effective capacity is the maximum possible output for a given set of input considering a product mix, scheduling difficulties, machine maintenance , quality factors, absenteeism etc

DETERMINANTS OF EFFECTIVE CAPACITY

Facilities Factors Facility Location, Facility Layout etc Product Factors Product Design, Uniformity of Product etc Process Factors Equipment size & technology etc, quality of material Human Resource Factors employee absenteeism, turnover, motivation etc. Operational Factors late delivery by supplier, quality inspection etc, External Factors safety regulation, pollution regulation, product standard etc

FORECASTING LONG TERM FUTURE CAPACITY DEMAND

Estimate the total demand for a particular product from all producer. Estimate the market share for the company for which capacity has to be forecasted. Estimate the demand for the company by multiplying the total demand of the product with its market share. Translate the product and service demand for the company in to capacity needs.

IDENTIFYING AND ANALYZING SOURCES OF CAPACITY TO MEET FUTURE CAPACITY NEEDS

When Present Capacity is not sufficient to meet forecasted demand Sub contracting component part, sub units or entire product to other firms Acquiring other firms, facilities or resources. Building new plants and buying new equipment/ machiney etc. Expanding , modernizing or modifying existing facilities. Reactivating facilities which are on stand by status.

IDENTIFYING AND ANALYZING SOURCES OF CAPACITY TO MEET FUTURE CAPACITY NEEDS

When Present Capacity is in excess of future forecasted demand Selling off existing facilities, selling inventories and laying off or transferring employees. Placing some facilities on stand by status Developing and phasing in new product so that excess capacity can be used.

DEVELOPING CAPACITY ALTERNATIVES

Designing flexibility in to the system Differentiating between new and mature product / services. Taking a big picture approach to capacity changes. Preparing to deal with chunks of capacity. Attempting to smooth out capacity requirements

Break even analysis Capital budgeting analysis or cash flow EVALUATING ALTERNATIVES ON THE BASIS OF analysis ECONOMIC AND TECHNICAL FINANCIAL, ANALYSIS. tree analysis Decision Waiting time analysis or queuing theory Simulation Anlaysis

financial, economic and technical viability can be selected among all the alternatives considering following other factors like How soon it can be acquired Would it be compatible with present personnel and present operating method. What would be its useful life What will be reaction of employee, community to the new facility .

. SELECT AND IMPLEMENT THE MOST TheSUITABLE ALTERNATIVE on the basis of most suitable alternative