Capacity Planning and Measurement

Capacity Planning

• Capacity planning is crucial for meeting future product and service demands, as it sets output limits.
• Capacity decisions impact operating expenses; ideally, capacity and demand match, minimizing costs. This is difficult if demand differs from predictions, leading to over or under capacity.
• Capacity relates to initial costs; larger capacity usually leads to larger costs.
• Capacity decisions are long-term commitments often difficult and costly to change.
• Capacity decisions affect competitiveness; excess capacity, or the ability to readily add capacity, can be a competitive edge influencing delivery speed.
• Capacity matching improves ease of management.

Defining and Measuring Capacity

• Capacity is essentially an upper limit on output. Accurate capacity measurement is nuanced.
• Design capacity is the maximum output potential under ideal conditions.
• Effective capacity considers factors like product mix, scheduling, maintenance, and quality impacting potential output.
• Efficiency is the actual output divided by the effective capacity.
• Utilization is the actual output divided by design capacity.

Determinants of Effective Capacity

• Facilities: Size, location, transportation, room for expansion, and layout all impact capacity.
• Products/Services: Uniform output allows for better standardization increasing capacity. Mixed products have varied output rates.
• Processes: Output quality influences process capacity. Inspection and rework (for flawed products) impact production rates.
• Human Considerations: Job tasks, varying activities, worker skills, training, and motivations all have a significant relationship to capacity. Absenteeism and turnover negatively impact effective capacity.
• Operations: Scheduling conflicts, equipment differences, inventory issues, and materials all impact capacity.
• External Forces: Regulations on products and equipment, paperwork associated with government agencies can limit capacity.

Developing Capacity Alternatives

• Design Flexibility into Systems: Designing flexible systems is beneficial for dealing with long-term uncertainty and unpredictable future demand.
• Differentiate New and Mature Products/Services: Mature products are more predictable, while new products carry more risk, favoring flexible capacity planning.
• Big Picture Approach: Interconnectedness of system parts should be considered during capacity decisions.
• Capacity Chunks: Capacity is often acquired in large steps, making matching perfect capacity difficult.
• Smoothing Capacity Requirements: Capacity discrepancies should be managed for the best results.
• Identification Optimal Operating Level: Identifying the production level where unit costs are lowest for optimum performance.

Planning Service Capacity

• Proximity to customers is vital for service capacity planning.
• Service capacity cannot be stored.
• Planning must account for demand volatility.
• Waiting time is a critical concern for service.

Evaluating Capacity Alternatives

• Calculating processing requirements involves accurate demand forecasts, processing time, and workdays/shifts per year.
• Cost-volume analysis considers the relationships between cost, revenue, and output.
• Fixed costs remain constant regardless of output level; variable costs change with output.
• Break-even point occurs when total costs equal total revenue. Identifying break-even point helps determine required volume for profitability.