Capacity & Capacity Planning

Strategic Capacity Planning

 Capacity
 The maximum level of output

 The amount of resource inputs available

relative to output requirements at a particular
time

 Capacity is the upper limit or ceiling on the

load that an operating unit can handle.
 Factors affecting Capacity
 Number of shifts and lines that is active
at any time is a controllable factor.
 Product variations.
 Quality conformance.
 Best Operating Level

Average
unit cost
of output
Underutilization Over-utilization
Best Operating
Level

Volume
Capacity Planning Process

Develop Quantitative
Forecast
Alternative Factors
Demand
Plans (e.g., Cost)

Compute Evaluate Qualitative

Rated Capacity Factors
Capacity Plans (e.g., Skills)

Compute Select Best

Implement
Needed Capacity
Best Plan
Capacity Plan
STRATEGIES
 Lead capacity strategy
 Match capacity strategy
 Lag capacity strategy

matc
h
lead

lag
 Two Capacity Strategies
Planned unused Forecast of Forecast of
capacity Planned use of
capacity needed short-term options capacity needed
Capacity

Capacity
Time between
increments

Expansionist Strategy Wait-and-See Strategy

 Advantages/Disadvantages of each strategy
Advantages Disadvantages

Expansionist • ahead of competition • risky if demand

• no lost sales changes

Wait-and-See • no unused capacity • rely on short-

• easier to adapt to term options
new technologies
 Capacity Cushion
Capacity Cushion = level of capacity in excess of the average
utilization rate or level of capacity in excess of the expected
demand .

Cushion = Best Operating Level - 1

Capacity Used
Some Short-Term Capacity Options
 lease extra space temporarily
 staff second or third shift with temporary
workers
 add weekend shifts
 alternate routings, using different work
stations that may have excess capacity
 schedule longer runs to minimize
capacity losses
Some Short-Term Capacity Options
 leveloutput by building up inventory in slack
season
 use multi-skilled workers to alleviate bottlenecks
 allow backorders to increase, extend due date
promises, or have stock-outs.
 subcontract work
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