CAPACITY PLANNING

CAPACITY PLANNING

Capacity is the process of determining the resources required to meet the priority plans and methods needed to make that capacity available. The main aim of capacity planning is to match the operations according to the customer.
Capacity Planning decisions are taken on the basis of customer demand, resources required and financial resources of organization. According to Raid & Sanders, “Capacity is the maximum output rate of production or service facility and capacity planning is the process of establishing the output rate that may be needed for meeting the current and future’s customer demand”.

Factors Affecting Capacity Planning:

1. Product and Service Factor: The capacity of the organization depends on the type of product and the type of service that the provides e.g. the capacity in terms of output will be very high if the organization manufactures automobiles spare parts. On the other hand the capacity in terms of output will be very low if the organization manufactures ships, trucks etc.

2. Process: The manufacturing process is the key factor that affects capacity planning e.g. capacity planning for a manufacturing unit in which most of the tasks are done manually will be different from the unit in which advanced machinery is used for production.

3. Human Factors: Human factors such as workers also affect the capacity planning of the company for e.g. skilled workers can produce better quality and quantity than unskilled and untrained workers.

4. Supply Factors: Supply of material also affect the capacity of the company. Timely and assure supply of material improves the ability to produce goods e.g. An organization has to import raw materials from far of place, delay in getting raw material due to lack of proper transportation facility can effect the capacity.

5. External Factors: Such as investors and Government polices affect the capacity planning. Capacity is also affected by the rules such as maximum limit of production and tax limits as set by the government far an organization e.g. Government tax etc.

CAPACITY PLANNING DECISIONS/PROCESS

Capacity planning decisions involves the following steps:

1. Environmental Scanning: The first step in the capacity planning is to scan the external environments to find out the opportunities and threats the company has. That will help in deciding what to produce.

2. Demand Forecasting: After selecting the product for production the next step in the capacity planning is to make demand forecasting for the product. It is difficult to make accurate demand because customer’s needs are dynamic. Product life cycle, expert opinion, brain storming, time series analysis etc, can help in making demand forecasting.

3. Estimation of capacity required: On the basis of demand forecast we will decide that how much capacity is required to meet the current and future customers demand.

4. Alternative Capacity Plans: At this stage we will think about different alternative methods of production or capacity plans by which we can meet the capacity requirements e.g. to go for advance technology or moderate technology with labour.

5. Economic Analysis of Plans: At this stage we will compare the cost of and benefit of each plan on the basis of our strength and weaknesses.

6. Selection of the best plan: On the basis of previous plans we will select that plan which will give maximum revenue.

7. Implementation: At this stage selected capacity plan will be put inter action for the production of the product.