CAPACITY PLANNING

Capacity planning is the process of determining the production capacity needed

by an organization to meet changing demands for its products. In the context of
capacity planning, design capacity is the maximum amount of work that an
organization is capable of completing in a given period. Effective capacity is the
maximum amount of work that an organization is capable of completing in a
given period due to constraints such as quality problems, delays, material
handling, etc.

A discrepancy between the capacity of an organization and the demands of its

customers results in inefficiency, either in under-utilized resources or unfulfilled
customers. The goal of capacity planning is to minimize this discrepancy.
Demand for an organization's capacity varies based on changes in production
output, such as increasing or decreasing the production quantity of an existing
product, or producing new products. Better utilization of existing capacity can be
accomplished through improvements in overall equipment effectiveness (OEE).
Capacity can be increased through introducing new techniques, equipment and
materials, increasing the number of workers or machines, increasing the number
of shifts, or acquiring additional production facilities.

Capacity is calculated as;

(Number of machines or workers) × (number of shifts) × (utilization) ×

(efficiency).

Capacity planning Strategies:

The broad classes of capacity planning are lead strategy, lag strategy, match
strategy, and adjustment strategy.

Lead strategy is adding capacity in anticipation of an increase in demand. Lead

strategy is an aggressive strategy with the goal of luring customers away from the
company's competitors by improving the service level and reducing lead time. It
is also a strategy aimed at reducing stock out costs.

Lag strategy refers to adding capacity only after the organization is running at
full capacity or beyond due to increase in demand. This is a more conservative
strategy and opposite of a lead capacity strategy. It decreases the risk of waste,
but it may result in the loss of possible customers either by stock out or low
service levels.

Match strategy is adding capacity in small amounts in response to changing

demand in the market. This is a more moderate strategy.

Adjustment strategy is adding or reducing capacity in small or large amounts

due to consumer's demand, or, due to major changes to product or system
architecture.