Capacity Planning

Question 1

What is capacity planning?

Answer 1

• capacity is the maximum output of a facility
• matching production/service capacity with customer demand is a challenge(capacity cushion)
• capacity planning is the process of establishing the output rate that can be achieved at a facility to meet customer demands
  -capacity planning is both a strategic and tactical decision

Question 2

Capacity planning is a strategic decision

Answer 2

How much and when to spend capital for additional facility and equipment?

• long term strategic capacity decisions (the company will have to live with the outcome of these decisions for a long time)

Question 3

Capacity planning is a tactical decision

Answer 3

What should be the ideal workforce and inventory levels, day to do use of equipment?

• short term capacity decisions focusing on routine and day to day activities within a facility

Question 4

Increasing strategic capacity at Swansea uni

Answer 4

• the uni has set a record 25% increase in applications for entry in September 2013 at a time when there are concerns about numbers of applications

The increase is a vindication of the massive investment which is being put into the campus expansion (450 million)

Question 5

What is capacity?

Answer 5

• capacity in the static, physical sense means the scale of an operation
• however, this may not reflect the operations processing capability
• hence, we must incorporate a time dimension appropriate to use of assets.
• for example, 24,000 litres per day
• 10,000 calls per day
• 57 patients per session
• 200,000 wooden boards per year

Question 6

The objectives of capacity planning and control

Answer 6

To provide an “appropriate” amount of capacity at any point in time
The “appropriateness” of capacity planning in any part of the operation can be judged by its effect on

• costs
• revenue
• working capital
• service level

Question 7

Why is capacity planning important

Answer 7

1. Cost implications (idle capacity, excess inventory, higher operating costs)
2. Revenue implications (unfulfilled customer demand)
3. Customer dissatisfaction (unfulfilled customer demand)
4. Uncertainty associated with future demand (forecasting -> uncertainties)
5. Long term commitment of expensive resources (this is inherently risky)
6. Capacity is usually purchased in chunks rather than in smooth increments

Question 8

Measuring capacity

Answer 8

• there is no one way to measure it
• it can be measured using eother inputs or outputs
• output measures (e.g cars per shift) are easier to understand
• with multiple products, inputs measures work better

Question 9

Part 2 of measuring capacity
(Diagram)

Question 10

Measuring capacity again

Answer 10

• when discussing the capacity of a facility, we need two types of info (amount of available capacity and effectiveness of capacity use)

Question 11

Amount of available capacity

Answer 11

This tells us how much capacity the facility has

E.g Amazon facility at Swansea processes 10 million packages in December (design cap)

The same facility processes 5 million packages the remaining months (effective cap)

Question 12

What is design capacity?

Answer 12

• maximum output rate under ideal conditions
• design capacity is achieved using temporary measures like overtime, overstaffing, maximum equipment, subcontracting, etc
• design capacity can be sustained only for a short period of time

Question 13

What is effective capacity?

Answer 13

• maximum output rate that can be sustained under normal conditions
• effective capacity is achieved using realistic work schedules, regular staff levels, scheduled machine maintenance

Effective capacity is usually lower than design cap

Question 14

Measuring effectiveness of capacity use

Answer 14

• measures how much of the available capacity is actually being used (capacity utilisation)

-this is a measure of efficiency
- cap utilisation is calculated as the ration of actual output over capacity

Utilisation = actual output/capacity. (100%)

Use either design or effective capacity as the denominator

Question 16

Example l: design capacity is 30 cakes per day, effective capacity is 20 cakes per day. Currently the bakery is producing 28 cakes per day

What is the bakery’s capacity utilisation to both design and effective capacity

Answer 16

Utilisation effective = actual output/effective capacity(100%) = 28/20(100%) = 140%

Utilisation design = actual output/design capacity(100%) = 28/30(100%) = 93%

Question 17

Aggregate capacity of a hotel

Answer 17

• rooms per night
• ignores the numbers of guests in each room
• (higher capacity?)

Question 18

Aggregate capacity of an aluminium producer:

Answer 18

• tonnes per month
• Ignores types of alloy, gauge and batch variations
• (lower capacity?)

Question 19

Change demand

Answer 19

• change pattern of demand
• develop alternative products and/or services