capacity planning and control
chapter -11
What is capacity?
Capacity is the maximum amount
of work that an operation can do
over a specific period of time.
Two important questions while
considering the capacity:
1. How much?
2. How long?
Capacity of an organization consists of
many elements:
• Facilities
• Equipments
• Human Resource
• Skills
So, make a balance between capacity and demand
is the most important function of operations
management.
To conclude we can say capacity is the maximum
amount of work that an organization can do is
capacity.
Any organizations operate below their
maximum capacity! Discuss the
reasons behind this.
1. There is insufficient demand
2. Policy for responding to new demand quickly
as new order comes.
3. One part of the operation is capacity ceiling
or maximum capacity, so the other is below
capacity.
Three different types of capacity
strategies
• Long-term capacity strategy
• Medium-term capacity strategy
• Short-term capacity strategy
1. Long-term capacity planning strategy
Changing the main production facilities. It can be
adding new or deleting the old.
For example new plant, factory, capital intensive
machines e.t.c
2.Medium-term capacity planning strategy
It happen between 2-18 months usually. Here
the output is changed by increasing number of
machines or operating hours.
3. Short-term Capacity planning strategy
This happens over a short time. According to the
changes in demand, necessary adjustments
are made.
For example hotels or restaurents.
What you mean by aggregate demand
and capacity?
• A medium term capacity planning, that
calculates different services and products
together to get a broad view of demand and
capacity. For example hotel think about
demand and capacity in terms of rooms per
night, without thinking about the number of
guests in each room and their requirements.
Objectives of planning and control
1. Cost effectiveness – overcapacity means high cost
2. Revenue generation - capacity equals or higher than
demand means no revenue lost.
3. Schedule working capital – if inventory before demand the
fund is wasted.
4. Increase quality - by hiring new staff for new demand
may affect quality.
5. Increase speed – arranging surplus capacity so no queing.
6. Increase dependability - the more capacity closer to
demand less dependability for delivery.
7. Increase flexibility – volume flexibility increased by extra
capacity.
What are the three important steps
involved in capacity planning and
control?
1.Measure aggregate demand and supply
2.Identify the alternative capacity plans
3. Choose the most appropriate capacity plan.
I.
Measuring demand and capacity
a. Forecasting the demand
Forecasting is important for planning and control.
Without the forecasting or estimate of future
demand, it is impossible to plan for the future
capacity.
But the forecast or prediction should have 3 qualities.
1.Forecasting should be expressed in terms, which are
useful for capacity planning.
For example in units such as machine hour per year,
space required, how many hours, how much et.c
2.Should be accurate as possible
wrong forecast making planning useless. For example
recruiting new staff after the forecast will end up in
wasting money.
3.Should give the indication about the potential
or possible uncertainty.
How much difference can be expected in actual
demand? It has to be clear. For example if the
change from average demand is predicted a
mange in a supermarket can arrange the staff
for the peak and lean period.
Demand seasonality and supply
seasonality
Demand seasonality means demand changes
according to various factors:
Climate
Festive
Behavioral
Political
Financial
Social
For example hotel demand changes according to
season.
Seasonality of supply
The inputs changes according to different factors.
For example agricultural products supply is decided
by climate.
Measuring capacity
Can be done in two ways :
Output capacity measure – how much from
operation
Input capacity measure –how much for operation
Design capacity and effective capacity
Design capacity is the capacity of the process as it is designed
to be.
For example when you buy a motor bike the fuel efficiency
promise will be higher than that reality.
Effective capacity is the actual or useful capacity of operation.
Why there is difference in design capacity and effective
capacity?
1.Maintenance
2.Changeover
3.Stoppings
Utilization
The ratio of actual output from a process or facility.
How can capacity be measured
accurately
• By reducing changeover set-ups
• Re-examining preventive maintenance
• Allocate work in different manner
Overall equipment effectiveness
Method of judging effectiveness of equipments.
The alternative capacity plans
Three methods for this:
Level capacity plan
Chase capacity demand plan
Demand management
Level capacity plan
• Level capacity plan – where capacity is kept
constant, the operation either tolerating the under
use of the capacity or its inability to serve all
demand, or alternatively (if it is capable of it)
making to stock for future periods when demand
will exceed capacity.
For example aluminum production
Chase demand plan
• – where capacity is frequently adjusted in an
attempt to match it to demand at any point in
time. This can be done a number of ways such
as using overtime, varying the size of the
workforce(hire&fire), using part-time staff, or
subcontracting(Ben).
For example customer service
Managing demand
– where demand is influenced or changed in order to bring it closer to
capacity at any point in time.
Discounts
Sale-offs
For example airlines.( Moon cake )
Two methods for this:
Alternative products and services - develop alternative products. For example
universities halls used for wedding or conferences. Greetings cards for all
seasons
Yield management – methods to make sure that an operation maximizes the
potential to generate profit
Examples : airlines and hotel by overbooking, discount, varying service type.
In fact many organizations use some combination of these three pure
strategies.
Choosing a capacity planning and
control approach
We have three capacity plans and now the task
is to choose the one that suits your
organization. Before adopting any plan an
organization must be aware of the
consequences.
So the organization must decide what changes
must be brought into the output rate and
facilities.
There are two methods to find this
out:
• Cumulative representation
• Queuing theory
Cumulative representation is a graphical
presentation method used in capacity planning.
In this method demand and capacity are clearly
indicated, where operational managers can easily
find out high demand season and low, and make
necessary operation changes.
So here ability of operations to store the finished
goods as inventory is essential.
Queuing theory or waiting line
management
It is used in the case of service operations and
perishable goods, because there is no chance
for stocking or inventory.
In cumulative representation the focus is to
make sure the production is above the
demand line.
Here demand is treated as it comes, thereby
queuing happens.
Customer preceptions of queing page 349