Capacity Planning
Manufacturing:
• Inventory can be used to cushion
fluctuations in demand
• More focused on machinery as a
constraint than people
Services:
• No Inventory
• People are primary constraint
Planning Horizons
Business
Plan
LONG
Production
Plan
Master
Production
Schedule
Matl. Reqs.
Plan (MRP)
SHORT
Individual
Machine/
Workcenter
Capacity must be matched carefully
with Marketing strategy!
America on(OFF)line - How NOT to plan!
35
32
30
Average
AOL
member
daily use
25
20
15
10
5
0
13 14
December, 1995
September, 1996
January, 1997
AOL: Number of members online at once
300000
250000
200000
150000
100000
50000
0
December, 1995
September, 1996
January, 1997
Me?
I thought YOU were
going to tell operations!!
Marketing
Marketing
Operations
How to Deal with
Uneven Demand?
• Vary inventory
• Change Production Rate
• Change workforce size
............... REACTIVE alternatives!!
Proactive/Aggressive
Alternatives
• Complementary products
• Promotional campaigns
• Creative pricing
Two Capacity Expansion
Strategies ..... EXPANSIONIST
Capacity
Demand
Forecast
Time
Expansionist Strategy
CONCEPT:
• Large, Infrequent jumps in capacity
• Stays ahead of demand
ADVANTAGES:
• Lost Sales unlikely
• Economies of scale (construction and
learning)
• Preempt Competition
Two Capacity Expansion
Strategies ..... WAIT-and-SEE
Capacity
Time
Two Capacity Expansion
Strategies ..... WAIT-and-SEE
Capacity
Demand
Forecast
Time
Two Capacity Expansion
Strategies ..... WAIT-and-SEE
Capacity
Demand
Forecast
Time
Wait and See Strategy
CONCEPT:
• Small, Frequent jumps in capacity
• Lags behind demand, relying on short-term
operations
ADVANTAGES:
• Minimize risk
• Greater flexibility
Capacity Cushion
Maximum
Capacity (100%)
Cushion
Average Utilization