Lesson 3: What is Capacity Planning?

 What is Capacity?  

Capacity is the rate of productive capability of a facility to produce goods and services. 

What is Capacity Planning?

•         Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products.

•         Capacity is usually expressed as volume or Quantum of Output per time period.

The Need for Capacity Planning…! 

Capacity Planning is the first step when an organization decides to produce more or introduce new products to meet their market demand.

Capacity planning normally involves the following activities:

•         Evaluate existing or In-House capacity

•         Estimate future capacity requirement

•         Identify alternatives

•         Conduct financial analysis

•         Assess key qualitative issues

•         Select one alternative

•         Implement alternatives chosen

•         Monitor results

CAPACITY

The 3 types of capacity are explained below.

Design Capacity:  Maximum output rate or service capacity an operation, process or facility is designed to produce.

Effective Capacity: Design capacity minus time loss due to lunch and tea breaks, preventive maintenance, shift changeover, machine setting time etc.

Actual Capacity:  Rate of output that is actually achieved during production, which may include time loss due to breaks, maintenance (both planned and unplanned), breakdowns, trainings, rework on defects etc.

 I have listed down a few points on how to boost the Actual Output:

- Conduct effective preventive maintenance periodically as planned.

- Address unexpected breakdowns quickly.

- Keep inventory of necessary spares and tools.

- Allocating and planning resources efficiently.

- Ensure uninterrupted flow of materials.

- Produce good quality products.

- Avoid rejection, rework and defects

- Focus on continuously improving the process and eliminating wastes.

- Avoid delay in movement of materials and goods.

Let us now discuss about Efficiency and Utilization of capacity with an example:

Efficiency (%) = (Actual Output / Effective Capacity) x 100

Utilization (%) = (Actual Output / Designed Capacity) x 100

Example

Say an automotive industry has a facility to produce exhaust connectors with a Design Capacity of 500 pieces per day, but has an Effective capacity of 400 pieces per day. At the end of the day, the facility manages to actually produce only 360 pieces per day output.

Then its Efficiency & Utilization percentage of the facility would be:

Efficiency (%) = (Actual Output per day / Effective Capacity per day) x 100

                        = (360 / 400) x 100 

                        = 90%

Utilization (%) = (Actual Output per day / Designed Capacity per day) x 100

                         = (360 / 500) x 100

                         = 72%  

Factors influencing Effective Capacity / Output 

•      Facility

•      Kind of Product or Service

•      Processes

•      Manpower

•      Operations

•      Supply Chain

•      External Forces

Types of Capacity Planning

1.         Over Capacity Planning - Planning more than expected demand

2.         Under Capacity Planning - Planning does not meet the demand

3.         Long Term Capacity Planning - Related to long term market trend of the product or service

4.         Short Term Capacity Planning - Related to seasonal or irregular fluctuation in demand

TAKT is a major attribute when it comes to making Capacity Planning. It is a very vast subject and I will be explaining in-detail about TAKT later in my upcoming post.
 

Hope you guys enjoyed reading about capacity planing and why it is so essential for organization to plan capacity effectively to meet their market demand. Please feel free to comment below if you have relevant cases with regards to capacity planning. 

(image source: www.freepik.com)