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Tuesday, November 10, 2009

Capacity Planning

Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products.[1] In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time.

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: (number of machines or workers) × (number of shifts) × (utilization) × (efficiency).

The broad classes of capacity planning are lead strategy, lag strategy, and match 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. The possible disadvantage to this strategy is that it often results in excess inventory, which is costly and often wasteful.
* Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond due to increase in demand (North Carolina State University, 2006). This is a more conservative strategy. It decreases the risk of waste, but it may result in the loss of possible customers.
* Match strategy is adding capacity in small amounts in response to changing demand in the market. This is a more moderate strategy.

In the context of systems engineering, capacity planning is used during system design and system performance monitoring.

Capacity planning is long-term decision that establishes a firm of overl level of resources. It extends over time horizon long enough to obtain resources. Capacity decision affects the production lead time, customer responsiveness, operating cost and company ability to compete. Inadequate capacity planning can lose the customer and business. Excess capacity can drain the company's resources and prefect investment of lucrative venture. When capacity should be increased and how much increase are the critical decisions.

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