operations management

2. CAPACITY
• A CAPACITY PLANNING PROCESS INVOLVES DETERMINING HOW MUCH PRODUCTION CAPACITY
IS REQUIRED TO MEET CHANGING DEMAND FOR PRODUCTS. DESIGN CAPACITY REFERS TO AN
ORGANIZATION'S MAXIMUM CAPACITY TO ACCOMPLISH WORK OVER A GIVEN TIME PERIOD IN
CAPACITY PLANNING.
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3. CAPACITY
• CAPACITY REFERS TO AN UPPER LIMIT OR CEILING ON THE LOAD THAT AN
OPERATING UNIT CAN HANDLE. THE LOAD MIGHT BE IN TERMS OF THE
NUMBER OF PHYSICAL UNITS PRODUCED (E.G., BICYCLES ASSEMBLED PER
HOUR) OR THE NUMBER OF SERVICES PERFORMED (E.G., COMPUTERS
UPGRADED PER HOUR). THE OPERATING UNIT MIGHT BE A PLANT,
DEPARTMENT, MACHINE, STORE, OR WORKER. CAPACITY NEEDS INCLUDE
EQUIPMENT, SPACE, AND EMPLOYEE SKILLS.
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4. CAPACITY PLANNING IN
OPERATIONS MANAGEMENT
• CAPACITY PLANNING IS AN INTEGRALASPECT OF OPERATIONS MANAGEMENT. IT REFERS TO
THE SYSTEM OF MAINTAINING A BALANCE BETWEEN THE DEMAND-SUPPLY OF GOODS AND
PRODUCTS. IT INVOLVES EVALUATING ALL ASPECTS OF PRODUCTION, SUCH AS THE MACHINERY,
THE STAFF, AND THE WORK CENTERS, TO KNOW IF A SPECIFIC ORGANIZATION OR THE
MANUFACTURER CAN MEET THE CUSTOMERS' CURRENT DEMAND AND IN THE FUTURE.
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5. THE KEY QUESTIONS IN CAPACITY PLANNING:
1. WHAT KIND OF CAPACITY IS NEEDED?
2. HOW MUCH IS NEEDED TO MATCH DEMAND?
3. WHEN IS IT NEEDED?
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6. TYPES OF CAPACITY PLANNING IN
OPERATIONS MANAGEMENT
RESOURCE CAPACITY PLANNING
• RESOURCE CAPACITY PLANNING HELPS YOU MAXIMIZE THE CAPACITY OF EXISTING RESOURCES. IT WILL HELP YOU CHOOSE WHICH RESOURCES TO BE ADDED AND WHICH
ARE TO BE ELIMINATED OR DOWNGRADED. MATHEMATICALLY IT WORKS BY CALCULATING THE TOTAL NUMBER OF EMPLOYEES AND MULTIPLYING IT BY THE WEEKLY
BILLABLE HOURS. MOST ORGANIZATIONS LOOK FOR SKILL SETS, UTILIZATION RATES, MANAGEMENT AND SALES PIPELINE WORK, ETC., TO BETTER UNDERSTAND
CAPACITY PLANNING.
PROJECT CAPACITY PLANNING
• IT TAKES A CLOSER LOOK INTO THE PROJECT AT HAND IN AN ORGANIZATION AND THE RESOURCES AND TIME IT REQUIRES TO COMPLETE. PROJECT MANAGERS ARE
ASSIGNED FOR THIS PURPOSE. THEY CALCULATE THE ESTIMATED TIME THE ASSIGNED TEAM WILL WORK ON THAT PROJECT. THIS EVALUATION AIMS TO BALANCE THE
WORKLOAD CONCERNING THE PROJECT DELIVERY MILESTONE POINTS. THIS TYPE OF CAPACITY PLANNING WORKS IN COORDINATION WITH SOUND RESOURCE
MANAGEMENT TO ENSURE THAT YOUR STAFF IS WELL-RESTED, WHICH COULD LEAD TO EXTREME STRESS AND BURNOUT OR UNDERWORKED, WHICH COULD ALSO LEAD
TO FEWER PROFITS.
TEAM CAPACITY PLANNING
• THIS IS HELPFUL FOR BUSINESSES THAT OPERATE TOGETHER. FOR EXAMPLE, A TEAM WORKS TOGETHER IN THE IT SECTOR ON MULTIPLE PROJECTS. HERE THE PROJECT
MANAGERS WILL CHECK WITH THE HELP OF CAPACITY PLANNING HOW MUCH WORK CAN BE ACCOMPLISHED WEEKLY AND HOW SUCH EFFORTS WILL IMPACT THE
PROJECT TIMELINE.
HR CAPACITY PLANNING
• THIS IS LIKE RESOURCE PLANNING. HOWEVER, IT IS CONDUCTED BY A HUMAN RESOURCE MANAGER WHO WILL EXAMINE VARIOUS ADDITIONAL FACTORS SUCH AS THE
ABILITY TO RECRUIT, ONBOARDING NEW STAFF, PROFESSIONAL PERFORMANCE, AND THE ESTIMATED BUDGET FOR NEW RECRUITMENT APART FROM EVALUATING
CAPACITY.
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7. CAPACITY PLANNING BENEFITS
IF YOU’RE LOOKING FOR THE MAIN BENEFIT OF CAPACITY PLANNING, THERE ARE ACTUALLY QUITE A FEW! BUSINESSES WHO ADOPT A CAPACITY PLANNING METHODOLOGY TO INCREASE
EFFICIENCY AND MEET DEMAND MAY FIND THEMSELVES ENJOYING SOME OR ALL OF THE FOLLOWING BENEFITS:
REDUCE STOCK-OUTS
• STOCK-OUTS OCCUR WHEN YOU FAIL TO MEET CUSTOMER DEMAND. IT’S NO SECRET THAT CUSTOMERS DON’T LIKE TO WAIT, AND YOU BEING “OUT” OF A PRODUCT OR SERVICE WILL ONLY
PUSH THEM ONTO THE NEXT BUSINESS THAT CAN MEET THEIR DEMAND. THANKFULLY, ONE BENEFIT OF CAPACITY PLANNING IS THAT YOU CAN REDUCE STOCK-OUTS AND EVEN AVOID
THEM ALTOGETHER. THROUGHOUT YOUR PLANNING PROCESS YOU’LL SEE HOW THE MARKET AND DEMAND FLUCTUATE, MAKING YOU BETTER ABLE TO PREDICT SUPPLY AND DEMAND
CHANGES.
IDENTIFY INEFFICIENCIES IN YOUR BUSINESS PROCESS
• ANOTHER BENEFIT OF CAPACITY PLANNING IS KNOWING YOUR MINIMUM AND MAXIMUM CAPACITY OF RESOURCES. WHATEVER YOU’RE LOOKING AT (BE IT PRODUCT, PEOPLE, EQUIPMENT,
OR RESOURCES), YOU’LL KNOW WHAT FACTORS MAY LIMIT CAPACITY AND HOW TO AVOID THEM TO ENSURE YOU ALWAYS HAVE WHAT YOU NEED.
INCREASE DELIVERY CAPACITY
• TODAY’S CUSTOMERS WANT THEIR PRODUCTS IMMEDIATELY. QUICK TURNAROUND TIMES FOR DELIVERIES CAN SPELL SUCCESS FOR A BUSINESS, WHILE SLOWER DELIVERY TIMES CAN
LOSE BUSINESS. CAPACITY PLANNING IS A GREAT WAY TO GAUGE YOUR DELIVERY CAPACITY SO THAT YOU KNOW YOU HAVE THE WORKERS AVAILABLE TO DELIVER YOUR PRODUCTS AS
SOON AS THEY’RE PURCHASED, MAKING YOU A CONTENDER AMONG THE MARKET COMPETITION.
CONFIRM AVAILABILITY
• ANOTHER NOTABLE BENEFIT OF CAPACITY PLANNING IS ENSURING FUTURE AVAILABILITY. BEFORE YOU SIGN A NEW CONTRACT OR SEND ANOTHER PROPOSAL TO A POTENTIAL CLIENT,
CAPACITY PLANNING HELPS YOU KNOW FOR SURE THAT YOU HAVE THE WORKFORCE AND RESOURCES NEEDED TO TAKE CARE OF YOUR NEW CUSTOMERS, PROJECTS, AND MORE.
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8. LONG RANGE CAPACITY : - GENERALLY GREATER THAN 3 YEARS
• EQUIPMENT THAT HAVE A LONG LEAD TIME. IN
INTERMEDIATE RANGE : - USUALLY 3 TO 36 MONTHS
• WE CAN ADD EQUIPMENT, PERSONNEL, AND SHIFTS; WE CAN SUBCONTRACT;
AND WE CAN BUILD OR USE INVENTORY. THIS IS THE “AGGREGATE
PLANNING” TASK.
IN THE SHORT RUN : - USUALLY UP TO 3 MONTHS
• PRIMARILY CONCERNED WITH SCHEDULING JOBS AND PEOPLE, AS WELL AS
ALLOCATING MACHINERY.
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10. DESIGN CAPACITY
•DESIGN CAPACITY IS THE MAXIMUM THEORETICAL OUTPUT OF A
SYSTEM IN A GIVEN PERIOD UNDER IDEAL CONDITIONS. IT IS
NORMALLY EXPRESSED AS A RATE, SUCH AS THE NUMBER OF
TONS OF STEEL THAT CAN BE PRODUCED PER WEEK, PER
MONTH, OR PER YEAR. FOR MANY COMPANIES, MEASURING
CAPACITY CAN BE STRAIGHTFORWARD: IT IS THE MAXIMUM
NUMBER OF UNITS THE COMPANY IS CAPABLE OF PRODUCING IN
A SPECIFIC TIME.
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11. EFFECTIVE CAPACITY
•THE CAPACITY A FIRM CAN EXPECT TO ACHIEVE, GIVEN
ITS PRODUCT MIX, METHODS OF SCHEDULING,
MAINTENANCE, AND STANDARDS OF QUALITY.
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12. •DESIGN CAPACITY
= MAXIMUM OUTPUT CAPACITY
•EFFECTIVE CAPACITY
= DESIGN CAPACITY – LOST OUTPUT DUE TO LACK OF PLANNED
RESOURCES
•ACTUAL CAPACITY
= EFFECTIVE CAPACITY – LOST OUTPUT DUE TO LACK OF UNPLANNED
RESOURCES
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14. UTILIZATION & EFFICIENCY
• TWO MEASURES OF SYSTEM PERFORMANCE ARE PARTICULARLY USEFUL: UTILIZATION AND
EFFICIENCY.
• UTILIZATION IS SIMPLY THE PERCENT OF DESIGN CAPACITY ACTUALLY ACHIEVED.
• EFFICIENCY IS THE PERCENT OF EFFECTIVE CAPACITY ACTUALLY ACHIEVED.
• DEPENDING ON HOW FACILITIES ARE USED AND MANAGED, IT MAY BE DIFFICULT OR
IMPOSSIBLE TO REACH 100% EFFICIENCY. OPERATIONS MANAGERS TEND TO BE EVALUATED
ON EFFICIENCY. THE KEY TO IMPROVING EFFICIENCY IS OFTEN FOUND IN CORRECTING
QUALITY PROBLEMS AND IN EFFECTIVE SCHEDULING, TRAINING, AND MAINTENANCE.
• UTILIZATION AND EFFICIENCY ARE COMPUTED BELOW:
• - UTILIZATION = ACTUAL OUTPUT ÷ DESIGN CAPACITY
• - EFFICIENCY = ACTUAL OUTPUT ÷ EFFECTIVE CAPACITY
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16. *
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17. CAPACITY CONSIDERATIONS
1.FORECAST DEMAND ACCURATELY
2.MATCH TECHNOLOGY INCREMENTS AND SALES VOLUME
3.FIND THE OPTIMUM OPERATING SIZE (VOLUME)
4.BUILD FOR CHANGE
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