Basics in Capacity Planning

1. CAPACITY
Requirements
September 2017
Planning

2. At the end of the
session,
all participants should
be able to plan for the
capacity of their own
area, line, and plant.
SESSION
OBJECTIVE

3. Dr. Eliyahu M. Goldratt
He was an internationally recognized leader in the development
of new business management philosophies and systems.
He created and developed the Theory of Constraints (TOC), an
overall framework for helping organizations and individuals to
determine:
• What to change - find and use the leverage point
• What to change to - create the simple, practical solutions
• How to cause the change - build a secure and stable
improvement environment.

4. Dr. F. Robert Jacobs
He is a Professor Emeritus of Operation and Decision
Technologies, Kelly School of Business, Indiana University. He is
the author of three textbooks for McGraw-Hill including
Operations and Supply Chain Management, Operations and
Supply Management-The Core, and Manufacturing Planning
and Control for Supply Chain Management.
Dr. Richard B. ChaseHe is a Professor Emeritus of Operations Management Marshall
School of Business, University of Southern California. He
specializes in service operations management which involves
applying concepts from OM, organizational theory, and services
marketing to the design of service processes.

5. Dr. R. Dan ReidHe is an Emeritus Associate Professor of Operations Management
who specializes in Production/operations management,
purchasing, business logistics, supply chain management.
Dr. Nada SandersShe is an internationally recognized expert in forecasting,
predictive analytics, risk management, and supply chain
management.

6. Maximum output produced in a given period
with the available resources
What happens if capacity is less than demand
placed on resource
What happens when capacity is greater than
demand placed on resource
Capacity
Bottleneck
Non-bottleneck
Utilization
Extent or level to which the productive capacity
of a plant or firm is being used in generation of
goods and services

7. CAPACITY PLANNING- the process of establishing the output
rate that can be achieved at a facility
 Capacity is usually purchased in “chunks”
 Strategic issues: how much and when to
spend capital for additional facility &
equipment
 Tactical issues: workforce & inventory
levels, & day-to-day use of equipment

8. CAPACITY PLANNING
Three key inputs to
1. The kind of capacity that will be
needed
2. How much capacity will be
needed
3. When will it be needed
*Accurate forecasts are critical to the
planning process

9. COMMON STRATEGIES
Managers should
recognize the
broader effects
capacity decisions
have on the entire
organization.
Leading
Capacity
When capacity is
increased to meet
expected demand
Following
Capacity
When companies
wait for demand
increases before
expanding
capabilities
Tracking
Capacity
When adding
incremental capacity
over time to meet
demand

10. Most useful functions of capacity planning:
Design Capacity
Effective Capacity
• Maximum output rate under
ideal conditions
• E.g. A bakery can make 30
custom cakes per day when
pushed at holiday time
• Maximum output rate under
normal (realistic) conditions
• E.g. On the average this bakery
can make 20 custom cakes per
day
EFFICIENCY
UTILIZATIO
N

11. MEASURING CAPACITY
When dealing with more than one
product, it is best to measure capacity
in terms of each product.
Another method of
measuring capacity is by referring to
the availability of inputs.

12. DETERMINANTS OF EFFECTIVE CAPACITY
Facilities
Product and
Service Factors
Process Factors
Size and provision for expansion,
locational factors, and layout of work
area
The more uniform the output, the more
opportunities there are for standardization of
methods and materials.
Quality capability, output quality, and time it takes
to change over equipment settings for different
products or services

13. DETERMINANTS OF EFFECTIVE CAPACITY
Human Factors
Policy Factors
Operational
Factors
The tasks that are needed in certain jobs, the array
of activities involved and the training, skill, and
experience required to perform a job
Management policy can affect capacity by
allowing or not allowing capacity options
Scheduling problems, inventory stocking
decisions, late deliveries, purchasing requirements,
acceptability of purchased materials and parts, and
quality inspection and control procedures

14. DETERMINANTS OF EFFECTIVE CAPACITY
Supply Chain
Factors
External Factors
Inadequate
Planning
Changes on suppliers, warehousing,
transportation, and distributors
Minimum quality and performance standards

15. • The rate at which
money is
generated by the
system through
sales
Throughput
• All the money that
the system has
invested in
purchasing things
it intends to sell
Inventory
• All the money that
the system spends
to turn inventory
into throughput
Operating
Expense

16. Do not balance capacity, balance the flow.
The level utilization of a non-bottleneck
resource is not determined by its own
potential but by some other constraint in
the system.
Utilization and activation of a resource are
not the same.
GOLDRATT’S RULES OF
PRODUCTION SCHEDULE

17. An hour lost at a bottleneck is an hour lost
for the entire system.
An hour saved at a non-bottleneck is a
mirage.
Bottlenecks govern both throughput and
inventory in the system.
GOLDRATT’S RULES OF
PRODUCTION SCHEDULE

18. Transfer batch may not, and many times
should not be equal to the process batch.
A process batch should be variable, not fixed.
Priorities can be set only by examining the
system’s constraints, and lead time is a
derivative of the schedule.
GOLDRATT’S RULES OF
PRODUCTION SCHEDULE

19. EXERCISE:
1. Identify your constraint.
2. What is your design capacity?
3. What is your effective capacity? (based on your priority list/current
inventory)
Take into consideration all variables that may affect capacity.

20. GOLDRATT’S
THEORY OF
CONSTRAINTS
Identify the
constraint
Utilize the
constraint
Subordinate
everything
else to the
constraint
Elevate the
constraint
Repeat the
process

21. DRUM BUFFER ROPE- pace of the
bottleneck
- allotment of
materials or time
- demand
signal to pull
new material
into the system

22. END.
REFERENCES:
• Operations and Supply Chain Management by Chase, Shankar & Jacobs
• Theory of Constraints by Eliyahu Goldratt
• Capacity Planning & Facility Location by R. Dan Reid & Nada R. Sanders
• Ch. 5 Strategic Capacity Planning for Products and Services by Saylor.org
Academy (retrieved from https://learn.saylor.org/mod/page/view.php?id=9282
on August 31, 2017)