This document discusses capacity planning and control. It defines capacity as the maximum amount of work an organization can perform over a given period of time. Key aspects of capacity planning include measuring demand through forecasting, identifying alternative capacity plans like maintaining a constant level, chasing demand, or managing demand, and choosing the most appropriate plan. The document also covers measuring and improving capacity, dealing with seasonality, and using tools like cumulative representation and queuing theory to evaluate different capacity strategies.

1. CAPACITY
PLANNING
AND
CONTROL
HAROLD B. DURAN, LCB

2. What is capacity?
Capacity is the maximum amount of
work that an operation can do over
a specific period of time.
Two important questions while
considering the capacity:
1. How much?
2. How long?

3. Capacity of an organization
consists of many elements:
–Facilities
–Equipment
–Human Resource
–Skills
So, make a balance between capacity
and demand is the most important
function of operations management.
To conclude we can say capacity is the
maximum amount of work that an
organization can do is capacity.

4. Any organizations operate below
their maximum capacity! Discuss
the reasons behind this.
1. There is insufficient demand
2. Policy for responding to new
demand quickly as new order
comes.
3. One part of the operation is
capacity ceiling or maximum
capacity, so the other is below
capacity.

5. Three different types of
capacity strategies
–Long-term capacity strategy
–Medium-term capacity strategy
–Short-term capacity strategy
1. Long-term capacity planning strategy
Changing the main production facilities. It
can be adding new or deleting the old.
For example new plant, factory, capital
intensive machines etc..

6. Three different types of capacity
strategies
2.Medium-term capacity planning strategy
It happen between 2-18 months usually.
Here the output is changed by increasing
number of machines or operating hours.
3. Short-term Capacity planning strategy
This happens over a short time. According
to the changes in demand, necessary
adjustments are made.
For example hotels or restaurants.

7. What you mean by aggregate
demand and capacity?
–A medium term capacity planning, that
calculates different services and
products together to get a broad view
of demand and capacity.
–For example hotel think about
demand and capacity in terms of
rooms per night, without thinking
about the number of guests in each
room and their requirements.

8. Objectives of planning and
control
1. Cost effectiveness – overcapacity
means high cost
2. Revenue generation - capacity equals
or higher than demand means no
revenue lost.
3. Schedule working capital – if inventory
before demand the fund is wasted.
4. Increase quality - by hiring new staff
for new demand may affect quality.

9. Objectives of planning and
control
5. Increase speed – arranging surplus
capacity so no queuing.
6. Increase dependability - the more
capacity closer to demand less
dependability for delivery.
7. Increase flexibility – volume flexibility
increased by extra capacity.

10. What are the three important
steps involved in capacity
planning and control?
1.Measure aggregate demand
and supply
2.Identify the alternative
capacity plans
3. Choose the most appropriate
capacity plan.

11. Measuring demand and
capacity
Forecasting the demand
Forecasting is important for
planning and control. Without
the forecasting or estimate of
future demand, it is impossible to
plan for the future capacity.
But the forecast or prediction
should have 3 qualities.

12. Measuring demand and
capacity
Forecasting the demand
1.Forecasting should be expressed
in terms, which are useful for
capacity planning.
For example in units such as
machine hour per year, space
required, how many hours, how
much etc.

13. Measuring demand and
capacity
Forecasting the demand
2.Should be accurate as possible
wrong forecast making planning
useless. For example recruiting
new staff after the forecast will
end up in wasting money.

14. Measuring demand and
capacity
Forecasting the demand
3.Should give the indication about the
potential or possible uncertainty.
How much difference can be expected in
actual demand? It has to be clear. For
example if the change from average
demand is predicted a mange in a
supermarket can arrange the staff for
the peak and lean period.

15. Demand seasonality and supply
seasonality
Demand seasonality means demand changes
according to various factors:
Climate
Festive
Behavioral
Political
Financial
Social
For example hotel demand changes
according to season.

16. Seasonality of supply
The inputs changes according to
different factors.
For example agricultural products supply
is decided by climate.
Measuring capacity
Can be done in two ways :
Output capacity measure – how much
from operation
Input capacity measure –how much for
operation

17. Design capacity and effective
capacity
Design capacity is the capacity of the process as it is
designed to be.
For example when you buy a motor bike the fuel efficiency
promise will be higher than that reality.
Effective capacity is the actual or useful capacity of
operation.
Why there is difference in design capacity and effective
capacity?
1.Maintenance
2.Changeover
3.Stoppings
Utilization
The ratio of actual output from a process or facility.

18. How can capacity be measured
accurately
–By reducing changeover set-ups
–Re-examining preventive
maintenance
–Allocate work in different manner
Overall equipment effectiveness
Method of judging effectiveness of
equipment.

19. The alternative capacity plans
Three methods for this:
Level capacity plan
Chase capacity demand plan
Demand management

20. Level capacity plan
–Level capacity plan – where capacity
is kept constant, the operation either
tolerating the under use of the
capacity or its inability to serve all
demand, or alternatively (if it is
capable of it) making to stock for
future periods when demand will
exceed capacity.
For example aluminum production

21. Chase demand plan
– where capacity is frequently
adjusted in an attempt to match it
to demand at any point in time. This
can be done a number of ways such
as using overtime, varying the size
of the workforce(hire&fire), using
part-time staff, or
subcontracting(Ben).
For example customer service

22. Managing demand
– where demand is influenced or
changed in order to bring it closer to
capacity at any point in time.
Discounts
Sale-offs
For example airlines.( Moon cake )

23. Managing demand
Two methods for this:
Alternative products and services - develop
alternative products. For example
universities halls used for wedding or
conferences. Greetings cards for all seasons
Yield management – methods to make sure
that an operation maximizes the potential to
generate profit
Examples : airlines and hotel by overbooking,
discount, varying service type.
In fact many organizations use some
combination of these three pure strategies.

24. Choosing a capacity planning and
control approach
We have three capacity plans and
now the task is to choose the one
that suits your organization.
Before adopting any plan an
organization must be aware of the
consequences.
So the organization must decide
what changes must be brought
into the output rate and facilities.

25. There are two methods to find
this out:
– Cumulative representation
– Queuing theory
Cumulative representation is a graphical
presentation method used in capacity
planning.
In this method demand and capacity are clearly
indicated, where operational managers can
easily find out high demand season and low,
and make necessary operation changes.
So here ability of operations to store the
finished goods as inventory is essential.

26. Queuing theory or waiting line
management
It is used in the case of service
operations and perishable goods,
because there is no chance for stocking
or inventory.
In cumulative representation the focus is
to make sure the production is above
the demand line.
Here demand is treated as it comes,
thereby queuing happens.