Southwest Airlines is known for its efficient capacity planning process. They carefully forecast demand and calculate the optimal fleet size to meet demand. They use simulation models to determine the ideal capacity cushion to account for variability in demand. If simulations show demand will exceed capacity, Southwest will lease additional planes on a short-term basis to avoid turning customers away. This flexible approach has allowed Southwest to consistently meet demand while maximizing efficiency.

1. Tools for Capacity Planning
Measurement of Capacity
Capacity Planning Process
Rohan Monis
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2. • Capacity Planning is the study of the level of
capacity the organization provides at each
stage of the production or service delivery
system to meet its objectives.

3. Tools for Capacity Planning
• Capacity planning requires demand forecasts for
an extended period of time.
• Forecast accuracy declines as the forecasting
horizon lengthens.
• Anticipating what competitors will do increases
the uncertainty of demand forecasts.
• Demand during any period of time may not be
evenly distributed.
• Need for capacity cushion.

4. Tools that deal more formally with
Demand Uncertainty and Variability
• Waiting line models
• Simulation
• Decision trees
• Enhancing capacity through the supply chain
• Improving competitiveness by creating
complex resources

5. Waiting Line Models
• Useful in capacity planning such as selecting an
appropriate capacity cushion for a high customer-
contact process.
• Airport ticket counter, a machine center, or a central
computer.
• Arrival time between jobs or customers varies, and the
processing time may vary from one customer to the
next.
• WLM uses probability distributions to provide
estimates of average customer wait time, average length
of waiting lines and utilization of the work center.

7. Simulation
• More complex waiting line problems must be
analyzed with simulation.
• It can identify the process’s bottlenecks and
appropriate capacity cushions, even for
complex processes with random demand
patterns and predictable surges in demand
during a typical day.
• SimmQuick, Extend, Simprocess, ProModel
and Witness

9. Decision Trees
• Decision Trees are most commonly used in capacity
planning.
• They are excellent tools for helping choose between several
courses of action.
• They provide a highly effective structure within which you
can lay out options and investigate the possible outcomes of
choosing those options.
• They also provide a balanced picture of the risks and
rewards associated with each possible course of action
• A decision tree can be particularly valuable for evaluating
different capacity expansion alternatives when demand is
uncertain and sequential decisions are involved.

11. Enhancing capacity through the
Supply Chain
• Complex products
• Most companies are dependent on others for
crucial elements
• Companies design and make only a portion of
what makes up their products
• External linkage to the internal requirements of
the organization is the ‘Supply Chain’

13. Improving competitiveness by
creating complex resources
• Each firm is shaped by it’s existing resources and
information, and is to that extent unique
• Opportunities occur due to the ability of the firm
to create complex resources
• Factory buildings with permanent fixtures,
diverse types of equipment derived from
standardized ones by physical modifications that
are costly to move and customized pieces of
equipment derived from standardized ones by
physical modifications that are costly to reverse

15. Measurement of Capacity
• No single capacity measure is best for all
situations
• Capacity can be expressed in one of two ways:
in terms of output measures or input measures.

16. Output measures of capacity
• Best utilized when applied to individual
processes within the firm, or when the firm
provides a relatively small number of
standardized services and products.
• Many processes produce more than one
service or product’s the amount of
customization and variety in the product mix
increases, output-based capacity measures
become less useful.

17. Input measures of capacity
• Are generally used for low volume, flexible
processes, such as those associated with a
custom furniture maker.

18. • The degree to which equipment, space, or the
workforce is currently being used, and is
measured as the ratio of average output rate to
maximum capacity
• 𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑢𝑡𝑝𝑢𝑡 𝑟𝑎𝑡𝑒
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦
× 100%

20. Capacity Planning Process
Why
• Capacity Planning has to address the external environment
of the firm.
• One needs to assess the company’s situation and think about
why should the decision to alter capacity be considered.
• Management before taking a decision on capacity, needs to
take the following steps:
– Forecast demand for individual products within each product
line
– Calculate the array of assets required to meet product line
forecasts
– Project availabilities of the existing array of assets over the
planning horizon.

21. • The timing and sizing of expansion are related.
• Capacity Gap Analysis is essential in determining when
demand will exceed capacity and by how much.
• Tactics for matching capacity to demand
– Adding people to the production process
– Increasing the motivation of the production employees
– Adjusting equipment and processes
– Redesigning the product to facilitate more throughput
– Improving the operating rate of equipment
Capacity Planning Process
When

22. • Types of capacity can be separated into
technological or engineering question and an
economy of scale or business question.
Capacity Planning Process
What Kind

23. • There is a cost involved in having too much capacity,
versus what the cost of having too little capacity and
impact on the reputation and growth in the business
• The decision about how much capacity to be added is
again critical. It is complicated by the uncertainly in the
estimates of future demand and technological changes.
• There can be two extreme strategies
– Expansionist strategy: involves large, infrequent jumps in
capacity
– Wait-and-see Strategy: Involves smaller, more frequent
incremental jumps
Capacity Planning Process
How Much

24. South west airlines – Case study
Capacity Planning