Technological University of the Philippines

COLLEGE OF LIBERAL ARTS

Ayala Boulevard, Ermita, Manila

Capacity Planning of
Production Management

An Academic Paper

Presented to the

Bachelor of Arts in Management major in Industrial Management

In partial fulfillment of the course requirements in

Production Management

Presented by:

Catarungan, Joven B.

Liban, Jero Niño E.

Pinpin, Marx Amiel P.

Submitted to:

Prof. Rennie Hallare

Professor, Production Management

October 15, 2020

 Introduction
The generation framework plan arranging considers input necessities, change
handle, and yield. After considering the figure and long-term arranging
organizations should attempt capacity planning.

According to Juneja (2015), capacity is defined as the ability to achieve, store

or produce. For an organization, capacity would be the ability of a given system
to produce output within the specific time period. In operations, management
capacity is referred as an amount of the input resources available to produce
relative output over period of time. In general, terms capacity is referred as
maximum production capacity, which can be attained within a normal working
schedule.

Capacity planning is essential to be determining optimum utilization of

resource and plays an important role decision-making process, for example,
extension of existing operations, modification to product.

The ultimate goal of capacity planning is to meet the current and future level
of the requirement at a minimal wastage.

Service organizations must address the following:

• Allocating resources for specific activities.
• Pricing service contracts correctly.
• Acquiring, training, and terminating staff.
• Accurately forecasting demand to produce services.

Businesses can’t afford to guess when it comes to new services and

opportunities. Mistakes can be costly, which is one reason why capacity planning
is crucial in considering their input requirements, conversion process, and
output (Vanguard, 2019).

Further, in a business, it is considered as a practice that helps in right-sizing

the resources in the business to help meet present and future needs. This is
because the companies doing well in capacity management gain from their
operations by minimizing the need for their resources and fulfil their service
needs with the limited resources. And to ensures that the right amount of
resources is available where needed at a specific time and place and at the right
price.
 One of the examples they using capacity planning the Flower Shop Business.
Red White & Blossom accepts the opportunity to use innovation to form it
straightforward for male officials to effortlessly buy custom blossom courses of
action, with conveyance on days they decide in development, for their cherished
ones. The company plans to approach its objective short term by focusing on
rich executive businessmen in Midtown and Downtown Atlanta for an upscale,
Visit Blossom Blessing Program and, long term, to make a big appearance in the
city’s, to begin with, a flower craftsmanship exhibition in a neighborhood that's
building its title as another major expression’s community in Atlanta.

Red White & Blossom will differ from traditional florists by developing
personal connections through the utilize of innovation and promoting,
advertising a blessing program that creates ac?quiring blossoms simple (and
overlooking uncommon dates a thing of the past), and conveying extraordinary
customer service.

• Determine if hiring more employees are needed.

• Bring on seasonal workers (during the holidays).
• Increase the stock of flowers before holidays.
• How many employees are needed in shop?
• How much money needed for employees’ salary?
• How many stocks of flowers are needed?
• Determine the other resources needed in shop.

Objective:

• To discuss ways of defining of capacity planning.

• To explain the importance of capacity planning.
• To identify the problem in timely manner in customer needs.
• To provide a guidelines of effective capacity planning of management.

A. The Definitions of Capacity of planning

Capacity planning is the practice of planning/determining production

capacity and workforce needs to make sure your supply chain is equipped to
meet demand. Capacity planning lets businesses know how and when to scale,
identify bottlenecks, create better design capacity, and mitigate risk, within a
planned period of time.
 Capacity planning is the first step when an organization decided to produce
more or a new product. Once capacity is evaluated and a need for a new
expanded facility is determined, facility location and process technology activities
occur. Consolidation might involve relocation, a combining of technologies, or a
rearrangement of equipment and processes (Arish, 2010).

According to Hasanian & Aarabi (2014), capacity planning is concerned with

making sure there is some kind of balance between the demand placed on an
operation and its ability to satisfy that demand. If an operation has too much
capacity at any point in time it will be underutilizing it resources, paying out for
machinery and facilities and often paying its staff but, because demand is lower
than capacity, its costs are spread over two few customers.

Therefore, its costs per customer will be high. If it has too little capacity, its
costs will be low (because its facilities will be fully utilized) but its customer
service will be poor because it is either turning customers away or making them
wait for their products and services. This will potentially undermine the
company’s success in the future.

It helps an organization to identify and plan the actions necessary to meet

customer’s present and future demand.

B. Introducing the Three steps of Capacity Planning.

1. Determine Service Level Requirements- The first step on the capacity

planning process is to categorize the work done by systems and to quantify
users’ expectation for how the work gets down.

• Define workloads
• Determine the unit of work
• Identify service levels for each workload

2. Analyze current capacity- the current capacity of the system must be

analyzed to determine how it is meeting the needs of the users.

• Measure service levels and compare to objectives

• Measure overall resources usages.
 • Measure resource usages by workload
• Identify components of response time

3. Planning for future- using forecasts of future business activity, future

system requirements are determined. Implementing the required changes
in system configuring will ensure that sufficient capacity will be available
to maintain service level, even as circumstanced change in the future.

• Determine future processing requirements

• Plan future system configuration

In this step, the determined service level requirements, analyze current

capacity, and planning the future can help in all industry companies or
organizations on how to get the right people to minimize the time capacity of
work and to give an efficient job. And to determine the meeting needs of the
customer for their realistic future planning.

C. Discussion of the Importance of Capacity Planning and Capacity

Requirements

Importance of Capacity Planning

Managers are concerned with Capacity because:

• It Ensures availability to work on it.

• Impact the ability to meet future demands.
• Helps to identify easily any skill gap.
• Helps you to manage your skills inventory.
• Capacity influences the operating costs.
• It results in long-term commitment of funds.

The following concepts of capacity are involved in capacity planning:

a. Design Capacity: It refers to the maximum output that can possibly be

produced in a given period of time. It is the ideal situation.
 b. Effective Capacity: Refers to the maximum possible output, given the
changes in product mix, machine maintenance, scheduling and operating
problems, labor problems, etc. It is usually less than the design capacity.

c. Actual Output: It is the rate of output actually achieved. It cannot exceed

effective capacity due to machine breakdowns, labor absenteeism, irregular
supply of raw materials, unusual delay in supply of equipment, power
breakdown, etc.

The effectiveness of a production system (system effectiveness) can be

measured in two ways:

• Efficiency which is the rate of actual output to effective output, and

• Utilization which implies the rate of actual output to the design capacity.
Symbolically:

• Efficiency = Actual Output / Effective Capacity

• Utilization = Actual Output / Design Capacity

In general, the importance of capacity planning is to measure the

organization such as quality, cost, time, and flexibility of workers and to utilize/
ensure the resources because it gives a successful output to efficient and
sufficient to manage the right amount of capacity required in the organization.
But most importantly, they including planning and strategy decisions to help
to provide a sustainable advantage to them.

Capacity Requirements

Capacity requirements planning is the process by which a company

figures out how much it needs to produce, and determines if it is capable of
meeting those production goals. Small businesses must conduct capacity
requirements planning regularly to keep up with changes in supply and
demand. Depending on the industry and type of businesses, capacity
requirements planning can happen monthly, quarterly or annually.
 Businesses that experience seasonal waves, such as retail stores or pest
extermination companies, may need to re-evaluate their capacity requirements
more often than companies that have more regular revenue, such as consulting
firms or tech service providers.

Short-term Requirements

Managers often use forecast of product demand to estimate the short-term

work load the facility must handle. By looking ahead up to 12 months, managers
anticipate output requirements for different products or services. Then they
compare requirements with existing capacity and detect when capacity
adjustments are needed.

Long-term Requirements

Long term capacity requirements are more difficult to determine because

future demand and technologies are uncertain. Forecasting five or ten years into
the future is a risky and difficult task. Obviously, long-term capacity requirement
is dependent on marketing plans, product development, and the life cycles of the
products.

Changing in process technology must also be anticipated. Even if

producers remain unchanged, the methods for generating them may change
dramatically. Capacity planning must involve forecasts of technology as well as
product.

In particular, the capacity requirements determine in detail the resources

needed for production and to improve productivity through better planning and
to give a specific timeframe in overall capacity to be sufficient in a short period
or future planning. Technology can involve helping efficient output to make easy
process planning.
 D. Guidelines of Effective Capacity Planning of the Management

According to Meier (2020), Resources Management Study Guide

Effective capacity planning gives team leaders a better look at their resources'
availability and schedules. Because of that visibility, team leaders can see what
people are working on, and make quick decisions about how many tasks they
can take on without burning them out.

The level of detail is what makes capacity planning a secret weapon for
agencies. With an effective capacity planning process in place, team leaders can
take on more projects without worrying if their staff has the time to get everything
done.

This graph shows the connection of key decision of capacity planning such as
the amount of capacity, the timing of charges, need to maintain balance, and
extent of flexibility of facilities

Amount of
Capacity

KEY
Extent of
DECISION OF Timing of
flexibility of
CAPACITY changes
facilities
NEEDED

Need to
maintain
balance

Concept of Capacity Planning

Design Capacity- It means the optimum level of output that can be within a
specified period.

Effective Capacity- It means the optimum level of output, given the changes
in product mix, equipment maintenance, programming and operating issues,
labor problems, etc. It usually is less than the total design capacity.

Actual Capacity- It is the level of output that is achieved actually. It cannot

be more than the sufficient capacity because of breakdown in the machine, labor
absenteeism, the inconsistent supply of raw materials, abnormal delay in supply
of equipment, power outage, etc.
 Building an effective capacity planning process

To leverage the power of capacity planning, your agency needs to build a

process. That process is a simple set of four steps:

• Identify all projects and tasks- A detailed outline of what your agency needs
to get done, not only now but in the future, is essential.

• Pick your capacity planning strategy- Strategy is best for your agency and
your budget. Although a lag strategy is less risky, a match strategy lets
you use capacity planning to your advantage.

• Build a realistic schedule using time estimates- The outline you created in
step 1 and use it to build a realistic working schedule for your team.

• Track everything- The agency needs to monitor how projects progress to

make sure capacity doesn't exceed your ideal utilization rate. Without the
right software to help you out, you'll need to rely on manual tools like
spreadsheets

Effective capacity planning, we can start to the simple way in terms of the
employee commitment to their works to meet specific goals to having efficient
and sufficient output that will give productivity of an organization or company.

For instance, build a team collaboration within an organization can help to

gives positive results to the employees in gaining their commitment to the
organization. At the same time, they give their own needs and aspiration to
everyone.
 Conclusion/ Analysis

As a student, we gained knowledge about the capacity of planning in

applying as the future manager to minimize the resources, availability, and time
because it can help to grow our skills to make a decision in the field in terms of
team collaboration and meet the demand of the customer needs.

Management of capacity is essential within an organization’s operation

because it allocates vital resources and maximizes the production capacity of
operation. In business mistakes are expensive, having a plan that focuses on the
requirement, process and product must always be present. Capacity planning
also has a balance between satisfying demand and demand placed in operations.
Having capacity will help an organization fully utilized their product and services
for the future to come.

Capacity also has requirements to process to execute and meeting the

production goals. Different businesses execute different plans and evaluate their
capacity to gain more revenue. And as time went on Capacity planning became
involve in technology as well as its product.

Finally, an effective capacity planning must have a better look at their

resources, availability, and schedules, having vision on the work of the people
within an operation will make quick decisions and finishing tasks without
exhausting too much man power. Effective capacity planning is built by process
and having vital information about a task/project is essential, strategies in
picking a plan to have an advantage, building a realistic schedule for a job, and
lastly track all important edits of the project with the help of manual tools and
spreadsheets.

Overall capacity planning plays the role of creating space of the future and
determine in detail the resources needed for production and to improve
productivity through better planning.
References
Bridges, (2019). Capacity Planning Essentials, USA: Project Manager, Inc.
Meier, (2020). Capacity Planning: Why It's Important and How to Use It,
Australia: Resources Management Inc.
Vanguard, (2019). The Value of Capacity Planning for Service
Organizations, Centre green Way, New York City: Vanguard Software
Corporation.

Kukreja, (2015). What is capacity planning, India: Management Study Inc.

Bhasin, (2019). Capacity Planning: Meaning, Strategies, Importance and

Procedure, India: Marketing91.com

Business & Management, (2019). Capacity Management: Explanation and

its Benefits, United Kingdom: All Assignment help.

Aarabi & Hasanian, (2014). Capacity planning and control: a review, India:
International Journal of Scientific & Engineering Research, Volume 5:

Arish, (2010). Capacity Planning, India: Slideshare.net

Treadwell, (2012). Definition of Capacity Requirements Planning, USA:

Smalbusiness.chron.com