UCAM MBA

Supply Chain Planning, Modelling

and Analytics

Capacity Planning &

Management

Sidath Waidyasekera
MBA(PIM-USJ), PG Dip Mkt(UK), MCIM(UK), MILT(UK),
MIDPM(UK), MSLIM(SL), MIM(SL)
Chartered Marketer

Winfield Academy of Business

& Finance
1
 Capacity Management
Strategies
• Adjusting equipment and process –which might include purchasing
additional machinery or selling or leasing out existing equipment ,
• Making staffing changes (increasing or decreasing the number of
employees),
• Improving methods to increase throughput,
• Redesigning the product to facilitate more throughput (for faster
processing)
 What is capacity?
• Capacity
The maximum rate of output of a
process or a system.
What is Capacity Management?
 Measures of Capacity and
Utilization
• Out put measures,
• Input measures,
• Utilization
 Measures of Capacity
• Use Output measures when:
-Process has high volume and the firm makes a small number of
standardized products,
• Using Input Measures when :
- Product variety and process divergence is high ,
- The product or service mix is changing,
- Productivity rates are expected to change,
- Significant learning effects are expected.
 Economies and diseconomies
of Scale
• Economies of Scale
- Spreading the fixed costs,
- Reducing construction costs,
- Cutting cost of purchased materials,
- finding process advantages,
• Diseconomies of scale
- Complexity ,
- Loss of Focus,
- Inefficiencies.
Economies and Diseconomies
of scale
 Sizing Capacity Cushions
• Capacity cushions – the amount of reserve capacity a process uses to handle
sudden changes.
• Capacity cushion = 100% - average Utilization rate (%)
- Capacity cushions vary with Industry,
- Capital intensive Industries prefer cushions as small as 5 percent , while
hotel industry can live with 30 to 40% cushion,
- Textile trade prefer minimum 10% .
Capacity Timing and Sizing
Capacity Timing and Sizing
A systematic Approach to Long –
Term Capacity Decisions

1. Estimate future capacity requirements,

2. Identify gaps by comparing requirements with available
capacity,
3. Develop alternative plans for reducing the gaps,
4. Evaluate each alternative, both qualitatively and
quantitatively and make a final choice.
 Step 2 – Identify Gaps
• Identify gaps between projected
capacity requirements (M) and current
capacity,
- Communicated by multiple
operations and resource inputs.
 Step 3 and 4
• Base case is to do nothing and suffer
the consequences,
• Many different alternatives are possible,
• Qualitative concerns include strategic fit
and uncertainties,
• Quantitative concerns may include cash
flows and other quantitative measures.
Capacity Planning Process
 Tools for Capacity Planning
• Waiting – line models
- useful in high customer –contract processes,
• Simulation
-Useful when models are too complex for waiting –line
analysis,
• Decision trees
-Useful when demand is uncertain and sequential
decisions are involved
Managing Existing Capacity
 Capacity Planning
• Determining Capacity requirements is typically done according to the
following steps,

1. forecast sales within each individual product line ,

2. Calculate equipment and labour availability over the planning
horizon,
3.Project equipment and labour availability over the planning
horizon.
 Planning Service Capacity
• Time : unlike goods , service usually can not be stored for later
use and capacity must be available to provide a service when it
is needed,

• Location : in many cases ,service must be at the customer

demand point and capacity must be located near the customer,

• Volatility of demand : Much greater than in manufacturing