CAPACITY PLANNING

Submitted to: Submitted by:

Prof. R.K BHAMU MANISH YADAV
Roll No. 15/767
Batch – P-2
 CAPACITY PLANNING

Capacity planning –

Capacity planning is the process of determining the production capacity

needed by an organisation to meet changing demands for its products.

Capacity planning concerned with defining the long-term and short-term

capacity need of a firm and determining how these needs will be met.
 CLASSIFICATION OF CAPACITY PLANNING

• Based on time horizon

-Long term capacity planning
-short term capacity planning
 LONG TERM CAPACITY PLANNING

• long term or long range capacity planning is concerned with accommodating major changes that
affect the overall level of output in the longer run. major changes are
-decision to develop new product line
-expand existing facilities
-construct production plants
 SHORT TERM CAPACITY PLANNING

• Short term or short range capacity planning is concerned with responding to relatively
intermediate variations in demand. These kinds of fluctuations in demand caused by seasonal or
economic factors. The ways to adjusting capacity;
-Use of over time or idle time
-Increase the number of shifts
-Sub contracting to other firms
 FACTORS AFFECTING CAPACITY PLANNING

• Controllable factors
-Amount of labor employed
-Facilities installed
-Shift work per day
-Over time work
-Sub contracting
-shift worked per week
-Preventive maintenance
-Number of production set-ups
• Less controllable factors
-Absenteeism
-Labor performance
-Machine break-down
-Material shortages
-Scrap and rework
-Unexpected problems
(strike, fire accidents)
 IMPORTANCE OF CAPACITY PLANNING

• Impacts ability to meet future demands

• Affects operating costs
• Involves long-term commitment
• Affects competitiveness
• Affects ease of management
 CAPACITY
• Design Capacity
- maximum output rate or service capacity an operation, process or facility is
designed for
• Effective capacity
- Design capacity minus allowances such as personal time , maintenance , and scarp
• Actual output
- rate of output actually achieved – cannot exceed effective capacity
 EFFICIENCY AND UTILIZATION

ACTUAL OUTPUT
Efficiency = .
Effective capacity

Actual output
Utilization = .
Design capacity
 KEY DECISIONS OF CAPACITY PLANNING

• Amount of capacity needed

• Timing of changes
• Need to maintain balance
 STEPS OF CAPACITY PLANNING

• Estimate future capacity requirements

• Evaluate existing capacity
• Identify alternative
• Conduct financial analysis
• Assess key qualitative issues
• Select on alternative
• Implement alternative
• Monitors results
 ECONOMIES OF SCALE

• ECONOMIES SCALE
If the output rate is less than the optimal level, increasing output rate results in
decreasing average unit costs

• Diseconomies of scale
If the output rate is more than the optimal level, increasing output rate results in
increasing average unit costs
EVALUATING ALTERNATIVE