Capacity Planning
Capacity planning is the process of determining the production capability an organization needs to meet expected demand over a planning horizon. Capacity is expressed in units of output per unit time (parts/hour, patients/day, transactions/second) and is constrained by the slowest or most heavily loaded resource—the bottleneck. Three classic capacity measures are used: • Design capacity – the theoretical maximum output under ideal conditions. • Effective capacity – the maximum output under realistic operating conditions (accounting for maintenance, setup, quality losses, and planned downtime). • Actual output – the volume actually produced. Utilization = Actual output / Design capacity Efficiency = Actual output / Effective capacity Long-range capacity decisions (new plants, major equipment) are strategic and costly to reverse; short-range decisions (overtime, extra shifts, subcontracting, inventory buffers) are tactical. Planners must also decide whether to lead demand (build capacity ahead of growth), lag demand (add capacity only after demand materializes), or track demand with frequent small increments. Because demand is uncertain, capacity plans are usually evaluated under multiple demand scenarios and include safety capacity or flexibility to absorb variability.
Knowledge Check
1.What is the difference between design capacity and effective capacity?
2.A machine is rated at 200 units per hour (design capacity). In a typical shift it produces 140 units per hour. What is its utilization?
3.If the same machine has an effective capacity of 160 units per hour and still produces 140 units per hour, what is its efficiency?
4.In a sequential process the three stations can process 40, 25 and 35 units per hour respectively. What is the process capacity?
5.Which capacity strategy builds new capacity before demand fully materializes?
6.A plant must supply an expected demand of 1 200 units per day. Management wants utilization of 80 % and expects efficiency of 90 %. Approximately how much design capacity is required?
7.Which of the following is a short-term (tactical) capacity adjustment?
8.Why is safety capacity (or capacity cushion) often maintained?
9.If actual output is 90 units, design capacity is 120 units and effective capacity is 100 units, which statement is correct?
10.What is the primary risk of a pure lag capacity strategy?