Chapter-5

Capacity Planning

Capacity planning
The capacity of a facility is defined as the
maximum load that can be handled by it during a
given period. The load means, the amount of
inputs or out put.
Importance of Capacity Planning

A. Importance of Capacity Planning
Basic questions in capacity planning
What kind of capacity is needed?
How much is needed?
When is it needed?
capacity planning relates to their potential impact
on the ability of the organization to meet future
demands for products and services
It shows relationship between capacity and
operating costs
Need for Capacity planning
To satisfy the future demand of products without
any shortage.
To find optimal capacity of the facility.
To keep the initial investment in the facility as low
as possible.
Investments in facility capacity are long- term and
cant be reversed easily.
In selecting a measure of capacity, it is important to choose
one that does not require updating.
Where only one product or service is involved, the
capacity of the productive unit may be expressed in terms
of that item relationship between capacity and operating
costs
When multiple products or services are involved,
capacity is stated in terms of each product or to use a
measure of capacity that refers to availability of inputs
Measures of Capacity
Measures of Capacity
Business Inputs Outputs
Auto manufacturing Labor hours, machine hours Number of cars per shift
Steel mill Furnace size Tons of steel per day
Oil refinery Refinery size Gallons of fuel per day
Farming
Number of acres, number of
cows
Bushels of grain per acre per
year, gallons of milk per day
Restaurant
Number of tables, seating
capacity
Number of meals served per
day
Theater Number of seats
Number of tickets sold per
performance
Retail sales Square feet of floor space Revenue generated per day
Defining and Measuring Capacity

Definitions of Capacity
Design capacity the maximum output that can possibly be
attained
Effective capacity the maximum possible output given a
product mix, scheduling difficulties, machine maintenance,
quality factors, and so on.
Actual output the rate of output actually achieved
Measures of System Effectiveness
Efficiency the ratio of actual output to effective capacity
Utilization the ratio of actual output to design capacity



Calculating Capacity Utilization
Measures how much of the available capacity is
actually being used:



Measures effectiveness
Use either effective or design capacity in
denominator

100%
capacity
rate output actual
n Utilizatio
(100%)
capacity effective
output actual
n Utilizatio effective
(100%)
capacity design
output actual
n Utilizatio design
Calculating Capacity Utilization
Example of Computing Capacity Utilization: In the bakery example the
design capacity is 30 custom cakes per day. Currently the bakery is
producing 28 cakes per day. What is the bakerys capacity utilization
relative to both design a effective capacity?
93% (100%)
30
28
(100%)
capacity design
output actual
n Utilizatio
140% (100%)
20
28
(100%)
capacity effective
output actual
n Utilizatio
design
effective


The current utilization is only slightly below its design capacity
and considerably above its effective capacity
The bakery can only operate at this level for a short period of
time
Example-2
Given the information below, compute the efficiency and the utilization of
the vehicle repair department:













Design Capacity = 50 trucks per day
Effective Capacity = 40 trucks per day
Actual Output = 36 units per day
Efficiency =
Actual Output
Effective Capacity
=
36 per units per day
40 units per day
=
90%
Utilization =
Actual Output
Design Capacity
=
36 per units per day
50 units per day
=
72%