capacity planning framework

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Capacity Planning

Group members::: Ankita Aggarwal(124 Naveen(135) Nitesh(139) Prabhat(140) Vashika Rastogi(180

What is capacity planning?Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time. ExampleIf a machine can run 200hrs in a month & 2000 washers per hour are made, then the capacity of machine can be expressed 4lakhs washers per month.

Classical formulaC=T*E*U where, C = actual measured capacity (in standard hours) T = real time available E = efficiency U = utilisation

Need of capacity planning

To keep low production cost To minimize loadings To meet expected demand Optimum utilization of resources To manage change in production To avoid loss of productivity

Measurement of capacity

Capacity can be measured in terms of output or input of the conversion process.

Examples: Organization of capacity Automobile industry vehicle Steel mill Tonnes of steel

Measures No. of

Factors that Influence Effective CapacityFACILITIES Design Location Layout Environment PRODUCT / SERVICES Design Product or service MIX PROCESS Quantity capabilities Quality capabilities HUMAN FACTORS Job Content Job Design Training and Experience Motivation Compensation Learning Curve Absenteeism & labor turnover POLICY OPERATIONAL Scheduling Materials Management Quality assurance Maintenance policies Equipment breakdowns SUPPLY CHAINS EXTERNAL FACTORS Product standards Safety regulations Unions Pollution control standards

Capacity time horizon Long-range capacity planning- strategic Time horizon of 3 to 10 years Physical plant expansion Plant level

Medium-range capacity planning- tactical

here Only critical resources are considered Short-range capacity planning- operational Time horizon of 0 to 6 months/material planning fits here Detailed, at the work center level

Time horizon of 6 months to 3 years Aggregate production planning fits


In the long range, how much to increase capacity depends on:

1) the volume and certainty of anticipated demand, 2) the strategic objectives in terms of growth, customer service, and competition, and 3) the costs of expansion and operation.

Capacity planning framework

Step 1 Estimating Total Requirement Two major sources Labour Machines

Capacity calculations are done on the

basis of man hour & machine hour requirements per unit of product manufactured

Estimating Labour & machine requirements Labour requirement depends on two

factors Amount of standard labour hours

required per unit of the product Efficiency of Labour

Capacity requirements ( labour) = D*SLEL

Contd.. Here , Projected demand per unit time during the planning horizon = D

Standard labourhours required per unit of the product = SL

Efficiency of labour = EL

Computation of machine requirement

Capacity requirements ( Machine) = D*SMEM Here , Projected demand per unit time during the planning horizon = D

Standard machine hours required per unit of the product = SM

Efficiency of Machine = EM


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Step 2 computing capacity availablity Function of two parameters: System availability

f( no.of working days & the no. of hours per day) Resource availability F( maintenance schedules & break down behaviour in case of machines and Absenteeism in the case of labour)

Contd.. Capacity available in the system can

be computed byqSystem availability: No. of working days in the planning horizon: Nd No. of working hours per day: h System availability( hours) = Nd * h

Contd.. Resource availability: No. of machines available : Nm Machine: Time lost in breakdown & maintenance = b% Labour: Absenteeism of the workers = a % No. of workers available: NL

Capacity available in the system

( Hours): Machine: Nd * h * NM * (1-b/100)


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Types of Capacity Planning1. 2. 3. 4. 5. 6. 7. 8. 9.

Fixed capacity Adjustable capacity Immediate capacity Potential capacity Design capacity Operating capacity System capacity Rated capacity Utilised capacity

1.FIXED CAPACITY- The capital assets the company will have at a particular time . For e.g..- building, equipments etc. et

2.ADJUSTABLE CAPACITY-The size of the workforce, the number of hours per week they work, the number of shifts & extent of sub-


planned rate of output of goods or services under normal or full scale operating conditions. 4)SYSTEM CAPACITY-The maximum output of a specific product or product- mix that the system of workers & machines is capable of producing .

5. POTENTIAL CAPACITY The capacity that can be made available to influence the planning of senior management e.g. in helping them to make decisions about overall business growth, investment etc. This is essentially a long-term decision that does not influence day-to-day production management.

6. IMMEDIATE CAPACITY The amount of production capacity that can be made available in the short-term. This is the maximum potential capacity - assuming that it is


OPERATING CAPACITY Not all productive capacity is actually used or usable. It is important for production managers to understand what capacity is actually achievable. Effective capacity is the capacity which is used with the current budgeted period.


This is the estimated quantity of output or production that should be usually achieved as per estimation done by industrial engineering department. This is the actual output achieved during a particular time period. The actual output may be less than the rated output because of short range factors.


Definition of decision tree: A decision tree is a schematic

model in which different sequences and steps involved in a problem and the consequences of the decisions are systematically portrayed. or helping you to choose between several courses of action. They provide a highly effective structure within which you can lay out options and investigate the possible outcomes of

Decision trees are tools for

Drawing a decision tree:1.Draw a small square to represent decision point. 2.Write the solutions along the line/branches. 3.Draw a small circle to represent the outcome. 4.Draw another square if the outcome is another decision.

Decision Trees and Capacity DecisionModerate revenuety aci cap n ew Add expand Go f or sub c on tra cti ng

RS 4,00,000/year RS 8,50,000/year RS 2,00,000/year RS 4,50,000/year RS 1,80,000/year


High revenue

Moderate revenue



High revenue

Moderate revenue



RS 8,50,000/yr (revenue) Rs 3,50,000/yr Continue with sub (revenue) contracting

Add new capacity

Queuing FormulasSingle Server Model with Poisson Arrival and Service Rates: M/M/1 1. 2. 3. 4. 5. 6. Mean arrival rate: Mean service rate: Mean number in service: Probability of exactly =n customers in the system: = n (1 Probability of k or more customers in thePnsystem: ) Mean number of customers in the system: P(n k ) = k

7. Mean number of customers in queue: Ls = 8. Mean time in system: Lq = 1 9. Mean time in queue: Ws =

Wq =

WAITING LINE MODELS This models make use of queueing

theory fundamentals to analyse the impact of alternative capacity choices of important operational measures in operating systems such as queue length , waiting time and utilisation of resources.

Conclusion Planning should take into account not only facility production and distribution costs, but also lost sales. Capacity should be effectively planned by devising various methods of augmenting it. The optimal capacity of the facility is that at which sum of costs of under capacity and over capacity is minimum. The primary purpose of capacity planning is to match the company s production capability with


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