Tools for Capacity Planning

Measurement of Capacity

Capacity Planning Process

Rohan Monis

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• Capacity Planning is the study of the level of

capacity the organization provides at each

stage of the production or service delivery

system to meet its objectives.

Tools for Capacity Planning

• Capacity planning requires demand forecasts for an extended period of time.

• Forecast accuracy declines as the forecasting horizon lengthens.

• Anticipating what competitors will do increases the uncertainty of demand forecasts.

• Demand during any period of time may not be evenly distributed.

• Need for capacity cushion.

Tools that deal more formally with

Demand Uncertainty and Variability

• Waiting line models

• Simulation

• Decision trees

• Enhancing capacity through the supply chain

• Improving competitiveness by creating

complex resources

Waiting Line Models

• Useful in capacity planning such as selecting an appropriate capacity cushion for a high customer-contact process.

• Airport ticket counter, a machine center, or a central computer.

• Arrival time between jobs or customers varies, and the processing time may vary from one customer to the next.

• WLM uses probability distributions to provide estimates of average customer wait time, average length of waiting lines and utilization of the work center.

Simulation

• More complex waiting line problems must be analyzed with simulation.

• It can identify the process’s bottlenecks and appropriate capacity cushions, even for complex processes with random demand patterns and predictable surges in demand during a typical day.

• SimmQuick, Extend, Simprocess, ProModeland Witness

Decision Trees

• Decision Trees are most commonly used in capacity planning.

• They are excellent tools for helping 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 choosing those options.

• They also provide a balanced picture of the risks and rewards associated with each possible course of action

• A decision tree can be particularly valuable for evaluating different capacity expansion alternatives when demand is uncertain and sequential decisions are involved.

Enhancing capacity through the

Supply Chain

• Complex products

• Most companies are dependent on others for

crucial elements

• Companies design and make only a portion of

what makes up their products

• External linkage to the internal requirements of

the organization is the ‘Supply Chain’

Improving competitiveness by

creating complex resources

• Each firm is shaped by it’s existing resources and information, and is to that extent unique

• Opportunities occur due to the ability of the firm to create complex resources

• Factory buildings with permanent fixtures, diverse types of equipment derived from standardized ones by physical modifications that are costly to move and customized pieces of equipment derived from standardized ones by physical modifications that are costly to reverse

Measurement of Capacity

• No single capacity measure is best for all

situations

• Capacity can be expressed in one of two ways:

in terms of output measures or input measures.

Output measures of capacity

• Best utilized when applied to individual processes within the firm, or when the firm provides a relatively small number of standardized services and products.

• Many processes produce more than one service or product’s the amount of customization and variety in the product mix increases, output-based capacity measures become less useful.

Input measures of capacity

• Are generally used for low volume, flexible

processes, such as those associated with a

custom furniture maker.

• The degree to which equipment, space, or the

workforce is currently being used, and is

measured as the ratio of average output rate to

maximum capacity

• 𝑈𝑡𝑖𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑢𝑡𝑝𝑢𝑡 𝑟𝑎𝑡𝑒

𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦× 100%

Capacity Planning Process

Why

• Capacity Planning has to address the external environment of the firm.

• One needs to assess the company’s situation and think about why should the decision to alter capacity be considered.

• Management before taking a decision on capacity, needs to take the following steps:– Forecast demand for individual products within each product

line

– Calculate the array of assets required to meet product line forecasts

– Project availabilities of the existing array of assets over the planning horizon.

• The timing and sizing of expansion are related.

• Capacity Gap Analysis is essential in determining when demand will exceed capacity and by how much.

• Tactics for matching capacity to demand

– Adding people to the production process

– Increasing the motivation of the production employees

– Adjusting equipment and processes

– Redesigning the product to facilitate more throughput

– Improving the operating rate of equipment

Capacity Planning Process

When

• Types of capacity can be separated into technological or engineering question and an economy of scale or business question.

Capacity Planning Process

What Kind

• There is a cost involved in having too much capacity, versus what the cost of having too little capacity and impact on the reputation and growth in the business

• The decision about how much capacity to be added is again critical. It is complicated by the uncertainly in the estimates of future demand and technological changes.

• There can be two extreme strategies– Expansionist strategy: involves large, infrequent jumps in

capacity

– Wait-and-see Strategy: Involves smaller, more frequent incremental jumps

Capacity Planning Process

How Much

South west airlines – Case study

Capacity Planning