What Is Capacity Planning

The objective of strategic capacity planning is to provide an approach for determining the overall capacity level of labor-intensive resources.

The Project/ Construction manager is also responsible for a capability and capacity assessment, in which the project manager assesses the levels of resource capabilities and capacities needed to accomplish the project defined by the Project Requirements Definition. Capability is a measure of a resource’s skill levels, experience, and ability to perform. Capacity is a measure of the quantity of the resources. The project manager may need to consult with peers or consultants who have prior experience with similar projects to accurately determine the necessary resources. After the capability and capacity assessment is completed another key

In an article published on the Harvard Business Review website we see that “a factory needs to be flexible and respond to customer orders quickly” (Upton 1995). As the global market for products is growing factories need to be able to keep up with the demand of products in many more countries than they had in years past. Managers have to make decisions on whether or not to expand a factory or build a new factory and the decision between the two have large differences in cost. Forecasting can help managers decide if they should expand or not expand. Capacity does not need to be crowded because that can lead to decrease in quality of products and can cause underproduction. Capacity decisions are one of the toughest decisions manager have to

A long-term financial plan begins with strategy. Typically, the senior management team conducts an analysis of the markets in which the firm competes. Managers try to identify ways to protect and increase the firm’s competitive advantage in those markets. For example, the first priority of a firm that competes by achieving the lowest production cost in an industry might be to determine whether it should make additional investments in manufacturing facilities to achieve even greater production efficiencies. Of course, being the low-cost producer is difficult if the firm’s fixed assets are chronically underutilized. This type of firm therefore will spend a

“The business environment has never been more challenging than it is right now. The foundation that is required to react to dynamic changes in supply and demand is based on understanding your supply chain’s capacities.” By planning out in advance with capacity planning, Riordan

Capacity is the maximum amount capable of producing. Another why to expand the capacity is to consider outsourcing. Outsourcing would come into play when they cannot set up the equipment and they need to produce product to satisfy an order. Some things to consider are the cost of making the product, such as labor, raw materials, and overhead.

3. How does demand variability impact capacity issues at LAA? What can the company do to control variability in demand?

To determine how much capacity we needed to add to the production process, we took the standard deviation in demand over the first 50 days (Exhibit 1). This allowed us to do a Newsvendor style calculation, at a two sigma confidence level, where we determined our production process should be set up to be able to successfully cater to an average demand of at least 19.24 . Even though this is actually the maximum expected figure we expect for demand (within a 95% confidence level), we felt that the system should be able to run without ever hitting utilization, and therefore should be able to handle its max demand load as if it were an average amount.

In order to achieve excellent production capacity and reducing the overall costs the production manager has to find an optimal structure of aggregate planning which will help achieving qualitative and quantitative aspects of the organization.

There are constraints on capacity management and these are normally Time and Capacity. Time may be a constraint where a customer has a particular required delivery date. In this situation, capacity managers often "plan backwards". In other words, they allocate the final stage (operation) of the production tasks to the period where delivery is required; the penultimate task one period earlier and so on. This process helps identify whether there is sufficient time to meet the production demands and whether capacity needs to be increased, albeit temporarily.

Capacity planning is a necessary function of an organization to ensure that the highest rate of output is reached through the current processes taking place within an organization. These strategically defined processes must have the ability to provide flexibility to meet future capacity demand, whether due to opportunity growth or adjustments to make decreases to maximize profits. “Capacity decisions related to a process need to be made in light of the role the process plays within the organization and the supply chain as a whole, because changing the capacity of a

The SMT organization allocates internal resources before committing to external business practices. It looks at the costs and

period (based on operating schedules and budgets) in terms of materials used, labor cost, and overhead cost, and then determining how much of this production, if any, was used to build up

The need calculation is used to plan capacity requirements at the suppliers. In the general agreements between IKEA and its suppliers, IKEA often commits to provide a certain volume to a supplier. This is to make the supplier willing to invest in plants and equipment to produce the desired products. Furthermore, the supplier communicates a capacity limit to IKEA up to

Storage and transport products are a costly activity (Slack & Lewis, 2011). 7EJ SC challenge was to design a transport strategy that allows daily products transportation at minimum cost from storages centers to franchise stores. The integrated IT solutions gave the data needed for forecasting demand. To fulfill 7EJ SC strategy each store center was geographically located based on customers demand data (Sethi, Yan & Zhan, 2005). This strategy may generate over or sub capacity problems when products demand follows unpredictable or changing patters (Chopra & Meindl, 2007). But proper data sharing with customers and suppliers increases proactive planning activities and generates positive outcomes following coordination theories for solving