Design of the production system involves planning for the inputs, conversion process and outputs of production operation. The effective management of capacity is the most important responsibility of production management. The objective of capacity management (i.e., planning and control of capacity) is to match the level of operations to the level of demand.
Capacity planning is to be carried out keeping in mind future growth and expansion plans, market trends, sales forecasting, etc. It is a simple task to plan the capacity in case of stable demand. But in practice the demand will be seldom stable. The fluctuation of demand creates problems regarding the procurement of resources to meet the customer demand. Capacity decisions are strategic in nature. Capacity is the rate of productive capability of a facility. Capacity is usually expressed as volume of output per period of time.
Production managers are more concerned about the capacity for the following reasons:
Sufficient capacity is required to meet the customers demand in time.
Capacity planning is the first step when an organization decides to produce more or new products.
Measurement of Capacity Planning
The capacity of the manufacturing unit can be expressed in number of units of output per period. In some situations measuring capacity is more complicated when they manufacture multiple products. In such situations, the capacity is expressed as man-hours or machine hours. The relationship between capacity and output.
Capacity and output relationship
The system capacity is less than design capacity because of long range uncontrollable factors. The actual output is still reduced because of short-term effects such as, breakdown of equipment, inefficiency of labor. The system efficiency is expressed as ratio of actual measured output to the system capacity.
Process of Capacity Planning
Capacity planning is concerned with defining the long-term and the short-term capacity needs of an organization and determining how those needs will be satisfied. Capacity planning decisions are taken based upon the consumer demand and this is merged with the human, material and financial resources of the organization.
Capacity requirements can be evaluated from two perspectives long-term capacity strategies and short-term capacity strategies.
For short-term periods of up to one year, fundamental capacity is fixed. Major facilities will not be changed. Many short-term adjustments for increasing or decreasing capacity are possible. The adjustments to be required depend upon the conversion process like whether it is capital intensive or labor intensive or whether product can be stored as inventory.
Capital intensive processes depend on physical facilities, plant and equipment. Short-term capacity can be modified by operating these facilities more or less intensively than normal. In labor intensive processes short-term capacity can be changed by laying off or hiring people or by giving overtime to workers. The strategies for changing capacity also depend upon how long the product can be stored as inventory.
The short-term capacity strategies are:
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