What is Capacity Planning?
Capacity planning is the process of determining how much capacity an organization needs to meet changing demands for its products. It allows organizations to plan ahead and anticipate customer demand.
It also involves establishing effective coordination among multiple departments within an organization. Capacity planning is especially important in reshoring, in which manufacturers attempt to change production so that it takes place in countries where labor costs are lower, while still meeting customer demand.
Capacity planning includes
Forecasting the growth of an organization’s market
determining the impact of planned changes to production capacity
honoring planned production constraints
Calculating expected available production capacity.
Capacity Planning Analysis – Capacity planning analysis may include analyzing resource requirements for:
- The capacity to meet projected demand for products, services, and information
- The ability of suppliers to meet the organization’s needs
- The ability of the transportation or communication infrastructure to move goods or data
- The ability of the organization’s offices and other facilities to handle new employees or equipment
- The ability of an education system to produce graduates with needed skills
- The ability of organizations and communities in the supply chain (such as suppliers, logistics providers) to be flexible and adaptable
Importance of Capacity Planning
Capacity planning is very important to any organization, regardless of its nature because it provides you with a way to ensure the continuity of your services. It normally is an on-going process in which people are continuously assessing whether the available resources can support the routine activities and to address certain incidents that might occur. It is very risky if you fail to plan your capacity based on the forecast of your workload.
- It plays a key role in the business continuity of every organization.
- Makes organizations more agile to support short term demand fluctuations and unexpected events
- Creates a balance between supply and demand such that all applications are available for users when they need them
- Reduces waste due to idle systems
- Lets providers avoid overprovisioning by ensuring business demands will be met through informed forecasting of future computing requirements
Strategic Capacity Planning
Strategic capacity planning involves identifying and measuring the three primary factors or dimensions of product support: raw material supply, skilled labor and spare parts like parts and tools. Strategic capacity is measured by comparing actual output with potential output.
This is done by identifying the ratio of actual production capacity to potential production capacity. A ratio of 1 means that the system can fulfill every customer requirement but where there is a shortage of one specific product type there may be constraints
Strategic capacity planning is an essential part of any organization’s performance management plans. It determines the needed amount of resources for specific operational activities and enforces them through an effective allocation policy. It also ensures that resources are placed in the most cost-effective manner feasible.
It’s a process that applies to all types of organizations, including government, public and private sectors.
The targeted objectives of strategic capacity planning will include but not limited to
- Reducing dependency on limited operating resources
- Increasing capabilities to respond rapidly to changing operational needs
- Maximizing available efficiency and effectiveness
- Maximizing resources for research and development
- Reducing potential losses due to unplanned situations
- Maximizing opportunities for cost reduction for unexpected events; while encouraging the development of innovation through innovative solutions being developed.
Types of Capacity Planning
There are three main types of Capacity planning or Capacity classification. These are the long range, medium range and short range
1. Long term Capacity
Long term capacity depends on different types of capacities in the organization. The long term planning of an organization is divided into 4 main types
1.1 Design Capacity – In the ideal working condition, how much output can be achieved from the current design of manufacturing?
1.2 Production capacity – Daily output of production plant in a define period of time – which could be daily, weekly or monthly.
1.3 Sustainable capacity – What capacity of the plant is sustainable for the long run. how much production can be achieved consistently without breaking the chain of manufacturing. This also considers availability of bottlenecks like labour and raw material.
2. Mid Term capacity
Mid term capacity is done with a view of a Six month, 1 year or 2 year window. This is most likely done based on market demand of the product and in managing reserves.
3. Short term capacity
Short term planning is done with a view of daily planning, weekly planning or quarterly planning in mind. A typical short term capacity will include seasonal products.
Goals of Capacity Planning
The goal of Capacity planning is to design the plant so that it can achieve its capacity limits in the most economical way possible. Capacity limits are important for ensuring that we are not wasting products completed and pushed out. If capacity expansion is implemented with correct forecast, then optimum performance can be achieved for all operations through the lifespan of the asset.
Factors affecting Capacity Planning
Each factor plays an important role in determining capacity planning and also affects it. Factors such as the technology used to manufacture and supply the product also have an impact on planning, and these factors can vary from facility to facility. Also, the layout of the plant, its design/location along with the manufacturing process require specific consideration. Finally, the site’s size may influence how much can be produced before requiring more storage space or power supply.