Capacity planning
Encyclopedia
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. The phrase is also used in business computing as a synonym for Capacity Management
A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity planning is to minimize this discrepancy. Demand for an organization's capacity varies based on changes in production output, such as increasing or decreasing the production quantity of an existing product, or producing new products. Better utilization of existing capacity can be accomplished through improvements in overall equipment effectiveness
(OEE). Capacity can be increased through introducing new techniques, equipment and materials, increasing the number of workers or machines, increasing the number of shifts, or acquiring additional production facilities.
Capacity is calculated: (number of machines or workers) × (number of shifts) × (utilization) × (efficiency).
The broad classes of capacity planning are lead strategy, lag strategy, and match strategy.
In the context of systems engineering
, capacity planning is used during system design and system performance monitoring.
Capacity planning is long-term decision that establishes a firms' overall level of resources. It extends over time horizon long enough to obtain resources. Capacity decisions affect the production lead time, customer responsiveness, operating cost and company ability to compete. Inadequate capacity planning can lead to the loss of the customer and business. Excess capacity can drain the company's resources and prevent investments into more lucrative ventures. The question of when capacity should be increased and by how much are the critical decisions.
Capacity – Available or Required?
From a scheduling perspective it is very easy to determine how much capacity (or time) will be required to manufacture a quantity of parts. Simply multiply the Standard Cycle Time by the Number of Parts and divide by the part or process OEE %.
If production is scheduled to produce 500 pieces of product A on a machine having a cycle time of 30 seconds and the OEE for the process is 85%, then the time to produce the parts would be calculated as follows:
(500 Parts X 30 Seconds) / 85% = 17647.1 seconds
The OEE index makes it easy to determine whether we have ample capacity to run the required production. In this example 4.2 hours at standard versus 4.9 hours based on the OEE index.
Repeating this process for all the parts that run through a given machine, it is possible to determine the total capacity required to run production.
Capacity Available
If you are considering new work for a piece of equipment or machinery, knowing how much capacity is available to run the work will eventually become part of the overall process. Typically, an annual forecast is used to determine how many hours per year are required. It is also possible that seasonal influences exist within your machine requirements, so perhaps a quarterly or even monthly capacity report is required.
To calculate the total capacity available, we can use the formula from our earlier example and simply adjust or change the volume accordingly based on the period being considered. The available capacity is difference between the required capacity and planned operating capacity.
CAPACITY DETETEMINATION CAS 2
Capacity utilization
Capacity utilization is a concept in economics and managerial accounting which refers to the extent to which an enterprise or a nation actually uses its installed productive capacity...
needed by an organization to meet changing demands
Demand curve
In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price. It is a graphic representation of a demand schedule...
for its products
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
. 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. The phrase is also used in business computing as a synonym for Capacity Management
Capacity management
Capacity Management is a process used to manage information technology . Its primary goal is to ensure that IT capacity meets current and future business requirements in a cost-effective manner. One common interpretation of Capacity Management is described in the ITIL framework...
A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity planning is to minimize this discrepancy. Demand for an organization's capacity varies based on changes in production output, such as increasing or decreasing the production quantity of an existing product, or producing new products. Better utilization of existing capacity can be accomplished through improvements in overall equipment effectiveness
Overall equipment effectiveness
Overall equipment effectiveness is a hierarchy of metrics which evaluates and indicates how effectively a manufacturing operation is utilized. The results are stated in a generic form which allows comparison between manufacturing units in differing industries...
(OEE). Capacity can be increased through introducing new techniques, equipment and materials, increasing the number of workers or machines, increasing the number of shifts, or acquiring additional production facilities.
Capacity is calculated: (number of machines or workers) × (number of shifts) × (utilization) × (efficiency).
The broad classes of capacity planning are lead strategy, lag strategy, and match strategy.
- Lead strategy is adding capacity in anticipation of an increase in demand. Lead strategy is an aggressive strategy with the goal of luring customers away from the company's competitors. The possible disadvantage to this strategy is that it often results in excess inventory, which is costly and often wasteful.
- Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond due to increase in demand (North Carolina State University, 2006). This is a more conservative strategy. It decreases the risk of waste, but it may result in the loss of possible customers.
- Match strategy is adding capacity in small amounts in response to changing demand in the market. This is a more moderate strategy.
In the context of systems engineering
Systems engineering
Systems engineering is an interdisciplinary field of engineering that focuses on how complex engineering projects should be designed and managed over the life cycle of the project. Issues such as logistics, the coordination of different teams, and automatic control of machinery become more...
, capacity planning is used during system design and system performance monitoring.
Capacity planning is long-term decision that establishes a firms' overall level of resources. It extends over time horizon long enough to obtain resources. Capacity decisions affect the production lead time, customer responsiveness, operating cost and company ability to compete. Inadequate capacity planning can lead to the loss of the customer and business. Excess capacity can drain the company's resources and prevent investments into more lucrative ventures. The question of when capacity should be increased and by how much are the critical decisions.
Capacity – Available or Required?
From a scheduling perspective it is very easy to determine how much capacity (or time) will be required to manufacture a quantity of parts. Simply multiply the Standard Cycle Time by the Number of Parts and divide by the part or process OEE %.
If production is scheduled to produce 500 pieces of product A on a machine having a cycle time of 30 seconds and the OEE for the process is 85%, then the time to produce the parts would be calculated as follows:
(500 Parts X 30 Seconds) / 85% = 17647.1 seconds
The OEE index makes it easy to determine whether we have ample capacity to run the required production. In this example 4.2 hours at standard versus 4.9 hours based on the OEE index.
Repeating this process for all the parts that run through a given machine, it is possible to determine the total capacity required to run production.
Capacity Available
If you are considering new work for a piece of equipment or machinery, knowing how much capacity is available to run the work will eventually become part of the overall process. Typically, an annual forecast is used to determine how many hours per year are required. It is also possible that seasonal influences exist within your machine requirements, so perhaps a quarterly or even monthly capacity report is required.
To calculate the total capacity available, we can use the formula from our earlier example and simply adjust or change the volume accordingly based on the period being considered. The available capacity is difference between the required capacity and planned operating capacity.
CAPACITY DETETEMINATION CAS 2
See also
- Manufacturing resource planningManufacturing resource planningManufacturing resource planning is defined by APICS as a method for the effective planning of all resources of a manufacturing company...
(MRP II) - Enterprise resource planningEnterprise resource planningEnterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...
(ERP) - Overall Equipment EffectivenessOverall equipment effectivenessOverall equipment effectiveness is a hierarchy of metrics which evaluates and indicates how effectively a manufacturing operation is utilized. The results are stated in a generic form which allows comparison between manufacturing units in differing industries...
(OEE)