Capacity – the ability to hold, receive, store, or accommodate
In business, viewed as the amount of output that a system is capable of achieving over a specific period of time
Capacity management needs to consider both inputs and outputs
Capacity Planning Time Durations
Greater than one year
Monthly or quarterly plans covering the next 6 to 18 months
Less than one month
Strategic Capacity Planning
Determining the overall level of capacity-intensive resources that best supports the company’s long-range competitive strategy
Labor force size
Capital and Cash
Capacity Planning Concepts
Capacity utilization rate – a measure of how close the firm is to its best possible operating level
Economies of scale – the idea that as a plant gets larger and volume increases, the average cost per unit tends to drop
Diseconomies of scale – at some point, the plant becomes too large and average cost per unit begins to increase
Capacity Planning Concepts
Capacity focus – the idea that a production facility works best when it is concentrated on a limited set of production objectives
Focused factory or plant within a plant (PWP) concept
Capacity flexibility – the ability to rapidly increase or decrease product levels or the ability to shift rapidly from one product or service to another
Comes from the plant, processes, and workers or from strategies that use the capacity of other organizations
Flexible manufacturing systems
Simple, easily set up equipment
Ability to switch from one kind of task to another quickly
Multiple skills (cross training)
Ability to quickly adapt to change
Considerations in Changing Capacity
Maintaining System Balance
Similar capacities desired at each operation
Frequency of Capacity Additions
Cost of upgrading too frequently
Cost of upgrading too infrequently
External Sources of Capacity
Manage bottleneck operations
Frequent versus Infrequent Capacity Expansions
Determining Capacity Requirements
Use forecasting to predict sales for individual products
Calculate labor and equipment requirements to meet forecasts
Project labor and equipment availability over the planning horizon
Planning Service Capacity
Goods can be stored for later use.
Goods can be shipped to other locations.
Capacity must be available when service is needed – cannot be stored.
Service must be available at customer demand point.
Volatility of demand is relatively low.
Much higher volatility is typical.
Capacity Utilization and Service Quality
The relationship between service capacity utilization and service quality is critical.
Utilization is measured by the portion of time servers are busy.
Optimal levels of utilization are context specific.
Low rates are appropriate when the degree of uncertainty (in demand) is high and/or the stakes are high (e.g., emergency rooms, fire departments).
Higher rates are possible for predictable services or those without extensive customer contact (e.g., commuter trains, postal sorting).
Rate of service utilization and service quality are directly linked.
Arrivals exceed services – many customers are never served
Sufficient capacity to provide quality service
Service quality declines – disruptions or high arrival levels lead to long wait times
A capacity cushion is planned excess capacity
Calculated as the difference between the Best Operating Level and the Capacity Used.
Expressed as a percent. The difference between Capacity Utilization Percent and 100%.
The less cushion, the less flexible the response to changing demand.
The more cushion, the more flexible – BUT creates higher costs.
Large cushions are necessary for dynamic market demand.
Key operations consideration is how to expand and contract capacity as needed.