Introduction of Capacity Planning

• Capacity planning is the process of determining the

production capacity needed by an organization to
meet changing demand for its products.
• Design of the production system involves planning for
the inputs, conversion process and outputs of the
production operation. The objectives of capacity
management 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.
• Capacity is the rate of productive capacity 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 affects the scheduling system.
➢ Capacity affects the cost efficiency of operations.
➢ Capacity creation requires an investment.
 Measurement of capacity

• The capacity of manufacturing homogeneous tangible

product units can be expressed in number of units of
output per period.
Example: Steel plant capacity: Million of tones per
annum
Textile factory: Meters of cloth per day
• But It is difficult to express capacities when the company
manufactures multiple product and some of the product
required common facilities and others specialized
facilities. In this situation capacity is not expressed as
output per period of time but usually expressed as man-
hours, machine-hours or sometimes in terms of
applicable source.

Example: Job shop: machine-hours and/or man-hours.

Hospitals: bed per month
 Measurement of
Capacity
1. Design capacity: Designed capacity of a facility is the planned
or engineered rate of output of goods or services under
normal or full-scale operation condition.
For example: the design capacity of cement plant is 150
tones per day.
The design capacity of sugar plant is 15tones of sugar
crushing per day.

2. System capacity: System capacity is maximum output of

specific product or product mix that the system of workers and
machines capable of producing as an integrated whole. System
capacity is less than design capacity because of limitation of
product mix, quality specification, breakdown of equipment,
inefficiency of labour, long range uncontrollable factors.
The efficiency is expressed as ratio of actual measured
output to the system capacity:
System efficiency (SE)= Actual Output/ System capacity
3. Installed capacity: the capacity provided at the
time of installation of the plant is called installed
capacity.

4. Rated capacity: Capacity based on the highest

production rate established by actual trails is referred
to as rated capacity.
 Load and Capacity:

• Load = Contract Size X Work Content (Total SMV

of the Garment)
Load – How
Contract size = Order Qty
much work we Work Content = Total SMV of a garment
are putting on
a section. • Capacity = Actual Minutes = No. of m/cs
operators X working minutes x efficiency x
Capacity – presents %
How much
work a section For Example:
Operators = 24
is capable of Working minutes = 8 hrs
Efficiency = 69.78%
completing. Absenteeism = 5%
SMV = 20.1
Contract Size = 5000 pcs
 Load and Capacity:

• Load = Contract Size X Work Content (Total SMV of the

Garment)
Load – How
much work we Contract size = Order Qty
Work Content = Total SMV of a garment
are putting on
a section. • Capacity = Actual Minutes = No. of m/cs operators X
working minutes x efficiency x presents %
Capacity –
For Example:
How much Operators = 24
work a section Working minutes
Efficiency
= 8 hrs
= 69.78%
is capable of Absenteeism
SMV
= 5%
= 20.1
completing. Contract Size = 5000 pcs

So, Load = 5000×20.1 =100500.00

Capacity = 24 x (8×60)x.6978 x .95 =7636.7232
Calculation of Factory Capacity (in hours) in
Apparel Industry

• Check how many machines factory has and how many hours
factory runs in a day.
For example, suppose,
Total number of machines = 200,
Shift hours per day = 10 hours

So total factory capacity (in hours) = 200*10 hours = 2000 hours

Calculation of Production Capacity (in pieces) in
Apparel Industry

• Production capacity (in pieces) = (Capacity in hours*60/product SAM)*line

efficiency

• For Example:
Suppose a factory has eight sewing lines, and each line has 25 machines. Total 200
machines and the working shift is 10 hours per day. The total daily factory capacity is
2000 hours (200 machines * 10 hours). Suppose the factory produces only one style
(Shirt) of SAM for 25 minutes and uses all 200 machines daily production capacity at
50% line efficiency. Now calculate the production capacity.

= (2000*60/25) × 50% Pieces

= (2000*60*50) / (25*100) Pieces
= 2400 Pieces
 Production Capacity and Types

-Total hours available

under normal -Maximum capacity
Maximum Capacity: Potential Capacity:
conditions in a given adjusted for efficiency.
period of time.

-Total hours previously -Difference between

allocated for potential capacity and
Committed Capacity: Available Capacity:
production during a committed capacity for
certain time period. a certain time period.

-SMV necessary to
-Difference between
produce a specified
Required Capacity: Excess Capacity: potential capacity and
volume in a certain
required capacity.
time period.
Lets say Urmi garments has 20 operators
who work 8 hours a day. The plant has 90%
efficiency level. Working shift is 8 hours a
day in which 1 hour is mainly for lunch and
tea time break. Find out potential capacity
for next 10 days?

Ans:
20 m/cs *7 hrs/day=140hrs/day*90%
efficiency=126 potential production
hrs/day
Potential capacity for 10 days=10 days*126
hrs=1260 hrs potential capacity.
• Let a factory has a potential capacity of 1260 hours, and a sale brings
in an order for 10000 units of style "ax" that needs to be delivered in
10 days. The plant already has a committed capacity of 600 hours for
ten days. It established that the style "ax" has a production time of 5
SAM. Calculate the required capacity and available capacity in the
plant currently?
So their required capacity for 10000 units will be:
• 5 SAM /unit x 10000 units = 50,000 SAM or 833 SAH to complete the
order.
• Capacity required = 833 hours.

Ans: Available capacity= potential capacity — committed capacity

Available capacity = 1260 hours — 600 hours = 660 hours available
Let's say Urmi garments company has ten operators who work 8
hours a day. The plant has a 90% efficiency level. A customer
brings in an order for 6000 units of style "a" that needs to be
delivered in 10 days. The plant already has a committed capacity of
300 hours for ten days. The working shift is 8 hours a day, in which
1 hour is mainly for lunch and tea break. It was established that
style" a" has a production time of 5 SAM.

What factors should be considered in deciding whether to accept

the
order or refuse?
Let's say Urmi garments company has ten operators who work 8
hours a day. The plant has a 90% efficiency level. A customer
brings in an order for 6000 units of style "a" that needs to be
delivered in 10 days. The plant already has a committed capacity of
300 hours for ten days. The working shift is 8 hours a day, in which
1 hour is mainly for lunch and tea break. It was established that
style" a" has a production time of 5 SAM; the order of 6000 units
requires 30,000 SAM (500 hours).

What factors should be considered in deciding whether to accept

the
order or refuse?
What is the potential capacity of Urmi garments company for the 10 working days?

Ans: 10 machines*7 hours /day = 70 hours/day x 90% efficiency = 63 potential production hours /day

Potential capacity for 10days = 10 days x 63 hours = 630 hours potential capacity

What is required capacity for the 6000 unit order?

Ans: 5 SAM /unit x 6000 units = 30,000 SAM or 500 SAH to complete the order. Capacity
Required = 500 hours

What is available capacity in the plant currently?

Ans: Available capacity = potential capacity -committed capacity

Available capacity = 630 hours — 300 hours = 330 hours available

Is available capacity adequate to accept the order?

Ans: 330 hours of available capacity — 500 hours of required capacity = -170 hours
Capacity is not sufficient to accept order.
 Steps in the Capacity Planning Process

1. Estimate future capacity requirements.

2. Evaluate existing capacity and facilities and identify gaps.
3. Identify alternatives for meeting requirements.
4. Conduct financial analyses of each alternative.
5. Assess key qualitative issues for each alternative.
6. Select the alternative to pursue that will be best in the long term.
7. Implement the selected alternative.
8. Monitor results.
 1. Forecasting demand: Demand forecasting is
going to influence the capacity plan in significant
way. As it is very difficult to forecast the demand
with accuracy s it changes significantly with the
product life-cycle stage, number of product.
Factors
influencing
effective 2. Plant and labour efficiency: It is difficult to
capacity attain 100 percent efficiency of plant and
equipment. The efficiency is less than 100 percent
due to breakdown, delays due to scheduling and
other reasons. The plant efficiency varies from
equipment to equipment and from organization to
organization. The labour efficiency contributes to
the overall capacity efficiency.
 3. Subcontracting: Subcontracting refers to off
loading, some of jobs to outside vendors this hiring
the capacity to meet the requirements of the
organization. A careful analysis as to whether to
make or buy should be done.

Factors 4. Multiple shift operation: multiple shift are going

influencing to enhance the firms capacity utilization. But in the
third shift the rejection rate is higher. Specially for
effective process industry where investment is very high it is
recommended to have a multiple shift.
capacity
5. Management Policy: The management policy wit
regards to subcontracting, multiple shifts, which
work station or departments to be run for third
shift, machine replacement policy, etc, are going to
affect the capacity planning.
 Factors favoring over
capacity and under capacity
The over capacity is preferred when:
✓ A fixed cost of the capacity is not very high.
✓ Subcontracting is not possible because of secrecy of
design and/or quality requirement.
✓ The time required to add capacity is long.
✓ The company cannot effort to miss the delivery, and
cannot afford the loose the customer.
✓ There is a economic capacity size below which it is
not economical to operate the plant.
 Factors favoring over
capacity and under capacity
The under capacity is preferred when:

 The time to build capacity is short.

 Shortage of products does not affect the company (
i.e. lost sale can be compensated).
 The technology changes fast, i.e. the rate of
obsolescence of plant and equipment is high.
 The cost of creating capacity is prohibitively high.
Aggregate Planning
• Aggregate planning is an intermediate term planning
decision. It is the process of planning the quantity and
timing of output over the intermediate time horizon(3
month to 18 month).
• Within this range, the physical facilities are assumed to
be fixed for the planning period. Therefore, fluctuations
in demand must be met by varying labour and inventory
schedule. Aggregate planning sees the best combination
to minimize costs.
 Master Production
Schedule
• Master scheduling follows aggregate planning. It
expresses the overall plans in terms of specific end
items or models that can be assigned priorities. It
is useful to plan for the material and capacity
requirement.