The phrase is also used in business computing as a synonym for Capacity Management. Capacity is the crucial to the long term success of an organization. Capacity has different meaning to different people at different level of management. Understanding the right way to measure the output will lead to better decision making for all the units in an organization. Each machine can process 100 customers per day. It is a productive capability or a facility. When you have reliable forecasts and an evaluation of the costs of different capacity levels, you can decide on your strategic approach.
You have to consider these factors when developing a strategy for capacity planning. If it cannot be easily overcome, go to the next step. The goal of short-term capacity. For example, if you anticipate a 20 percent increase in revenue each of the next three years, then capacity planning can let you know what you will need in terms of personnel, facilities, raw materials and product distribution to accommodate that growth. Either of two processes could be used for in-house production. Supplier capacity can bring production to a standstill.
Determine each alternative's break-even point in units. If products are similar enough, capacity is measured in common units or rates of output; when products are dissimilar, capacity is often expressed in units of resources used: machine time, labor hours, etc. Your strategic goals influence your capacity planning. Maturity phase - the size of market levels off and organization tend to have stable market shares. Need to maintain balance 4. A discrepancy between the capacity of an organization and the demands of its customers results in an inefficiency, either in under-utilized resources or unfulfilled customers. Capacity is the upper limit or ceiling on the load that an operating system can handle.
It is important to note that capacity planning has many long term concerns given the long term commitment of resources. What would the potential profit be if he were to split 4,000 cords of wood with this machine. Documenting the appropriate procedures achieved is very crucial. Your office facility needs to be able to accommodate that change or else you need to find a new facility. It is prudent to identify the right equipment of work and provide them to the employees to perform work. Strategically, capacity and financial decisions are made first, followed by decisions on location of the facility, design of the product, layout and work systems.
Finally, The two most useful functions of capacity planning are design capacity and effective capacity. Design capacity refers to the maximum designed service capacity or output rate and the effective capacity is the design capacity minus personal and other allowances. One product is involved 2. It is generally measured in volume of output per unit of time. Any organization stands in a better position if they do capacity planning. How much capacity is needed to match demand? Attempt to smooth out capacity requirements 6.
That information becomes important when developing annual budgets and the spending portions of business and marketing plans. Irregular variations in demand can prove the most troublesome, as they cannot be estimated in advance. Evaluation An evaluation of your forecasts, constraints and alternatives allows you to finalize your strategic approach and implement the most-effective capacity planning strategy for your circumstances. Transportation connects all elements of the supply chain; as such its capacity issues are key influencing service. Economies of Scale o If the output rate is less than the optimal level, increasing the output rate results in decreasing average unit costs. Your supply of products and services depends on demand from customers, on internal capacity constraints such as limits in manpower or production lines, and on external bottlenecks in the supply chain. He holds a Bachelor of Science degree from McGill University.
Impacts ability to meet future demands 2. The capacity decision involves the type of equipment or facilities to be employed in producing the product or service, how much capacity or equipment is needed, and when it is needed. You need to determine if your company will need to add more physical locations, more personnel to run those locations and how much capital you will need to raise for your expansion and growth. If there are fixed cost associated with making an item that cannot be reallocated if the service or product outsourced, that has to recognized in the analysis. How to Measure Capacity As part of planning, measuring capacity in the right way is very important. Affects ease of management 7.
If expected annual demand is 14,000 units, which alternative would yield the higher profit? The appropriate strategies may be difficult to achieve but with proper approaches, this will be possible. Long-range capacity planning requires participation and approval of top management personnel. Generally, a service must be located near customer. This concept can apply to personnel planning, facilities planning and manufacturing projections as well. Capacity is calculated: number of machines or workers × number of shifts × utilization × efficiency. Determine the total charge under each plan for this case: 150 minutes of day calls and 70 minutes of evening calls in a month.