Capacity planning is done to estimate the requirements of machines and manpower so as to achieve the production targets. In helps to determine capacity and adjustment of capacity matching resource availability, to cope with demand fluctuation.
With a stable demand pattern, the task of capacity planning becomes easier, while with a fluctuating demand, the task becomes complicated for obvious efforts required to the optimal utilization of available resources or new resource acquisition, as maybe case.
Excess capacity would minimize productivity; whereas, under-capacity would put strain on customer services and long-term growth and profitability of the organization. For effective capacity planning, production and operations managers need to consider factors like, machine standards, production cycle time, labour productivity, multiplicity of shifts, plant efficiency, scheduling delays, maintenance problem, power failure, absenteeism problem, other eventual manufacturing problems, like, improper design, inherent process bottlenecks, unavoidable rejection, etc.
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In addition, capacity planning decision also considers the scope of job sub-contracting, make-or-buy decision, manpower inventory, manpower planning, etc. The whole exercise ultimately helps to compute the available machine and man-hours, matching the production target.
For better comprehension, we can list the factors as under:
i. Identify Items to be manufactured for both the Present and in the Near Future:
This identification process is quite simple since the company’s order booking position clearly spells out these details. However, more dynamic production and operation manager may even keep in view the market sentiments and perspective plan documents of the organization.
ii. Determination of Standard Output Information:
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Standard output rate for each job or operation can be made available from machine literatures, which indicate the cycle time for each job unit. But this may not be always correct, as it is done based on the predetermined motion time standard.
Many organizations, which have considered machine literatures’ cycle time as the standard time for compensation planning, are now experiencing difficulties for obvious labour unrest for improper job correlation.
Therefore, standard output rate needs to be determined by evaluating the organization’s specific standard time duly carrying out the time study. Route sheet or process sheet to a great extent can supplement even efforts but may not by itself be able to speak the truth.
iii. Determining Quantity to be manufactured:
This is also another important factor for capacity planning.
iv. Labour Efficiency Rate Determination:
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This can be determined along with the standard output rate determination by carrying out time study. Selection of qualified worker (as sample) and the decision on the performance rate are some of the important issues involved in this process.
v. Plant Efficiency Factor:
Determination of plant and machine efficiency duly considering the idle time is also important for effective capacity planning. Machine idle time increases due to various reasons like scheduling delays, breakdown, preventive maintenance, production change-over (which increases set-up time), etc. Work sampling studies can make this process simple. However, the actual rate of efficiency varies from machine to machine and organization to organization.
vi. Multiplicity of Shifts:
It is also another important decision for capacity planning. However, such a decision can just not be taken without adequate economic analysis. Ideally, two-shift work is better than single or three-shift work for obvious productivity and cost constraints.
vii. Scope of Subcontracting:
Sub-contracting means job off-loading to the established vendors. Conventionally, low-technology jobs are subcontracted by the companies to reap the cost advantage. However, this decision also is taken by a careful cost-benefit analysis. Subcontracting decision to a great extent also depends on organizational policies.