CAPACITY PLANNING

Capacity Planning

Capacity Planning

Introduction

Capacity Planning in strategic planning typically includes capital investment in facilities, equipment and staffing, plus the development of new products and markets. The primary capacity management task is to determine how capacity should be adjusted to support the business plan, as opposed to adjusting the plan to fit within capacity. (Minor, 1999) If we define the purpose of manufacturing strategy as linking the competencies developed internally with the competitiveness required in the market, capacity management should be a competency which is adapted to meet environmental demands and dynamics.

As capacity management's form and function varies, so too may its position in a traditional manufacturing decision making framework. This also means that there will be a long-term as well as a short term planning horizon for capacity management which may conflict with the current approach to managing capacity in manufacturing. In fact, a broad review of the literature conducted by the author, found that 'dependability' which is directly related to capacity management in the literature is one of the most commonly identified competitive priorities for manufacturing and requires both short and long term planning perspectives. (Minor, 1999) The peaks and troughs of business cycles are greatly exaggerated by decisions about when and how to change capacity. Cash shortages and debts may prevent short term capacity investment plans--companies can smooth out the pressures of business cycles and moderate its impact on returns by improving capacity management.

It may not be as obvious that capacity can also be altered in the short term. Temporary staffing, overtime, and subcontracting are ways to increase capacity in the short term. Temporary additions to the staff or overtime may be used to increase capacity in unusual situations involving, for example, large-scale vaccination programs. Subcontracting may involve sending lab specimens to an external laboratory for testing rather than using hospital facilities. In this manner, capacity is increased in the short term to provide the needed customer service, although extra cost may be involved.

Efficiency of the workforce also plays a role in determining the capacity of a system. With a fixed level of equipment/facilities and personnel, training and education may play an important role in increasing capacity through more efficient operations.

Capacity utilization is an important measure that tells us what percentage of the available capacity is actually being used. Capacity utilization should reflect conscious decisions made by management to forecast demand and provide the necessary resources.

The target or planned level of capacity utilization is a strategic decision. A hospital administrator would probably like to see a high level of capacity utilization with respect to the number of beds in the hospital. A high projected use level may be necessary to justify the purchase of a major piece of diagnostic equipment. A doctor's office may call patients a day in advance to remind them of their appointment, so that a high level of capacity utilization can be maintained. In many cases, however, the planned level of capacity utilization should allow for a buffer to handle surges in ...