Planning for capacity can be challenging in many aspects of life, often requiring adjustments as circumstances change. However, in business, capacity planning can provide a closer estimate for future needs such as product ordering or workforce requirements. It is an effective tool for managing uncertainty in business operations.
Intro to Capacity Planning: Definition and Meaning
The capacity planning process involves determining the necessary production capacity to meet changing demand for products. It involves assessing the design capacity, which is the maximum capacity of an organization to accomplish work over a specific time period.
The process helps organizations balance available resources to meet customer demand and project capacity needs. It is an essential aspect of project management and production, as it helps organizations to measure the amount of work that can be completed within a given time frame.
The capacity planning process is crucial in project management knowledge areas such as:
- Resource management
- Time management
- Team management
- Work Management
Production capacity, strategy planning, and project planning are closely interconnected. Planning involves scheduling team members to ensure that work is completed on time.
Capacity management is not a one-size-fits-all approach as every company is unique and demand changes. Project managers can use various capacity planning methodologies to adapt to different situations.
Capacity Planning Objectives
A decision taken by an operations management in a planning capacity will have a different effect on performance. According to Pycraft (2000), these influences include costs, income, working Capital, quality, and speed in responding to consumer needs.
1. Cost Aspect
The balance between capacity and demand (output level) affects the cost aspect. The story of a capacity exceeding demand means that there is under-utilization of power or the degree’s utility level needs to be higher.
This will result in high per-unit costs; revenue is also affected by the balance of capacity with demand, but the opposite of the cost aspect previously mentioned.
If the capacity level is equal to or higher than demand, all requests are met, and no revenue is lost.
2. Working Capital
Working Capital will be affected if there is an operating decision to produce finished goods inventory. Demand will be fulfilled, but the company must incur inventory costs until the product is sold.
3. Product or Service Quality
Capacity Planning decisions will affect the quality of the products, especially if Capacity Planning involves significant changes.
Those significant changes can include capacity levels, like the temporary recruitment of new employees. Highlighting the new staff or workforce can increase the error rate in the operation process.
4. Speed of Responding to Consumer Needs
The speed of responding to consumer needs is also affected, such as implementing inventory policies will result in satisfaction for consumers because consumers can quickly enjoy products that come from inventory without having to wait for the production of these goods.
Capacity Planning Dimension
The following is an explanation of capacity planning in general, which is viewed in three-time dimensions according to Brown.
1. Long-term (long-term) planning
This Planning takes more than 1 year. Productive resources (such as buildings, equipment or facilities) take a long time to acquire or dispose of.
Long-term capacity planning requires the participation of top management because the decisions taken regarding the function of adding facilities and equipment have an extended lead time.
2. Medium-Term Planning (Medium-Term)
Inventory policies can improve customer satisfaction by allowing for quick access to products, eliminating the wait for production.
3. Short-Term Planning
This Planning takes less than 1 month. This is tied to scheduling tasks and employees on a daily or weekly basis or allocating machines and requires adjustments to eliminate differences between actual and planned output.
Capacity Planning Strategies
Capacity planning strategy in three types, namely as follows.
1. Capacity lead strategy
An aggressive capacity-building strategy intended to anticipate future demand growth.
2. Capacity lag strategy
In a conservative capacity-building strategy, capacity building is carried out after an increase in the market. This strategy intends to maximize the economic benefits of investment but can harm customer service.
3. Average capacity strategy
The average capacity strategy is a capacity development strategy aligned with the average increase in estimated demand.
There are two strategies that companies can take. First, the watch-and-wait strategy is cautious because production capacity will increase if consumer demand increases.
Second, the expansionist strategy means exceeding production above demands. Plenty of products in the market will cause opportunities for competitors to enter and guarantee the best services.
Capacity Planning Types
Capacity planning itself can be split into three types: workforce, product, and tool. Together they ensure that you have the right amount of three main resources for the short- and long-term.
1. Workforce Capacity Planning
Capacity planning helps to ensure that the workforce is sufficient to meet demand. It involves having the appropriate number of employees and work hours to not only complete tasks, but to do them well.
With this strategy, you will be able to plan in advance for hiring more workers or downsizing, allowing enough time for recruiting and onboarding.
2. Product Capacity Planning
This capacity strategy ensures that your business has the necessary resources or products to meet deliverables. For example, a pet store needs items like food, toys, and equipment such as carriers, leashes and cages to fulfill customer demand.
3. Tool Capacity Planning
This type of capacity planning strategy ensures that your business has the necessary tools, including machinery, vehicles and equipment, to efficiently produce and deliver products or services.
What is Capacity Planning Required?
Capacity planning is a process that helps organizations determine how much production capacity is needed to meet changing demand for products.
It involves assessing the design capacity, which is the maximum capacity of an organization to accomplish work over a specific time period.
The process helps organizations balance available resources to meet customer demand and project capacity needs.
It is an essential aspect of project management and production, as it helps organizations to measure the amount of work that can be completed within a given time frame.
Additionally, it also helps businesses to have the right number of products or resources, the right number of workforce, and the necessary tools to fulfill deliverables.