Capacity Planning

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Capacity Planning
Based on time horizon or duration it is viewed in three
(i) Long-range Capacity Planning
Time horizon is of more than one or two years. It is carried for productive resources which a long time. Long-range capacity planning requires participation and approval of top management personnel. (ii) Intermediate-range Capacity Planning

It has a time horizon for 6 to 18 months. It may be varied by such alternative such as hiring off or laying off labour, purchasing or making new tools and minor equipments and outsourcing/sub contracting. (iii) Short-range Capacity Planning

Which has a time horizon or duration of less than one month. This is concerned with day-to-day planning.

Capacity is the crucial to the long term success of an organization. Caapcity models are made at two levels: (i) Long-term capacity plans which deal with investments in new facilities and equipments covering the requirements at least two years into the future and (ii) Short term capacity plans which focus on work force size, over time budgets, inventories etc.

Importance of Long-term or Long-range Capacity Planning
Businesses in the long-run must make continued investments in people, technology, R&D and capital assets. Long-range capacity planning is important part of strategic planning of the firm. It establishes some expectations about the capacity a company acquires and develops over time. Managers need to address the following questions:

(i) How should a plant be able to produce?
(ii) How many customers should a service facility be able to serve? (iii) How much of a cushion is needed to handle variable and uncertain demand? (iv) What kinds of problems arise as the production system expands? (v) Should capacity be expanded based on forecast of demand or should the capacity expansion be taken up only after the demand becomes more certain?

Determinants of Effective Capacity
The main factors are:
(i) Faciities (ii) Product or services (iii) Process (iv) Human...
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