Capacity Planning and Aggregate Production Planning

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Capacity Planning & Aggregate Production Planning
Capacity Planning • Long term strategic decision • determines overall level of resources • affects product lead times, customer responsiveness & operating costs

Capacity Planning
Three Basic Strategies for Timing Capacity • Capacity Lead Strategy – capacity is expanded in anticipation of demand – aggressive and used to lure away customers from competitors already constrained

Capacity Planning
Three Basic Strategies for Timing Capacity • Capacity Lag Strategy – capacity is increased after demand has increased – conservative strategy and may lose customers – assumption lost customers will return after capacity has been met

Capacity Planning
Three Basic Strategies for Timing Capacity • Average Capacity Strategy – capacity is increased to meet average expected demand – moderate strategy

Capacity Planning
How much to increase capacity demands depends upon: • volume and certainty of anticipated demand • strategic objectives (re: growth, customer service & competition) • costs of expansion and operation

Capacity Planning
Best operating level for a facility is the % of capacity utilization that minimizes average unit cost • example with 80% capacity utilization there is a 20% cushion

Capacity Planning
Lowest Average unit cost is the point where the economies of scale have peaked. Economies of scale occur when • fixed costs can be spread over large number of units • quantity discounts are available for material purchases • production efficiency increases as workers gain experience

Capacity Planning
Economies of scale do not continue indefinitely. After a certain point diseconomies of scale occur. • higher rework • more equipment breakdown etc.

Aggregate Production Planning
Aggregate Production Planning • Intermediate term decision • plans are developed for product line or family (eg. bikes not colour or size etc) • plans are developed for resource capacity (eg. labour or machine hours)

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