LESSON 4: CAPACITY PLANNING
CAPACITY DECISION INTEGRATED INTO ORGANIZATION’S
STRATEGY
It’s%a% strategical%decision,% the%throughput,% or%the% number%of% units%a% facility%can%hold,%receive,%store,%or%
produce%in%a%period% of%time.%This%decision%often%determine%the%capital%requirement%and%the%<ixed%costs.%
Determining%facility% size,%with%an%objective%of% achieving%high%levels% of%utilization%and%a%high%return%on%
investment%is%critical.%
Design'capacity:%the%theoretical%maximum%output%of%a%system%in%a%given%period%under%ideal%conditions.%
Effective' capacity:' the% capacity% a% <irm% can% expect% to% achieve,% given% its% product% mix,% methods% of%
scheduling,%maintenance%and%standards%of%quality.%Lower%than%the%design%capacity.%
Utilization:%actual%output%as%a%percent%of%design%capacity.%
Ef5iciency:%actual%output%as%a%percent%of%effective%capacity.%
Utilization%is%the%percent%of%design%capacity%achieved%
Utilization='Actual'output/Design'capacity'
Ef<iciency%is%the%percent%of%effective%capacity%achieved%
Ef5iciency'='Actual'output/Effective'capacity'
Actual'output'='Effective'capacity'*'Ef5iciency'
Available'capacity'='Design'capacity'*'U*'E'
To%make%a%good%decision%about%capacity:%
1.%Forecast%demand%accurately%
2.%Understand%the%technology%and%capacity%increments%
3.%Find%the%optimum%operating%size%(volume)%
4.%Build%for%change:%so%build%<lexibility%into%the%facility%and%equipment.%
%
