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CAPACITY PLANNING:

The capacity of a facility of an industrial unit is planned keeping in mind the current resources and future growth & expansion. The capacity of a facility is its capability to produce an output over a period of time.

Measurement of Capacity: The capacity is measured in terms of units of the product per year.

Service Capacity: For service industries like hotels, hospitals or airlines, the capacity expression becomes the number of rooms, beds or seats occupied per year.

Process of capacity planning:

After an analysis of current conditions, future demand is predicted. Since the available capacity is known, the alternative capacity plans for the future is prepared. The economic analysis and feasibility of such plans is then done. This process involves following steps:

Future capacity requirement:

Capacity plans are dependent upon forecasting demands for outputs. Usually, mature products are subject to better prediction than fresh launches in the introductory phase of its life cycle.
Multiple Outputs:

There could be many products for which the demand is forecast. All these products may be at various stages of their respective life cycles. Since each product has a different and independent demand, they insure against uncertainties in the market.
Stable Demand for Mature products:

Products such as textiles, cement, health care, electricity, fertilizers are some examples of products that enjoy a constant and stabilized demand.

Cost-Volume relationship:

There are two types of costs involved in an industrial unit or facility- fixed cost and variable cost. Break even volume is the volume where there is no profit and no loss.

Economics of scale of production:

High capacity units have high fixed costs but since variable costs per unit are low, they offer economics of scale. There are other economics of scale too in facilities where there is lesser investment in the input itself.

Risk analysis:

The predicted demend of a product may not always be correct, the actual demand may be higher or lower than originally predicted. If it is higher, there is under capacity. If it is lower then there is over capacity.

Capacity utilization:

In a manufacturing concern, a large part of the financial resources are invested in the plant, machines and equipment. The return on the investment can be maximized by making the optimum utilization of the installed equipment.

Machine capacity is expressed in terms of machine hours. The time in hours necessary to complete an operation or the job multiplied by total number of jobs that are to be done gives the total capacity of the machine. This is expressed by the formula:

ST * MP
MC * UC

Where:

ST = the number of machines required for the particular operation
MP= the maximum production required during the specified time
MC= the number of hours that the machine will run
UC= average utilization of the machine capacity

An example of capacity planning in an industrial unit:

In an industrial unit, different machines for different functions are used simultaneously. All these machines have different production capacities too. In such a setup its very important to reduce idle capacity , maintain existing machinery and replace worn out equipment.

From receiving to shipping end machines A, B1, B2, C1 & C2 are required. The final output totally depends on the proper functioning of these machines. The contribution of each machine holds equal importance. since the machines are arranged in a linear fashion the output is directly proportional to the performance of these machines. To reduce the idle capacity of all the machinery overloading the machined should be avoided. Extra equipment should be installed to ensure this.

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