Strategic capacity planning is a method for ascertaining the general capacity level with regard to capital-intensive factors of production, including equipment, facilities, and the dimensions of the overall labor force. The core of capacity necessities is the formulation of the production plan, which rests on consumer demand (Croxton et al., 2002). Essentially, distinguishing between market-oriented and customer-oriented management of demand forms a crucial part of the planning process.
Demand planning with a customer-oriented approach takes a production approach that follows the customers’ orders. This implies that fluctuations in the market situation directly influence the production and hence the capacity planning as well. The other approach to capacity planning takes the market-oriented demand. In this approach, forecasts on the sales volume take place in line with the expectations and data obtained from past operations (Croxton et al., 2002). Its major requirements include; standardization of the products, the demand to depict a fairly constant trend, and high customer sensitivity as concerns delivery times. In most cases, a combination of both the market-oriented and the customer-oriented methods is used.
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Upon determination of the planning strategy, the next step in the strategic approach to capacity planning is the specification of the goals that the strategy has to achieve. With this in mind, it becomes possible to examine the extent to which capacity requires to evolve so that the company can attain its goals (Jacobs, Chase & Lummus, 2014). For instance, it may be necessary to increase the capacity to ensure the generation of cost reserves from the economies of scale, and afterward, the savings may be used to increase the company’s market share by a given percentage. On the other hand, the organization may set goals that seek to maintain the profitability of a certain percentage with lower capacity when faced with increased firm rivalry and decreased demand (Heizer, 2016). As such, the company’s strategic goals exert great influence on the company’s capacity planning.
According to Goldsby & García-Dastugue (2003), capacity planning may take place as part of the aggregated general planning which occurs on a long-term basis, or as capacity-focused production sequence planning which applies in the short-term for a particular period of time. Where the overall planning takes place, consists of economic variations, environmental changes, and long-term trends in sales (Heizer, 2016). Accordingly, resources may be completely utilized over a time period via diverse measures such as outsourcing, overtime, and similar approaches.
The various adjustments that take place differentiate based on their scope in the production process. As such, two strategies exist for capacity planning, namely the chase strategy and the level strategy. While applying the chase strategy, the quantity of production aligns with the demand magnitude in a particular period (Croxton, 2003). This method is undoubtedly only relevant in companies where the resources have much the level strategy ensures that the quantity of production remains steady during the period, regardless of the prevailing demand. The resources have consistency and their capacity utilization uses optimal intensity. This strategy facilitates storage management when used hand in hand with the quantitative decision models.
Capacity Supply Planning
Capacity supply refers to the existing capacity of resources in a given period and is calculated for labor centers in the line of production. Measuring the capacity of a particular resource depends on the output quantity, with a basis on units of time. An organizational work center encompasses a combination of production infrastructure and manpower, to undertake a specific amount of work, without requiring further division through wide-ranging control and planning (Krajewski & Ritzman, 2001). Fundamentally, capacity takes different dimensions such as effective capacity, gross capacity, or network capacity. Gross capacity refers to the quantity of output produced by a machine that runs constantly in a single shift (Heizer, 2016). Calculation based on this capacity assumes a consistent output and is not affected by any breaks. As it mostly depicts an ideal situation, the gross capacity amount is usually not realized. However, taking into consideration the effects of interruptions and breakdowns and other aspects such as team meetings, maintenance, breaks, and others it is referred to as net capacity. On the other hand, the effective capacity term applies when the time required to set up the machine is as well incorporated into the calculations.
Since a work center comprises operating resources and manpower, the capacity of operation is actually determined by the two factors as a result of their interaction. On the one hand, manpower may be the restricting factor, and consequently cause a bottleneck (Krajewski & Ritzman, 2001). On the other hand, mechanical resources affect the overall output potential. Moreover, the manufacturing complexity in different sectors may depict significant variations. For instance, the manufacturing complexity can be distinguished between multi-level production and one-level production. With one-level production, the capacity resource is the efficiency of that one specific machine (Lambert & Stock, 1993). As for multi-level production, manufacturing involves multiple processes, where the capacity restriction is linked to that of the machine with the lowest level of output.
In strategically planning pertaining to capacity, the variables which affect the maximum capacity resource of a production unit include maximum practicable operative time, production intensity, and maximum mean functional capacity. The intensity of production denotes the output of a single unit and specifies the speed of the manufacturing unit (Morris & Lee, 1998). Meanwhile, the operating time exhibits the periodic interval in which the resources have optimal availability. Ultimately, the average capacity points out the accessibility of non-consumable assets within the specified period. In optimizing production, considerations have to be made on the variances between effective labor capacity and effective machine capacity (Heizer, 2016). In this regard, manpower capacity depends on several factors such as average attendance rates, the average number of shifts per day, the number of staff per shift, working hours per staff, and the working period. On the other hand, machine capacity depends on the number of machines, operation hours per time period, degree of utilization, and the number of operators per machine. During production, both capacities interrelate and influence the real production capacity.
Capacity Demand Adjustment
Adjusting the capacity demand is one major option in optimization after determining whether the resource capacity is under-loaded or overloaded. The process is also referred to as the adjustment of capacity load (Stevenson, 2012). The predominant modification of the capacity demand features shift changes where transitions of the workload into other production shifts take place. Where capacity overload takes place as indicated in the capacity demand exceeding its supply, lot sizes and production orders can be deferred awaiting the subsequent production period. This happens if a given buffer for delay occurs in the delivery date of the order (Mentzer et al., 2007). Alternatively, lot sizes may be split and partly distributed across different production periods. In the occurrence of capacity under-load where its demand goes below supply, releases of impending orders ahead of schedule may take place, or increases in batch sizes may take place by carrying forward the orders. For well-timed shifting, considerations have to be made that such shifts impact the order completion time, but may be implemented where sufficient time cushion exists.
In the event that unsuitable adjustments in production volume take place, the bottleneck is released and further affects the capacities of the rest of the resources operating in that given line of production. Therefore, other measures have to be incorporated beyond the timely fine-tuning of resources (Stevenson, & Hojati, 2007). An effective measure involves distributing the production orders to other work centers or machines which have ample capacity vacant. In such a case, this measure seems feasible, since the initial completion times of the orders remain constant. Further, adjustments of a specific percentage of in-plant manufacture to outsourcing form a possible strategic option (Mentzer et al., 2007). In this case, where capacity overload occurs, it enables orders to be subcontracted to external production. On the other hand, extra production orders can be mass-produced by acting as a subcontractor for different production companies in the incident of capacity under-load.
Notably, if the considerations for capacity requirements depict insufficient adjustments during the earlier stages of planning, it can result in waiting queues at the work center which has a bottleneck. In that case, it may require prioritizing within the sequence scheduling to specific customers or for orders that contend for production capacity (Stevenson & Hojati, 2007). Consequently, primarily empirical approaches with priority guidelines apply. Depending on the company’s operations, different options exist concerning priority rules. Among these rules is the use of the shortest process time rule, which goes hand in hand with the top priority for orders with the least process time in a specified working center. Another rule is the longest operation time rule which accords top priority to the order with the lengthiest process time. The rule of the greatest operation time balance prioritizes the order with the highest process time equilibrium for all work centers in the production line.
In conclusion, strategic capacity planning is a crucial process for a company seeking to improve or maintain its production capabilities. However, in downscaling, a major rule pertains to delivery date where priority falls on the order with the closest date of delivery. All the same, the adjustments in capacity demand and supply have possible drawbacks. For example, delays in order delivery may aggravate the bond with the client, and even jeopardize where cancelation of orders takes place. Moreover, companies face a risk in subcontracting production orders, since they may depict variations in product quality or problems in timely delivery of orders.
References
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