Capacity Planning – Overview and Key Concepts


Capacity Planning and Management are explained in this video.
The text was created by an experienced Lean Thinker that gives his point of view on the “Capacity Topic”. Thanks to Alberto Robledo for the text of this video.

In the video, you will find information about:

– Planned Capacity
– Effective Capacity
– Utilization
– Short Term Capacity
– Medium Term Capacity
– Long Term Capacity

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Here the transcript of the video
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Capacity Planning.

▶ Capacity is the maximum rate of output of a process or system

Capacity is in our daily life:

– How many people should a concert hall have?
– How many people should a restaurant be able to serve?
– How many batteries should a plant be able to produce?



▶ Design Capacity: Theoretical Maximum output in a given period under ideal conditions. Project engineer design machine to run at 200 parts per minute



▶ Effective Capacity: Output expected by the company under current operations constraints (for example different product mix as was initially designed, some capacity cushions, …)

Capacity available is affected by

A) Work content change
B) Product mix change
C) Equipment change
D) Speed or pace at which the work is done



▶ Measure
– Utilization = Real Production / Design Capacity
– Efficiency = Real Production / Effective Capacity

Efficiency is the main driver for the Operations Director



▶ Capacity and Strategy:

1. Add capacity to go ahead demand

This is an expansionist strategy. This can result in economies of scale

2. Wait and see

This is a conservative strategy. It follows demand and expands in smaller increments. Some risk is that we perhaps can be unable to respond to high demand.

Management should choose between these 2 strategies or another in between.

According to the horizon, we can talk about:

▶ Short term capacity (0-3 months). Our main drivers for capacity management are planning jobs, planning people, schedule machines

▶ Medium-term capacity (3-12 months). Our main drivers are Subcontract operations, Add manpower, Increase or use stocks, add shifts, add equipment

▶ Long term capacity planning (1-5 years). Our main drivers have added installations, add equipment with long installation lead time…

Of course in short term capacity planning, you can also add overtime work.




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