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Introduction of Capacity

Planning

Meaning of Capacity :
Capacitive is the rate of productive capability of a facility.
Capacity is usually expressed as volume of output per time
period.
Types of Capacity

1. Fixed Capacity : The capital assets (buildings &
equipment's) of the company will have at a particular time
known as the fixed capacity. They cannot be easily changed
within the intermediate range time horizon. Fixed capacity
represents an upper limit to the internal capacity, that the
company concentrates can use in its efforts to meet demand.
Types of Capacity

2.Effective Capacity : It is the capacity which is used within
the current budget period. It is also known as practical
capacity or operating capacity. No plant can work up to the
maximum or the theoretical capacity (installed or design
capacity) because of the loss of capacity due to scheduling
delays, machine break-down & preventive maintenance. This
results in the plant working at efficiency less than 100 %.
Also the actual output will be less than the designed output
due to rejections & scrap.
Types of Capacity

3. Normal Capacity or Rated Capacity : This is the estimated
quantity of output or production that should be usually
achieved as per the estimation done by the Industrial
Engineering departments. Actual capacity is usually
expressed as a percentage of rated capacity. For example, the
rated capacity of a steel plant may be expressed as 1 lac tones
of steel per month. This is also sometimes called as average
capacity of the plant.
Types of Capacity

4. Actual or Utilized Capacity : This is the actual output
achieved during a particular time period. The actual output
may be less than the rated output because of short range
factors such as actual demand, employee absenteeism, labour
inefficiency & low productivity levels.
Meaning & Definition of
Capacity Planning

 Capacity planning is a long term strategic decision that
establishes a firms overall level of resources. The
decisions are strategic , because they often commit the
resources of the organization for long periods.
Need of Capacity
Planning

 The need for capacity planning is arise due to the
following reasons :
1. To find the optimal capacity of the facility so that the
sum of costs of under capacity & over capacity is the
minimum.
2. To keep the initial investment in the facility as low as
possible to achieve lower break-even volume.
3. Investments in facility capacity are long term & cannot
be reversed easily.
4. To satisfy the future demand of products without any
shortages.
Objectives of Capacity
Planning

 Costs
 Revenue
 Working Capital
 Quality
 Speed
 Dependability
 Flexibility
Factors Affecting
Capacity Planning

1. Process Design
2. Product Design
3. Product Variety
4. Product Quality
5. Product Scheduling
6. Materials management
7. Maintenance
8. Job design & Personnel management
Capacity Decisions

Assessing existing capacity
Forecasting future capacity needs
Identifying alternative ways to modify capacity
Evaluating financial, economical & technological capacity alternatives
Selecting a capacity alternative most suited to achieve the strategic mission of the
firm