Capacity Planning

Strategic Capacity Planning

Capacity planning in an operations and business environment is the process of determining the required capacity to supply the market place adequately in order to capture or sustain a desired market share in the industry the business operates in. The decision to add capacity in an industry or business is usually determined by the level of capacity utilization, preferably mid business cycle utilization. Capacity planning also forms part of the strategic planning function. In some cases businesses will engage operations consultants to help with the capacity planning process.

When deciding on the addition of production capacity the following factors and decisions must be taken into account:

-Land and building availability
-Facilities location and access to distribution networks
-Availability of raw materials
-Plant and equipment purchase and servicing requirements
-Plant flexibility, downtime and efficiency; product changeover times
Process bottlenecks
Production management and planning
-The ability to subcontract component production or Toll Produce
-Cost structure for all the different functions
unit cost and product cost curves
 Inventory and stock management systems
Warehouse design and layouts
-Size of workforce and skills availability
-Channel to market and distributor agreements
market share
-Sales and marketing resources required
-Business and financial viability of new capacity

These are just some of the main items to consider when making strategic capacity planning decisions, they are all important as they can alter industry dynamics such as prices due to excess capacity, threat of new entrants, lost profits and most importantly profitability of the business. These factors may be more or less important depending on the time horizon of the capacity decision.

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