Capacity planning

Managerial AccountingMohammed Alkraidees

IPA- Saudi Arabia

Capacity planningCapacity planning is the process of

determining the production capacity needed by an organization to meet changing demands for its products.

design capacity.effective capacity.

The goal of capacity planning The goal of capacity planning is to minimize

this discrepancy  between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers .

Overall Equipment Effectiveness OEEDemand for an organization's capacity varies

based on changes in production output, such as increasing or decreasing the production quantity of an existing product, or producing new products. Better utilization of existing capacity can be accomplished through improvements in overall equipment effectiveness .

Capacity can be increased through :

 introducing new techniques. equipment and materials. increasing the number of workers or

machines.increasing the number of shifts. acquiring additional production facilities.

Capacity is calculated:

Capacity = (number of machines or workers) × (number of shifts) × (utilization) × (efficiency)

How much to increase capacity demands depend upon a number of factors, including:

Anticipated demand – volume & certaintyStrategic objectives Costs of expansion and operation

The broad classes of capacity planning

capacity  lead strategy .

capacity lag strategy .

• match strategy . (Average Capacity Strategy)

capacity lead strategy :

In anticipation of demand, capacity is increased.

This is an aggressive strategy and is used to lure customers away from competitors.

It often results in excess inventory.Costly and often wasteful .

capacity lag strategy: Increase capacity after demand has

increased.It decreases the risk of waste. This is a conservative strategy and may result

in lose of customers.

You assume customers will return after capacity has been met.

Average Capacity Strategy: Average expected demand is calculated and

capacity is increased accordingly.

This is the most moderate strategy.

Capacity planning is long-term decision Inadequate capacity planning can lead to the

loss of the customer and business. Excess capacity can drain the company's resources and prevent investments into more lucrative ventures. The question of when capacity should be increased and by how much are the critical decisions.

THE ENDThank you for your attention..