Measuring Demand and Capacity
Good forecasts are essential for effective capacity planning. But so is an understanding of demand uncertainty because it allows you to judge the risks to service level.
Distribution of demand Only 5% chance of demand being higher than this
DEMAND DEMAND Only 5% chance of demand being lower than this TIME TIME
When demand uncertainty is high the risks to service level of under provision of capacity are high.
• Capacity is the maximum output rate of a production or service facility • Capacity planning is the process of establishing the output rate that may be needed at a facility: – Capacity is usually purchased in “chunks” – Strategic issues: how much and when to spend capital for additional facility & equipment – Tactical issues: workforce & inventory levels, & day-to-day use of equipment
• Capacity planning and control reconciles the required availability for an operation’s products and services with the operation’s capacity to deliver them • Capacity of an operation is the maximum level of value-added activity over a period of time that the process can achieve under normal operating conditions
Measuring Capacity Examples
• There is no one best way to measure capacity • Output measures like kg per day are easier to understand • With multiple products, inputs measures work better
• Costs – balance between capacity and demand • Working capital – inventories • Quality – effect of fluctuations • Speed – inventory and surplus capacity • Dependability – capacity utilisation • Flexibility – available capacity
Objectives of Capacity Planning and Control
• Revenues – balance between capacity and demand
Type of Business Car manufacturer Hospital Pizza parlor Retail store
Input Measures of Output Measures Capacity of Capacity Labor hours Available beds Labor hours Floor space in square feet Cars per shift Patients per month Pizzas per day Revenue per...