Capacity planning is a planning exercise for correctly determining in advance the required resource hours over time for dealing with fluctuating demand. The exercise is necessary for any production system that has to handle spikes in demand using only limited resources when production smoothing is neither possible nor economical.
Capacity planning is generally more difficult in make-to-order (MTO) environment with unpredictable nature of orders and unpredictable order times. It is much more difficult for a system with multi-functional machines and multi-skilled workers. If product mix keeps changing, then demand for resources will keep changing and create moving bottlenecks in the system. Capacity planning is helpful to mitigate the moving bottlenecks.
Short-term capacity planning is done by running machines for a few extra hours, providing overtime for workers or running production for extra shifts on some days. On the other hand, long-term capacity planning is done by hiring workers, training workers for additional skills or adding more machines. Capacity planning may also involve outsourcing some operations or even entire production of some selected products. The goal is being able to accept and manage extra demand without declining it due to lack of resource availability.
When Is Capacity Planning Needed?
It is specifically needed for dealing with potential adverse effect of events such as:
- Quick and unexpected increase in customer demand over short intervals
- Changes in quantities or priorities of existing orders
- Acceptance of rush orders for high margins
- Increasing delays for some orders on shop floor with a risk of missing respective due dates
- Irregular material supplies.
A Scientific, Rigorous and Efficient Approach to Capacity Planning
Capacity planning usually involves capacity enhancement for some resources over some time intervals to adequately meet the demand over a time period. In a complex production system where capacity of some resources can be enhanced to a limited extent and it may not be possible to enhance the capacity for some other resources, there is neither a simple formula nor an easy way for optimal capacity planning. This scenario is quite common in many industries. In such cases, finite capacity production scheduling (FCS) plays a very useful role in capacity planning. If we have a finite capacity production schedule (a schedule without resource overloading) that meets the fluctuating demand, then capacity planning is unnecessary. However, in the absence of such feasible schedule, we identify the requirement of some resource capacity enhancements over time so that we can have a finite capacity schedule (to meet the demand sufficiently) with the help of enhanced capacity. This amounts to capacity planning. It is easy to do efficient and accurate capacity planning with the help of rigorous production scheduling. The effectiveness of capacity planning increases with the efficiency of production scheduling. In many industries, capacity planning is done in Excel using experience, commonsense and crude calculations. However, the result is unsatisfactory in some cases, particularly in MTO environment.
Finite Scheduling + What-If Analysis for Capacity Planning
FCS does not involve capacity planning but it presents a powerful approach to capacity planning. FCS-based capacity planning is done by what-if analysis of finite capacity production schedules with respect to changes in resource capacities. What-if analysis is usually done by FCS for changes like:
- A new machine with specific functionality is added to production system
- A new worker with certain skills is hired
- A worker acquires an additional skill
- An extra shift is run with some selected resources on some days
- Overtime is given to some workers
- A machine is removed from the system
- A machine breakdowns and is waiting for repair
- A worker with certain skills leaves the system
- A worker becomes absent for one or more days.
In summary, capacity planning can be effectively done in complex production systems by performing what-if analysis of finite schedules with the help of FCS. Powerful and low-cost FCS software are now available for this purpose.
Advantages of Capacity Planning
- Reduce rejection of orders due to capacity concerns
- Reduce anxiety to meet due dates
- Increase revenue by being able to handle more demand and demand spikes
- Improve customer satisfaction by increasing on-time delivery and accepting rush orders without affecting
- Make judicious investments on new resources for increasing production, revenue and profit.
Tools for Capacity Planning
There are some powerful, low-priced software tools for production scheduling. These tools are also very useful for efficient capacity planning. Unlike production scheduling, capacity planning does not demand regular job status updates from shop floor because capacity planning is not required to be done as frequently as production scheduling. Some difficulties faced in using software for production scheduling purpose disappear while doing capacity planning.
Production managers in some industries are using powerful scheduling tools exclusively for capacity planning because they sometimes get substantial benefits from this exercise alone.
Optisol software tools Schedlyzer, Schedlyzer Lite and VelFlow are very appropriate for efficient capacity planning in a wide range of production systems. They all support fast and extensive what-if analysis as part of capacity planning.