CAPACITY PLANNING

What’s your plant capacity?

That’s not a trick question but can be a tricky one and not easy to answer. Failure to answer correctly will prevent a plant from being world class and perhaps even from being viable.

Plant’s have capital tied up in plant and machinery. Ongoing fixed, “overhead” costs remain. Plants must operate close to maximum capacity to amortize these fixed costs as widely as possible.

Running at capacity is important but it is equally important not to run over capacity. Trying to do so can result in not fulfilling customer promises as well as placing excess stress on the workforce and machinery.

Theory is simple, practice is hard. Hundreds if not thousands of books have been written on capacity and capacity planning. This article will only hit few highlights.

Let’s start with a definition. Capacity is the maximum amount of product that a plant can produce in a given time period.

But what does amount mean?

An orange juice plant may be able to pack 3mm 12oz bottles in a month. It might also be able to pack 2mm 48oz bottles or 1mm 128oz bottles. They will probably pack some combination of the three. Switching between them also reduces capacity. So what is their capacity in bottles per month?

A better measure for this plant might be gallons of juice rather than bottles.

Hours of operation will determine capacity. One plant might run a single shift, 5 days a week. They will have some flexibility as they can run overtime to meet spurts in demand or add second or third shifts to meet more long term capacity needs. Another might run 3 shifts, 7 days. If their demand increases, they may not have the ability to meet it.

When demand occurs, it is an important consideration. Some plants have a relatively constant demand throughout the year, making capacity planning simpler. Others have lumpier demand. An ice cream plant may experience as much as 75% of its annual demand in just 3 summer months.

Two basic strategies might be used to meet this demand:

They could produce at a constant rate to meet annual demand. For nine months they produce in excess of sales and put it in inventory. In the summer, they would produce less than sales and meet the excess demand from inventory. The downside to this strategy is the high cost of carrying the inventory.

An alternative is to produce to demand throughout the year. For nine months the plant will operate a single shift. In the summer they will add a second or even a third shift to meet the peak demand. One big issue will be finding and training the temporary summer workers.

Combinations of the two strategies can also be used.

There is not much in the way of answers above. I have barely touched on the questions! If I have done anything, I hope I have gotten you thinking about the issues of capacity and capacity planning, their importance and their complexity.