Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time.
A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity planning is to minimize this discrepancy. Demand 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 (OEE). Capacity can be increased through introducing new techniques, equipment and materials, increasing the number of workers or machines, increasing the number of shifts, or acquiring additional production facilities.
Capacity is calculated: (number of machines or workers) × (number of shifts) × (utilization) × (efficiency).
The broad classes of capacity planning are lead strategy, lag strategy, and match strategy.
* Lead strategy is adding capacity in anticipation of an increase in demand. Lead strategy is an aggressive strategy with the goal of luring customers away from the company's competitors. The possible disadvantage to this strategy is that it often results in excess inventory, which is costly and often wasteful.* Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond due to increase in demand (North Carolina State University, 2006). This is a more conservative strategy. It decreases the risk of waste, but it may result in the loss of possible customers.
* Match strategy is adding capacity in small amounts in response to changing demand in the market. This is a more moderate strategy.
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Capacity planning is one out of hundreds strategies in the business world. This strategy has some advantages and disadvantages. According to me, capacity planning is the market maker. Imagine if PERTAMINA (the biggest oil company in Indonesia) decrease their product such as gasoline. The price of gasoline will increase rapidly, since a lot of vehicles cannot be driven, hence transportation system around some big companies will not be functioning correctly and will result in the company’s bankruptcy. Yeah, that’s the bad side of this strategy. But with this strategy, PERTAMINA will get a lot of profit. When they provide more supply again, the rates will decrease, but it will never arrive its past rates. That’s an example of doing this strategy. For some middle companies, this strategy is really used to expand the profit of theirs, but they have to be able to read the market situation. They have to make some fortunes. After that, they have to be brave to move, more risks will give more profit.
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