Operations Management: An Integrated Approach, 5th Edition

MAKING CAPACITY PLANNING DECISIONS

The three-step procedure for making capacity planning decisions is as follows:

Step 1 Identify Capacity Requirements The first step is to identify the levels of capacity needed by the company now, as well as in the future. A company cannot decide whether to purchase a new facility without knowing exactly how much capacity it will need in the future. It also needs to identify the gap between available capacity and future requirements.

Step 2 Develop Capacity Alternatives Once capacity requirements have been identified, the company needs to develop a set of alternatives that would enable it to meet future capacity needs.

Step 3 Evaluate Capacity Alternatives The last step in the procedure is to evaluate the capacity alternatives and select the one alternative that will best meet the company's requirements.

Let's look at these steps in a little more detail.

Identify Capacity Requirements

Long-term capacity requirements are identified on the basis of forecasts of future demand. Certainly, companies look for long-term patterns such as trends when making forecasts. However, long-term patterns are not enough at this stage. Planning, building, and starting up a new facility can take well over five years. Much can happen during that time. When the facilities are operational, they are expected to be utilized for many years into the future. During this time frame numerous changes can occur in the economy, consumer base, competition, technology, and demographic ...