Capacity planning and control

 

In practice, most organizations will use  a mixture of all of these ‘pure’ plans, although often one plan might dominate.

 

The short case ‘Seasonal salads’ describes how one operation uses some of these options.

LEVEL CAPACITY PLAN 

 

In a level capacity plan, the processing capacity is set at a uniform level throughout the planning period, regardless of the fluctuations in forecast demand.

 

The same number of staff operates the same processes

 

Produce the same aggregate output in each period.

 

Where non-perishable materials are processed, but not immediately sold, they can be transferred to finished goods inventory in anticipation of sales at a later time.

 

Thus this plan is feasible (but not necessarily desirable) for our examples of the woollen knitwear company and the aluminium producer (see Figure 11.7).

Level capacity plans of this type can  achieve the objectives

 

• stable employment patterns,

 

• high process utilization

 

• high productivity with low unit costs.

 

But they can also create considerable inventory which has to be financed and stored.

 

Perhaps the biggest problem, however, is that decisions have to be taken as to what to produce for inventory rather than for immediate sale.

 

Most firms operating this plan, therefore, give priority to creating inventory only where future sales are relatively certain and unlikely to be affected by changes in fashion or design.

 

Clearly, such plans are not suitable 

 

• for ‘perishable’ products, such as foods and some pharmaceuticals,

 

• for products where fashion changes rapidly and unpredictably (popular music CDs, fashion garments)

 

• or for customized products.

 

A level capacity plan could also be  used by the hotel and supermarket, although  this would not be the usual approach of such organizations because it generally results in a waste of staff resources, reflected in low productivity.

 

Because service cannot be stored as inventory, a level capacity plan would involve running the operation at a uniformly high level of

capacity availability. 

 

The hotel would employ sufficient staff to service all the rooms, to run a full restaurant and to staff the reception even in months when demand was expected to be well below capacity.

 

Similarly, the supermarket would plan to staff all the checkouts, warehousing operations and so on even in quiet periods (see Figure 11.8).

Low utilization can make level capacity  plans prohibitively expensive in many service operation

 

but may be considered appropriate where the opportunity costs of individual lost sales are very high,

 

for example

 

• in the high-margin retailing of jewelry
• in (real) estate agents.