8.5 Operations Planning & Control
Capacity
Measuring Capacity for Manufacturing
To estimate the number of units that you are likely to sell over a given period, you have to understand the industry that you are in and estimate your likely share of the market by reviewing industry data and conducting other forms of research.
Once you have forecasted the demand for your product, you can calculate the capacity requirements of your production facility—the maximum number of goods that it can produce over a given time under normal working conditions. In turn, having calculated your capacity requirements, you are ready to determine how much investment in plant and equipment you’ll have to make, as well as the number of labour hours required for the plant to produce at capacity and meet demand.
Like forecasting, capacity planning is difficult. Unfortunately, failing to balance capacity and projected demand can be seriously detrimental to your bottom line. If you set capacity too low (and so produce less than you should), you will not be able to meet demand, and you will lose sales and customers. If you set capacity too high (and turn out more units than you should), you will waste resources and inflate operating costs. Therefore, continuous review, the process of routinely reviewing the organization’s processes to determine where improvements can be made to increase organizational efficiency, is very important in the capacity planning process to avoid producing too much or too little.
Measuring Capacity for Services
Estimating capacity needs for a service business is not the same thing as estimating those of a manufacturer. Service providers can not store their products for later use: hairdressers can not “inventory” haircuts, and amusement parks can not “inventory” roller-coaster rides. Service firms have to build sufficient capacity to satisfy customers’ needs on an “as-demanded” basis. Like manufacturers, service providers must consider many variables when estimating demand and capacity:
- How many customers will I have?
- When will they want my services (which days of the week, which times of the day)?
- How long will it take to serve each customer?
- How will external factors, such as weather or holidays, affect the demand for my services?
Forecasting demand is easier for companies like BK, which has a long history of planning facilities, than for brand-new service businesses. BK can predict sales for a new restaurant by combining its knowledge of customer-service patterns at existing restaurants with information collected about each new location, including the number of cars or people passing the proposed site and the effect of nearby competition.
Material Requirements Planning
A software tool called material requirements planning (MRP) relies on sales forecasts and ordering lead times for materials in order to calculate the quantity of each component part needed for production and then determines when they should be ordered or made. The detailed sa