Capacity Planning Production Units
Capacity planning is the analysis of the resources of a company to determine its optimal and maximum output. Maximum output is not necessarily optimal. Machines cannot maintain maximum output for long without risking quality. In contrast, optimal output involves the use of resources strategically without risking that burnout. Capacity planning units are the units by which capacity is planned, such as a clothing factory planning the capacity of denim.
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Relevant Costs
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Capacity planning is different than other types of production planning in that it considers only costs relevant to the capacity planning unit, such as set-up, storage, ordering, shortage and overtime. Capacity of a unit is planned relative to the perceived customer demand.
Production Resources
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Capacity planning considers available production resources relevant to the unit being analyzed such as available machines and labor and the maximum amount that can be stored well. These resources are considered with specific time horizons, as in "What is the optimal amount that can be produced in 'x' amount of time?" and in terms of perceived demand.
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Rolling Horizon
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Capacity planning basically attempts to match the volume the company is able to optimally produce to the customer demand. Because this typically involves certain assumptions regarding demand and delivery, capacity planning is typically calculated on a "rolling horizon" basis. This means that a few decisions are implemented and then the plan is revised.
Aggregate Planning
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One component of capacity planning is aggregate planning. Aggregate planning involves the lumping together of resources (i.e. all labor is "labor resources," all machines are "machines resources"). Aggregate planning basically ties facility and capacity planning to scheduling decisions.
Theory of Constraints
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Capacity planning can also employ the Theory of Constraints, which uses cause-and-effect modeling to focuses on what to change in a system. The theory operates on the premise that a system can never be better than its weakest part. For example, a toy company would examine all stages of manufacturing a doll to see how each step could be optimized.
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