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Capacity Planning

A process of evaluating and acquiring need for productive resources to ensure availability meets demand. Capacity decisions have a direct influence on performance of a production system in respect of both resource productivity and customer service (i.e. delivery performance). Excess capacity results in low resource productivity while inadequate capacity leads to poor customer service. Capacity planning decisions can be long or short-term decisions. Long-term capacity planning decisions concern expansion/contraction of major facilities required in the conversion process, economics of multiple shift operation, and selection of vendors for major components. Short-term capacity planning decisions concern issues like planning overtime work and sub-contracting, adjusting work shifts. Break-even analysis is a useful tool for capacity planning.

Some common key decisions are:

1. Amount of capacity needed

2. Timing of changes in capacity

3. Amount of capacity flexibility needed in facilities

4. Estimate of future capacity requirements

5. Cost of capacity alternatives

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