What Is Capacity Planning | 2 mins read

What is Capacity Planning? 5 Phases to Know

what is capacity planning 5 phases to know
Chloe Henderson

By Chloe Henderson

Regardless of the type of industry, markets continuously fluctuate, requiring companies to quickly adapt their processes to meet requests. Without knowledge of their production capacity, businesses can overwork employees, operations, and deplete their inventory.

However, by properly managing operations, organizations can create balanced schedules that meet increasing demand without exhausting resources.

What is Capacity Planning?

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Capacity planning is the process of determining a department or production line's ability to meet a demand within a specific time frame. The process considers all additional needs required to meet the deadline, such as outsourcing labor, extra shifts, investments, and materials. In other words, capacity planning weighs supply and demand to determine if an organization has enough resources to complete orders.

First, the emerging demand trend is pinpointed using demand forecasting. A demand forecast is a detailed report that outlines projected sales and demand based on historical data.

Businesses can program forecasting software to estimate daily, weekly, and even monthly trends. Then, the company's productivity is assessed, starting with establishing the maximum capacity. Management needs to consider downtime, maintenance, regulations, and other restrictions, as well as labor and work shifts when determining the business's ability to meet the demand.

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Ideally, a company's demand should match their production capabilities, minimizing the inventory costs, and maximizing operational efficiency. However, this is not usually feasible, since lead times can fluctuate and delay sequential processes.

To counteract this inefficiency, many organizations carry buffer stock that keeps workflow moving during downtimes. Depending on the industry, buffer stock can be raw materials or finished goods that a business stores in case of lagging production or surges in demand to maintain sales.

Although capacity planning is often used interchangeably with resource planning, it takes into account all things necessary to complete a task, not just the materials. This means that employees, labor wages, equipment, and other investments are considered when determining the capacity.

5 Steps for Capacity Planning

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The key to successful capacity planning is transparent data sharing. With access to key performance metrics (KPIs), insights, schedules, and reports, businesses can accurately determine their capacity.
While capacity planning can be streamlined with management software, such as inventory control systems, companies can manually plan by-

1. Laying Out Tasks and Inventory

To begin, management needs to determine how long it takes employees to complete a certain task and how much inventory is required. To get an estimate of these requirements, each employee should define their role in the project, their shifts, and what resources were needed.

2. Totaling Estimates

The values from all applicable workers are then totaled to calculate how much labor, inventory, and capital is needed. The most efficient way to break down this step is by categorizing values on a spreadsheet, separating employees, resources, and time.

Once the data is organized, management can calculate totals by simply adding the estimates. The total should then be cross-examined with the actual task duration and resource usage in previous projects, which should have been reported. If the values are similar, it is safe to say the calculations are accurate.

However, if the metrics are significantly different, management should run through step one again to ensure all employees were considered. Managers can also refer back to employee scheduling and inventory tracking software to pull old reports.

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3. Prioritizing Workloads

Possibly one of the most crucial steps in capacity planning is defining dependencies and prioritizing workloads. Management needs to assign an order for workloads to streamline processes and ensure teams can meet their deadlines.

It is important to keep in mind the number of resources available for each task, which employees are qualified to perform specific operations, and the frequency of completion.

4. Considering Strategy Routes

While smaller projects may be easier to plan, larger tasks, such as production, may require a capacity planning strategy. A capacity strategy route helps businesses anticipate and mitigate disruptions and risks to maintain workflow and ensure demand is met.

Management should consider different methods that can enhance productivity, such as-

  • Lead Strategy - This method requires companies to expand their capacity levels to anticipate a drive in demand, minimizing lead times, and improving service.
  • Lag Strategy - As a more reactive approach, the lag strategy extends the capacity only once the business has reached maximum production.
  • Match Strategy - This strategy increases the capacity in small increments in response to the fluctuating demand. The match method is often used in industries with wavering markets.

5. Monitoring and Altering Workloads

Once the workloads are organized and strategies are implemented, the projects can go live. However, management should still monitor how well the plan was executed.

If it appears that the demand is not being met, the plan will need to be altered and relaunched. Managers should also ensure that the schedules are reasonable and employees are not overworked. By tracking the completion of capacity planning, businesses can use successful plans as references for future tasks.

By ensuring demand is met with thorough capacity planning, businesses can drive sales, revenue, and profit. This enables expansion and allows organizations to continuously maximize their capacity.