Steps in Capacity Planning | Student Notes |

1.) Assessment of existing capacity 

2.) Forecast future capacity need

3.) Identifying alternative

4.) Evaluation of alternative

5.) Selection of most suitable alternative

1.) Assessment of existing capacity 

Assessing the existing capacity can be done in two ways first is input, and the second is output. The input method is adopted in the service sector, like the number of seats in the airline, hospitals, universities, theatres, and table or room in restaurants. Output method is used in manufacturing sector like iron, cement, steel, automotive, etc.

2.) Forecast future capacity need

Short-term capacity requirements can assess easily, but it is more difficult to assess long-term capacity requirements. It happens because of uncertainties in the market and technology. So, the company should forecast capacity needs from time to time to match future demand requirements.

Example - If the weather is getting hot year by year, that means there will be more demand for fans or AC. So, the company should plan its capacity according to it. If the company have not enough capital or resources to upgrade the capacity, then it should produce additional units, above the capacity to meet the demand.

3.) Identifying alternative

If the existing capacity is inadequate to meet the forecast demand capacity, then expansion is required to fulfill the shortage of demand. It can be done in many ways company can start an additional shift, hire more workforce, install more machinery, install a new plant, replace an old machine with advanced machines.

4.) Evaluation of alternative

As we discussed earlier, there are various alternatives through which the company can expand its capacity to fulfill its future demand. Now the next task is to evaluate these alternatives to select the best from them. The company should take suggestions from the different departments also.

5.) Selection of most suitable alternative

It is the last step of capacity planning. The company should select the best from all alternatives. After selection, the next work is to implement it in an adequate time. This is not where the management has to stop. After successful implementation, the organization should review timely that there is any requirement of making changes.