Capacity Planning Strategy

4.2.2 Capacity Planning:

Capacity planning is the process of determining the production capacity needed by our organization to meet changing demands for its products. In the context of capacity planning, "design/Installed capacity" is the maximum amount of work units that our organization is capable of completing in a specified standard period. "Effective capacity" is the maximum amount of work that our organization is capable of completing in a given period due to constraints such as quality problems, delays, material handling, etc.

A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized capacity/resources or unfulfilled customers. The goal of capacity planning

Lead strategy is adding capacity in anticipation of an increase in demand. Lead strategy is an aggressive strategy with the goal of luring customers away from the company's competitors by reducing lead-time. It is also a strategy aimed at reducing stock-out costs.

2. Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond due to increase in demand. This is a more conservative strategy. It decreases the risk of waste, but it may result in the loss of possible customers.

3. Match strategy is adding capacity in small amounts in response to changing demand in the market. This is a more moderate strategy. To followthis strategy more prominently for most projects in phases.

Recommendation: Match Strategy is preferred for capacity planning. It has proven its merit in many project. If planned properly, the incremental capacity cost is also less. Also cash flow gets staggered. Also immediate demand increase can be tackled by third shift operation.

4. Adjustment strategy is adding or reducing capacity in small or large amounts due to consumer's demand, or, due to major changes to product or system

b) 5 Year Volumes Projections

These are projected volumes given by Business planning in to identify the capacity shortfalls in advance and prepare the capacity planning road map to get rid of bottlenecks. These volumes are made available usually at inQ4 of each year. If any new product introduction is planned in next 5 years, then corresponding volumes also are part of 5 year volume projections.

c) Spares and other requirements from LOB: Spares requirements come from Spares division. These are replacement requirements for parts/ aggregates which have failed in field. For capacity planning purpose, wherever applicable, 5% additional volumes to be considered for spare parts

Other requirements come from LOBs which are doing non-core business for revenue generation. E.g. Industrial engines. The projections from concerned LOBs are to be considered for capacity calculations

Hence for such aggregates:

Total Capacity volumes= 5Yr volume projections+ Spares requirements+ LOB requirements

d) Manufacturing strategy (Location) & Make-Buy decisions (Aggrgeate