Page 166 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Unit 11: Production Management

Capacity planning is required to meet both the present needs and future objectives of the Notes
organization. Suppose an entrepreneur starts a school upto Class V and develops a good brand
image over a period of time then he should have enough capacity in terms of space to open
higher classes. This is also dependent on the objective of the organization whether it wants to
expand to the extent of school, graduate college or post graduate college.
Capacity planning can be divided into three types based on the time period of which the planning
is done:

Short-term capacity planning
Medium-term capacity planning
Long-term capacity planning
Short-term capacity planning: Capacity planning from day-to-day, month-to-month up to a
year is called short term capacity planning. In short term capacity planning fundamental capacity
remains fixed but various short term adjustments are possible like stopping production of one
shift (in case of reduction in demand), clearing inventories (in case of piling of inventories),
hiring temporary employees (in case of seasonal rise in demand), layoff (in case of reduction in
demand).
Medium-term capacity planning: Medium term capacity planning is from one year to five years.
Demand forecasting and the scheduling tasks/operation is important to meet forecasted demand.
The strategies for medium term capacity planning involve material requirement, staff rotation
machine scheduling.

Task Prepare a production plan for an entrepreneur who wants to set up:

(a) A manufacturing unit
(b) A computer institute

Long-term capacity planning: Long-term capacity planning is planning operation above 5 years.
Major changes in capacity planning can be introduced. Expansion/contraction of the production/
operation and resources is possible. Demand forecasting and cost benefit analysis can help in
making long-term decisions. A new face to the organization can be given in long-term capacity
plans. Strategies for capacity contraction may involve sale of facilities, equipments, inventories,
reduction in workforce. Strategies for expansion will include hiring, purchasing new facilities
etc.

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Caution An important point to be mentioned here is that the period for which capacity
planning can be differentiated into short, medium and long-term varies from industry to
industry.

Capacity planning involves the following steps:
(a) Estimation of future needs
(b) Assessment of existing facilities
(c) Evaluating strategic alternatives for capacity
(d) Selecting the best alternative.

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