Page 71 - DMGT501_OPERATIONS_MANAGEMENT

Unit 3: Capacity Planning

Notes
Example: RIL set up capacity to manufacture 250,000 MT of polypropylene and 160,000
MT of polyethylene at its Hazira plant. This measures the output of the end products. Another
example is megawatt-hours of electricity for a power generation utility.
Finding a yardstick to estimate capacity is more difficult in many service industries where there
is no uniform product on which the measurement can be based, e.g., airlines, hospitals, restaurants,
etc. However, measures can be devised to assess capacity. For example, an airline can use seat-
miles as a measure of capacity. A hospital can measure capacity as beds-days each year. In a
restaurant, this might be the number of customers that can be handled per day.

In a process-focused facility, Capacity is often determined by some measure of size, such as the
number of beds in a hospital, seating capacity in a restaurant, etc.
In a repetitive process, the number of units assembled per shift, such as number of refrigerators,
may be the criterion for Capacity.
And in a product-focused facility, such as TISCO, tones of steel processed per shift may be the
measure of capacity.
Whatever the measure, the Capacity decision is critical to the management of an organization
because everything from cost to customer service is measured on the basis of the Capacity of the
process, once the Capacity is determined.
In general, Capacity can be expressed in one of two ways:
1. Output measures or

2. Input measures.
1. Output measures are the usual choice for high-volume processes.

Example: Maruti was set up to manufacture 100,000 passenger cars per year.
This type of capacity measurement needs to be taken with some caution. The Maruti plant
produces three types of vehicles on a single platform. As the man-hours required to produce the
different models are not identical, Maruti may be able to manufacture 125,000 vehicles if it only
produced the Maruti 800, perhaps 110,000 vehicles if it only produced the Omni, and 85,000
vehicles if it only produced the Gypsy. The 100,000 number is an average number to make the
capacity measurement relatively easy.
As the amount of customisation and variety in the product mix increases, output-based
capacity measures become less useful. Output measures are best utilized when the firm
provides a relatively small number of standardized products and services, or when such
measures are applied to individual processes within the overall firm.
Let us take another example. We could say that a plastic goods unit turns out plastic goods.
Can we therefore unambiguously make a statement of the capacity as the weight of
processed output or number of plastic goods per unit period?
Though the capacity of the plastic making unit can be expressed as weight of plastic
processed, it would not be accurate because the number will differ according to the mix of
products being made. A change in product mix will usually mean a change in capacity
also. Also, as there are a variety of plastic goods, coming in different shapes and sizes,
number may not be a good measure. Finally, the decision has to be based on judgement or
industry practice.

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