Free Capacity Planning Is The Most Crucial Aspect Of Managing An Operation Successfully Essay Sample
Capacity planning refers to the process of forecasting demand and adjusting supply accordingly by ensuring that the capacity of the organization or the manufacturing plant in terms of resources and manpower is accordingly planned (Ritzman, et. al., 2004). Capacity planning methods form an important aspect of operations strategy in the organization. It forms the basis of all of the supply chain strategies of the organization and this makes it an important element in managing the operations of the organization (Wescott, 2013).
A key focus of capacity planning is helping in the determination of the level of capacity of the capital-intensive resources that play an important role in the ensuring competitiveness of an organisation in the long run. It is the production capacity of a company that helps the company determine its response to the competitor’s actions, conduct costing analysis, inventory handling strategy adopted by the company and labour management (Gunther, 2007). There are several capacity planning methods used by organizations and this includes aggregate planning, manufacturing resource planning and enterprise resource planning. These methods help a business to ensure that it maintains a balance between the demand and supply, thus helping create better profits and returns on investments in the organization (Oliver, et. al., 1997). In this way it is possible to build stronger planning and management of enterprise resources using capacity planning at all levels of the organization. This is applicable to manufacturing organizations as well as service organizations. Health care services, vehicle manufacturers, hotels and other industries use capacity planning in order to build better levels of profitability and resource management in the organization. It helps create better levels of efficiency in the organization and also helps develop stronger workforce planning as well as supply chain management strategies in the organization (Wescott, 2013).
Capacity planning versus control
Capacity planning and control are two sides of the same coin. It leads to important decisions on planning capacity and the risks involved in over capacity or under capacity planning (Jacobs & Chase, 2008). It is extremely essential that the organizations implementing capacity planning was able to balance costs, revenue, working capital and service levels as each of these parameters help enhance the efficiency in the organization (Oliver, et. al., 1997). It also helps build a better focus on operations management using demand forecasting as well as cost analysis and planning optimal levels of production (Checkland, 1999). This helps to form a stronger balance among the different parameters of managing the capacity in the organization (Mehrabi, et. al., 2000). It helps evaluate future human resource requirements, material requirement and capacity for production in terms of machines and equipment. In case of insufficient capacity, due to reduce speed of performance, service or production, a company is likely to lose customers and this in turn will impact the bottom line of the company. In case of excess capacity, in order to ensure that there is a constant rise in the demand for the product and continuous sales, the company needs to invest heavily on marketing activities, reduce prices and adapt the products handling strategy to be able to handle excess stock (Oliver, et. al., 1997). When this is well balanced with demand, it becomes easier for the organization to balance demand and supply and improve the efficiency of its operations and over production and under production can be avoided. It helps achieve betterment in terms of resource planning at all levels of the organization and helps manage the organization better (Checkland, 1999).
Capacity planning helps bring in controls at all levels of management and functions of the organization. It helps ensure that the resources for the organization, including men, money, material and machines are available or stocked in the organization only in the required quantities. If that is not the case, then it readjusts the capacity of the organization and also re plans the production schedules of the plant. In this way it is possible for the organization to achieve better efficiency and grow in terms of business and revenue (Oliver, et. al., 1997). It helps the business to ensure that it does not face losses due to wrong capacity planning and tries to base the capacity plan on demand forecast, which is tried to be made as accurate as possible. In this way, the demand and supply balance does help the organization obtain higher levels of efficiency as well as provides it with a leverage where in the organization does not have to face losses due to wastage of resources or opportunity loss and opportunity costs (Gunther, 2007). In this way capacity planning, when is done in an effective manner helps an organization ensure better focus on competitive advantage and competency building (Corsten & Stuhlmann, 1998). It also helps the organization grow in terms of volume of business and profits without hampering its capacity planning and manufacturing schedules. It helps the business be ready to supply according to the expected demand (Gunther, 2007). In this way, capacity planning helps bring in control and control mechanisms would fail if effective capacity planning is not implemented in the organization (Checkland, 1999).
Choosing a capacity planning and control approach
A capacity planning and control approach is to be chosen on several factors which include industry type, method of forecasting used, focus on market structure and market fluctuation, risks involved and other elements which impact the level of demand and its forecasting accuracy in the organization as well as in the industry (Vollmann, et.al., 1992). Factors like risk and heuristics help determine demand in certain industries whereas information systems help certain industries bring out accurate demand forecasts (Zhang, et.al., 2008). Chase demand strategy, level strategy and demand management strategy are popularly used by organizations to ensure that demand supply balance is maintained. This helps present day organizations manage cumulative demand and ensure that they are able to manage or change demand, according to their supply or even adjust their production output to demand (Sage, 2012). In this way it helps procure better focus on creation of demand supply balance based profitability for the organization and optimize production as well as returns. In this way it forms an important strategy for the business. It can help the business grow in terms of maximum sales and revenue as well as optimum risk management with concern to inventory and supply chain (Hill, 2006). This helps the organization achieve better levels of competitiveness and competency which is an important element to exist in present day markets, which are extremely competitive and dynamic (Kehoe & Boughton, 2001). Customer needs have to be fulfilled otherwise competitors and substitute3s would eat into the market share of an existing organization and so capacity planning becomes extremely crucial for the business (Sage, 2012).
Level capacity plan versus aggregate planning
Level capacity plan refers to absorbing demand, producing the same quantity or production output irrespective of demand fluctuations and this helps the firm maintain feasibility as resource levels are fixed (DuBois & Oliff, 1991). This method is suitable for very few industries where goods are not perishable and have long shelf lives (Oliver, et.al., 1997). For example, in case of plastic goods which are not impacted by fashion or changes and do not perish, this form of level capacity planning can be used. It helps ensure low cost of production and economies of scale (Ramo & St. Clair, 1998). On the other hand, industries like retail and food products, have to adjust their production schedules as per aggregate demand, every now and then to ensure that they do not over produce and the shelf life being short, the excess products would have to be thrashed. In this way aggregate planning becomes a better method to manage materials and resources in an organization (Yassine & Braha, 2003). It helps build stronger levels of focus on balancing production and demand without losing opportunities and thus aiming at maximizing profits. It does form an extremely important tool of managing resources in several industries and does help form stronger strategies that benefit the organization (Oliver, et. al.1997; Sage & Olson, 2011).
Disadvantage of capacity planning
Capacity planning does have a few disadvantages as well. Firstly the cost of production per unit is relatively high. Moreover, demand forecasting accuracy is always questionable and risks regarding demand fluctuations exist even if the most competent information systems are used. It is an important element that leads to capacity plans are successful or becoming a failure. It is crucial that resources are planned according to demand (Oliver, et.al., 1997). If there is an imbalance in resources, which involve capital investment, and demand, then it is not possible for an organization to achieve the required levels of supply as well. In this way there are several risks involved in case of using capacity planning methods and aggregate planning methods in managing resources of an organization as well as planning the production schedules (Jenkins, 2011). It is important that these risks are minimized by using effective demand forecasting methods and ensuring optimal production plans which can help balance business volume and profitability (Menasce, et. al., 2004). As there are several costs involved in the case of managing production resources and capacity, it is important that there is a better focus on achieving strong supply networks which can help the organization obtain the required resources within shorter lead times so that risk can be better managed (Sage, 2012).
Essay opinion and example
In my opinion, capacity planning is extremely crucial for achieving efficiency in the operations of the organization. It can help build better levels of demand - supply balance which in turn leads to higher profitability of the organization (Ramo & St. Clair, 1998). It also helps manage economies of scale which can help the organization using capacity planning achieve lower costs of production (Roundy, et. al., 2004). For example, in case of a hospital that uses enterprise resource management tools to implement capacity planning in the organization, an expectation of higher number of patients would lead to capital expenses like installing more beds and hiring more doctors and nurses (INCOSE Resp Group, 2004). If the capacity is not used, the investment and expenses are a loss to the hospital. In this way, if demand is forecasted to be low and the capital investment is not made, but if higher number of patients turn in it would lead to an opportunity loss impacting the business profits of the organization. So, effective demand forecasting and capacity planning are crucial for the organization (Ramo and St. Clair, 1998). It helps achieve better profitability and so should be implemented in manufacturing organizations as well as service organizations alike (Spicar, 2014). It becomes extremely important for businesses to be able to focus on inventory management and supply chain as they help the organization create stronger levels of focus on building better growth and competitiveness. It also helps ensure dynamism and focus on achieving betterment in the organization’s operations (Hope & Mühlemann, 1997). It also helps create stronger customer relations and management of inventory in the organization (Oliver, et.al., 1997).
In summary, the paper discusses the advantages and disadvantages of capacity planning as opposed to control. This followed with a discussion of how capacity planning and control approach is chosen given the demand levels. Level capacity planning is evaluated vis-à-vis aggregate planning. The disadvantages of capacity planning are discussed. In the end the example of ER in capacity planning is reflected upon.
Capacity planning is extremely important. It helps build better efficiency in the organization which is important for organizations to remain profitable. It forms the basis of all decisions in the operations of the organization and this makes capacity planning extremely important (Ramo & St. Clair, 1998). Capacity planning helps implement several control mechanisms which are extremely useful for the organization and the management of enterprise resources. In present times, technology and information systems are being effectively used for the purpose of managing enterprise resources and this has enabled global companies to build high levels of efficiency in the capacity planning process by using industry best practices. In this way capacity planning does form an extremely important part of managing organization’s operations as it helps decide the economies of scale or the scale on which the organization should manage its supply (Lazowska, 1984).
It helps balance business operations based on demand and demand forecasts which need to be accurate in order to ensure accurate capacity planning. There are several risks involved in case of capacity planning and technological interventions do help eliminate several of these risks of bringing in real time data that helps determine or forecast demand with better accuracy (Krajewski & Ritzman, 2005). In this way capacity planning forms a crucial aspect of strategies of the organization and making positive strategic decisions with regard to better capacity planning in the organization would help the organization improve the levels of efficiency in the organization. It also helps build better growth and better efficiency in management of workforce and other aspects and operations in the organization (Ramo and St. Clair, 1998). The importance of capacity planning should not be undermined by the management of an organization as it is crucial for building strategic success and long term growth.
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