Approaches to capacity planning and timing

When capacity needs to be increased or decreased, the operation must consider how this is going to be achieved. This is a key decision as the organisation will have to make investment decisions based upon what level of capacity is to be selected and when it is to be provided. The operation has severalways in which it can respond to the changes in demand with its provision of capacity. The decision to provide capacity depends upon the selected strategy and the ability to store the product or timelinessof service production. The timing decisions of how and when to provide capacity need to be determined in line with demand.

Capacity planning methods

The organisation has 3 main choices:

  1. It can provide capacity ahead of the forecast so that it is ready to respond immediately which is known as a capacity leads demand strategy.
  2. It can provide capacity as demand changes so that it expands and contracts its capacity to follow demand, which is a capacity matches demand strategy.
  3. It can wait to see what demand is and then respond after it is confirmed, a capacity lags demand strategy.

Capacity Leads Demand

It is possible to have capacity ready to react to an increase in demand as ready and available capacity. This is where a buffer is provided in order to allow the operation to react quickly to increases in demand. This strategy adds capacity in anticipation of extra demand and is therefore an opportunistic strategy with the purpose of attracting customers away from competitors. This capacity strategy has an advantage in that the operation is ready to satisfy customer demand and meet short term opportunities. 

However there is a risk of demand not rising and the operation is then left with the wasted costs of unused capacity. It is a more expensive way of providing capacity as it requires investment to be made ahead of demand, but it is a useful strategy if the organisation is trying to build market share and the benefit of establishing a customer relationship outweighs the cost of providing excess capacity. 

An example of a capacity leads demand approach would be an extension to a lecture theatre being built before student numbers were confirmed.

Capacity Matches Demand

For the provision of capacity in line with demand then this strategy is adopted. This is done by adding capacity in measured amounts in response to changing demand in the market. This is usually accomplished by flexible addition of capacity either from flexible labor or flexible facilities that are able to meet the demand upon requirement. Either good planning is in place or there is a risk of underutilized resources. 

This strategy relies heavily on forecasting and accurate information as investment decisions are made in line with the forecast. Incorrect forecasting will cause missed opportunities or wasted resources. This often happens in services where staff are the flexible resource and can be brought in to cover peak demand yet sent home in quieter times, such as a toy store catering to Christmas demand or a restaurant expanding and contracting capacity in line with anticipates peaks and troughs in customer demand.

Capacity lags demand

Here increments of capacity are only added after the demand has increased by providing capacity after the demand rises. This allows the organisation to provide capacity with certainty and reduces the risk of incorrect investment into capacity increases. However this method does rely on the ability to provide products and services on short lead-time and assumes that the customer is prepared to wait. 

This is less risky than providing investment ahead of demand; however, it has the disadvantage that customers may not be prepared to wait for the product or service and opportunities can therefore be lost. 

Producing products on a lead time can be frustrating for customers, it can be almost impossible to buy a sofa from a store and have it delivered on the day, most have a four week lead time to allow the manufacturers to plan their capacity ahead of time. This is becoming an increasingly unusual strategy for consumer goods as consumers are often less tolerant of waiting.

Capacity Timing

The ability to increase or decrease capacity can be viewed in 3 time phases; short term, medium term and long term.

Short-term planning – this is a reactive time scale and can be as immediate as adjusting capacity on the same day or on a time scale of up to around 3 months (depending on the industry) Here, only flexible resources can be applied to increase the capacity. It may be costly to the operation as the speed of readjusting the resources may be higher on short term timescales. In many cases employees are the most readily available resource. Examples of this may involve measures such as:

  • Overtime for existing staff
  • Having multi-skilled staff who can be reallocated to where a bottle neck has occurred. An example of this could be the tannoy call in a supermarket requesting, ‘all till trained staff to report to the checkout’ in order to increase the capacity for payment, where queues are backing up at the checkout.

Medium-term planning – this time scale is beyond the immediate managing of the operation and has a horizon of around 3 – 18 months. This gives the operation more time to make plans to adjust capacity and therefore the changes are more significant than the short term plans.

  • Hiring or firing contract staff
  • Leasing in facilities, for example if processing calls, additional call center support can be hired.

Long-term planning – this planning is a time scale beyond 12- 18 months. Here the investment decisions tend to be more significant and will link to the strategy of the operation. The changes will take a long time to implement but are also difficult to reverse. There are many more options available to consider with long term decisions relating to capacity and the possibilities for increases are far greater. They could include:

  • New trained full time staff or fire existing staff
  • New processes that may be faster
  • New Machinery on a manufacturing line
  • Information systems or technology can be applied to increase efficiency and capacity
  • Additional facilities
With each of these options the ability to utilise the adjustment depends upon the nature of the individual process, a fast food restaurant may be able to hire and fire staff as training may take minutes for a new employee and investment is low, however a hospital may not be able to hire and fire skilled surgeons as they take many years to train and their skills maybe unique to the particularprocess they are involved in. Training methods for a car manufacturer rely on the skill of an individual and are not easily replaced so a hire and fire policy is less effective, however if an operation were to invest in more technology that could replace many of these skills, then the staff would be more expendable and the flexibility of capacity would improve.

Case study: The City of Manchester Stadium

The stadium used by Manchester City football club was originally designed to be the central arena for the Manchester bid to host the 1996 Olympics. When the games were awarded to Atlanta, the City of Manchester refocused their efforts on the Commonwealth Games bid for 2002, which they won. 

The stadium was originally planned as an 80,000 seat arena for the Olympics. This was revised down to a 60,000 capacity stadium for the Commonwealth games. However, the Council’s main concern was that the stadium should have a sustainable future so the plan was revised down again to accommodate a future for the stadium as the new ground for Manchester City football club to replace their Main Road Stadium in Moss Side. The revised plan meant that the capacity for the Games in 2002 was 38,000 which then rose to 48,000 in 2003 when it was handed over to Manchester City football club. 

Construction of the stadium took 3,000 workers just over 2 years to complete and was handed over to the organizers four months ahead of the games. The Commonwealth Games was a spectacular success both for British athletes and the City of Manchester. However, there was no sentiment shown when the bulldozers moved in just hours after the closing ceremony. The track was removed, a third tier of seating was added and the central pitch was lowered. The conversion costs of £30 million were met by the football club. 

This plan was not without criticism, as there were many calls by leading athletes for a large athletics stadium to be kept. However, the stadium from both Sydney and Atlanta Olympics became rugby and baseball grounds respectively. The Manchester Stadium has also been used as a concert venue and has a capacity for 60,000 fans, one of Europe’s largest open air concert venues. 

In 2010, an application was granted to expand the capacity to 60,000 for football fans. In 2002 the Manchester Commonwealth stadium had two tiers of seating, but after the stadium’s conversion to a football ground, it had three tiers of seating. There are 2,000 parking spaces at the stadium itself with a further 8,000 spaces provided locally, there are 2 train stations within a half hour walk of the ground and for concerts and special events a bus service is set up. The stadium is used twice weekly during the football season, hosts conferences, major sporting events and even weddings.

Article based on Chapter 7 written by Briony Boydell

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