What is production capacity planning?

Production capacity planning is defined as the planning of production patterns in an organization or an industry. Production capacity is the ability to produce products and provide services and equipment in a specified time and condition. How to plan production strategy? Join Viindoo to learn about this issue through the following article.

What is Production Capacity Planning?

Production Capacity Planning is an important step prior to production planning. This planning helps determine the labor and machinery required for a specific production need, thereby ensuring a smooth process and a final quality product.

Accurate and effective production capacity planning helps businesses know when to increase/reduce the amount of labor and machinery to meet manufacturing production planning. This is a necessary process, greatly affecting production efficiency as well as time and costs.

Concept of production capacity planning
Enterprises need to make detailed production plans

 See also: What is production scheduling?

Types of Production Capacity Planning?

Currently, production capacity can be classified into many different categories, namely:

Design Capacity

Design capacity (or maximum capacity, standard capacity) is the maximum limit of production capacity that businesses can meet under standard conditions, such as:

  • Equipment and machinery operate normally, without interruption, damage, or power failure.
  • The input factors must ensure adequate raw materials, fuel, labor, etc.
  • The working regimes are in accordance with current regulations applied to businesses.
Design capacity in production capacity planning
The design capacity is hardly achievable

In practice, design production capacity is a theoretically ideal threshold, so it is often difficult to achieve. However, this capacity plays an essential role in comparing and evaluating the business's production capacity.

Effective Capacity

This is the maximum total output capacity that businesses expect to achieve under specific conditions of product/service structure. In addition, businesses must comply with standards, technological processes, production management capabilities, maintenance plans, and a balance of activities in production scheduling.

The difference between design production capacity and effective production capacity is practicality. In particular, the design production capacity is the theoretical ideal capacity, while the effective production capacity is the maximum achievable in practical terms, after deducting the limitations of production lines, factory conditions, etc.

Effective capacity in production capacity planning
Effective capacity is the maximum outcome that businesses can achieve in practice.

However, businesses are not always able to organize the conditions according to actual standards. Because these conditions can be affected, making the volume of products produced is not as expected. It is important that effective capacity enables the business to achieve its desired strategic goals.

Actual Capacity

Actual production capacity is the actual number achieved by the business in real conditions, which has been verified after a while. Accordingly, the amount of products achieved by businesses, in reality, reflects the actual production capacity of that business. This concept is commonly used by businesses in reporting, planning, and evaluating production capacity.

Actual capacity in production capacity planning
Actual capacity is the number of products that businesses can produce in actual.

In summary, through the above three concepts, we have explained the importance of production capacity planning in businesses. At the same time, businesses can use these indicators to evaluate the effectiveness:

Efficiency level of production capacity = (Actual capacity / Effective capacity) x 100%

  • Production capacity utilization = (Actual capacity / Design capacity) x 100%

In the process of production capacity management, businesses need to calculate both of these above levels simultaneously. Because each individual indicator reflects only one aspect of capacity management. In fact, the level of efficiency may be high but the level of utilization is low, which means that the management and capacity planning is having problems or vice versa.

Factors for evaluating production capacity

When starting to determine production capacity, businesses can fully analyze and evaluate the following factors:

  • Determine the amount of demanded products and when to deliver: In the developing and selection types of capacity, homogeneous products will have more advantages. Similar products will be produced faster than products with frequent variations.
  • Evaluate the level, characteristics, and capacity of the production line.
  • Design premises and layout of machinery and architecture necessary for production.
  • Consider the level of using equipment in the production process: Equipment is one of the factors affecting production productivity. Therefore, businesses need to pay attention to the equipment utilization factor in the production process.
  • Pay attention to environmental factors such as standards, product regulations, regulations on working time, labor safety principles, competition level, etc.
Factors in production capacity planning
Factors in production capacity planning

How do businesses plan production capacity?

Currently, capacity planning is automatically applied in many businesses through advanced technology that is directly connected to equipment and machines at the factory. For instance, data from the MES in manufacturing (manufacturing execution system) can support the fastest production capacity calculation.

Thanks to this, administrators can control operational capacity at different levels. The capacity planning process with the combination of MES and ERP software is as follows:

Step 1: Current capacity assessment 

MES software will automatically update data such as equipment operation time, and productivity of each machine. Besides, the MES systems also update employee working hours as well as supplier and inventory performance.

Step 2: Production capacity planning

Data from MES will be uploaded to ERP software, thereby forecasting the total demand and analysis for operational departments. In addition, ERP platforms also support:

  • Thoroughly evaluate production capacity over time.
  • Prepare backup plans to improve capacity as well as minimize the risks that may affect production results.
  • Provide direction for raw cuts in order to identify bottlenecks and proceed with the planned plans.
  • Set up proficient scheduling functions with the flexibility to be able to use chase or load strategies.
  • Plan demand planning and production masters that can act to align requirements with suppliers for production issues.

Step 3: Capacity adjustment

Businesses can consider tailoring methods to a plan that has a clear need and a calculated understanding of the capacity to meet the need. This adjustment can be overtime, subcontracting to different aspects of production, or innovation initiatives.

Production capacity planning
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Viindoo Manufacturing - Make an overall production plan based on resources and equipment capacity. Visiting on the Gantt chart. Effective inventory control and supply.

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The above is all about production capacity planning, its methods, and common challenges.  The above challenges can be solved when businesses apply technology solutions in production management such as ERP, and MES software. If you have any questions, do not hesitate to contact the Viindoo team for answers.

​ >>>> See also: 

What is production capacity planning?
Công ty Cổ phần Công nghệ Viindoo, Trần Thị Lâm Anh 3 December, 2022

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