Saturday, April 18, 2015

Aggregate capacity planning

In the context of capacity planning, capacity refers to a firm’s labor and machine resources. Aggregate capacity planning is the process of devising a plan for providing a production capacity scheme to support the intermediate range sales forecast.

As a forecast demand becomes known in the form of customer orders, aggregate capacity plan may have to be revised upwards and downwards to avoid either overloaded or underloaded facilities. The aggregate capacity plan checks whether there is sufficient capacity to meet the demand expressed in the aggregate output plan.

The planning lays down how the capacity will be utilized and how over or under capacity will be corrected by using different strategies.

While the basic capacity is fixed, in the short run it could be augmented by overtime or running an extra shift or by subcontracting. The labor inputs could be varied.

Aggregate capacity planning models are often found in process industries because firms in these industries typically focus on capacity first and then schedule materials and labor.
Aggregate capacity planning

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