Capacity Planning is the strategic process of determining the production capacity required to meet changing customer demand whilst balancing resource utilisation, costs, and delivery commitments. It involves analysing your available resources (machines, labour, facilities, and materials) against forecasted demand to identify gaps, prevent bottlenecks, and ensure you can fulfil orders on time without excessive overtime, outsourcing, or capital investment.
Effective capacity planning operates at multiple time horizons. Long-term capacity planning (typically 1-5 years) focuses on major strategic decisions like facility expansions, new production lines, or significant equipment purchases. Medium-term planning (3-18 months) addresses hiring needs, equipment upgrades, and preventive maintenance schedules. Short-term capacity planning (days to weeks) involves daily scheduling decisions, overtime allocation, and managing unexpected disruptions like machine breakdowns or rush orders.
The process begins with demand forecasting, which feeds into rough-cut capacity planning to compare required capacity against available capacity at a high level. More detailed finite capacity planning then examines specific work centres and time periods, considering constraints like setup times, maintenance windows, and operator availability. When demand exceeds capacity, manufacturers must decide whether to add resources (hire staff, purchase equipment, add shifts), reduce lead times through process improvements, or turn away business.
Modern ERP and APS systems automate much of capacity planning by maintaining real-time data on resource availability, work centre capacities, and order backlogs. They can simulate different scenarios (What if we add a second shift? What if this machine goes down?) to help planners make informed decisions. Good capacity planning prevents the costly extremes of either running out of capacity and missing delivery dates or investing in excess capacity that sits idle. It’s particularly critical for capital-intensive industries where equipment represents significant fixed costs and for make-to-order manufacturers who must quote realistic lead times before accepting orders.
