Capacity Planning Definition

Capacity planning is the process of identifying the production capacity needed by an organization to meet future demand. It is a key component of supply chain management and is used to ensure that adequate resources are available to meet customer demand.

The goal of capacity planning is to avoid both underutilization and overutilization of resources, which can lead to inefficiency and increased costs. To be effective, capacity planning must take into account both the long-term and short-term needs of the organization.

In the short term, capacity planning is used to identify the amount of resources required to meet expected demand over a defined period of time, such as a month or a quarter. This type of planning is typically done on a rolling basis, with plans being updated as demand changes. In the long term, capacity planning looks at the overall needs of the organization and determines what level of production can be sustained over time. This type of planning is often done when an organization is expanding or adding new products or services.

There are several approaches that can be used in capacity planning, including:

-Demand forecasting: This approach uses historical data to predict future demand for a product or service. Forecasting can be done using statistical methods or more qualitative techniques such as market research.

-Economic order quantity (EOQ): This approach calculates the optimum amount of inventory to order based on factors such as lead time and carrying costs.

-Just-in-time (J