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Production with TQM

Chapter 4

Capacity , Aggregate, Materials and Resource

I.Capacity Planning
The production system design planning considers input requirements, conversion process and
output. After considering the forecast and long-term planning organization should undertake capacity
planning.
Capacity is defined as the ability to achieve, store or produce. For an organization, capacity would
be the ability of a given system to produce output within the specific time period. In operations,
management capacity is referred as an amount of the input resources available to produce
relative output over period of time.
In general, terms capacity is
referred as maximum production
capacity, which can be attained within
a normal working schedule.
Capacity planning is essential to be
determining optimum utilization of
resource and plays an important role
decision-making process, for example,
extension of existing operations, modification to product lines, starting new products, etc.

Capacity Planning Classification

Capacity planning based on the timeline is classified into three main categories long range,
medium range and short range.
Long Term Capacity: Long range capacity of an organization is dependent on various other
capacities like design capacity, production capacity, sustainable capacity and effective capacity.
Design capacity is the maximum output possible as indicated by equipment manufacturer
under ideal working condition.

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Production capacity is the maximum output possible from equipment under normal working
condition or day.
Sustainable capacity is the maximum production level achievable in realistic work
condition and considering normal machine breakdown, maintenance, etc.Effective capacity is
the optimum production level under pre-defined job and work-schedules, normal machine
breakdown, maintenance, etc.
Medium Term Capacity: The strategic capacity planning undertaken by organization for 2 to 3
years of a time frame is referred to as medium term capacity planning.
Short Term Capacity: The strategic planning undertaken by organization for a daily weekly or
quarterly time frame is referred to as short term capacity planning.

Goal of Capacity Planning -The ultimate goal of capacity planning is to meet the current and
future level of the requirement at a minimal wastage. The three types of capacity planning
based on goal are lead capacity planning, lag strategy planning and match strategy planning.
Factors Affecting Capacity Planning -Effective capacity planning is dependent upon factors like
1.production facility (layout, design, and location),
2.product line or matrix,
3.production technology,
4.human capital (job design, compensation),
5.operational structure (scheduling, quality assurance)
6.and external structure ( policy, safety regulations)
Forecasting v/s Capacity Planning
There would be a scenario where capacity planning done on a basis of forecasting may not
exactly match. For example, there could be a scenario where demand is more than production
capacity; in this situation, a company needs to fulfill its requirement by buying from outside. If
demand is equal to production capacity; company is in a position to use its production capacity
to the fullest. If the demand is less than the production capacity, company can choose to
reduce the production or share it output with other manufacturers.
The 3 Types of Capacity Planning

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The three types of capacity planning make sure you have enough, but not too much, of three
major resources for both the long- and short-term. You’ll want to plan weeks, months, or even
a year in advance.
1. Product capacity planning
Product capacity planning ensures you have enough products or ingredients for your
deliverables. For a florist, this would be flowers, vases, and cards. For a pool maintenance
company, this would be things like chlorine that are required to do the job.
2. Workforce capacity planning
Workforce capacity planning ensures you have enough team members and work hours
available to complete jobs. This type of planning will also show you when you need to hire
more employees and help you determine how far in advance you need to start recruiting based
on the length of your onboarding process.
3. Tool capacity planning
Tool capacity planning ensures you have enough tools to complete jobs. This includes any
trucks, assembly line components, or
machinery you need to manufacture
and deliver your product.
How to Start Capacity Planning
Three basic steps to capacity planning.
1. Measure
First, you’ll need to measure your
resource capacity. How many
deliveries can each of your drivers
make in a given period? How many orders can fit onto each of your trucks? How many hours
does it take your fleet manager to plan 50 deliveries? It’s important to answer these types of
questions as accurately as possible because the rest of your plan will be based on these
numbers.
2. Analyze

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Once you have accurate measurements, you can spend time analyzing this information. Making
graphs will help you understand the numbers and make demand forecasting easier.
3. Formulate
The final step is taking all of the information you’ve gathered and formulating a plan.
You can make calculations to see how much it will cost to fund new projects or hire a full-time
employee vs. bringing on seasonal part-time workers. You could also calculate the ROI for
upgrading a piece of machinery or adding assembly lines to your production facilities. The
formulation stage helps you see what the likely outcomes are for various options, so you can
make the best decision.

II.Aggregate Planning
An organization can finalize its business plans on the recommendation of demand forecast.
Once business plans are ready, an organization can do backward working from the final sales
unit to raw materials required. Thus annual and quarterly plans are broken down into labor,
raw material, working capital, etc. requirements over a medium-range period (6 months to 18
months). This process of working out production requirements for a medium range is called
aggregate planning.
Factors Affecting Aggregate Planning
Aggregate planning is an operational activity critical to the organization as it looks to balance
long-term strategic planning with short term production success. Following factors are critical
before an aggregate planning process can actually start;

 A complete information is required about available production facility and raw

materials.
 A solid demand forecast covering the medium-range period
 Financial planning surrounding the production cost which includes raw material, labor,
inventory planning, etc.
 Organization policy around labor management, quality management, etc.

For aggregate planning to be a success, following inputs are required;

 An aggregate demand forecast for the relevant period

 Evaluation of all the available means to manage capacity planning like sub-contracting,
outsourcing, etc.

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 Existing operational status of workforce (number, skill set, etc.), inventory level and
production efficiency

Aggregate planning will ensure that organization can plan for workforce level, inventory level
and production rate in line with its strategic goal and objective.

Aggregate planning as an Operational Tool

Aggregate planning helps achieve balance between operation goal, financial goal and overall
strategic objective of the organization. It serves as a platform to manage capacity and demand
planning.

In a scenario where demand is not matching the capacity, an organization can try to balance
both by pricing, promotion, order management and new demand creation.

In scenario where capacity is not matching demand, an organization can try to balance the both
by various alternatives such as.

 Laying off/hiring excess/inadequate excess/inadequate excess/inadequate workforce

until demand decrease/increase.
 Including overtime as part of scheduling there by creating additional capacity.
 Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contrator.

Importance of Aggregate Planning

Aggregate planning plays an important part in achieving long-term objectives of the

organization. Aggregate planning helps in:

 Achieving financial goals by reducing overall variable cost and improving the bottom line
 Maximum utilization of the available production facility
 Provide customer delight by matching demand and reducing wait time for customers
 Reduce investment in inventory stocking
 Able to meet scheduling goals there by creating a happy and satisfied work force

III.Materials and Resource Requirement Planning

Success of an operation department of any organization is dependent upon an efficient

production plan. One of the key essential of a production plan is material and manufacturing
planning system. Material requirement planning plays a pivotal role in assembly-line
production. Material requirement planning is a system based approach, which organizes all
required production material.

Material requirement planning is an information system for production planning based on

inventory management. The basic components of material planning are:

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 Material planning provides information that all the required raw material and products
are available for production.
 Material planning ensures that inventory level are maintained at its minimum levels. But
also ensures that material and product are available whenever production is scheduled,
therefore, helping in matching demand and supply.
 Material planning provides information of production planning and scheduling but also
provides information around dispatch and stocking.

Objective of Material Requirement Planning

Material requirement planning is processed which production planning and inventory control
system, and its three objectives are as follows:

 Primary objective is to ensure that material and components are available for
production, and final products are ready for dispatch.
 Another primary objective is not only to maintain minimum inventory but also ensure
right quantity of material is available at the right time to produce right quantity of final
products.
 Another primary objective is to ensure planning of all manufacturing processes, this
scheduling of different job works as to minimize or remove any kind of idle time for
machine and workers.

Advantages and Disadvantages of Material Resource Planning

As with every system based process, material resource planning also has its advantages and
disadvantages, and they are as follows:

Advantages of Material Resource Planning

 It helps in maintain minimum inventory levels.

 With minimum inventory levels, material planning also reduces associated costs.
 Material tracking becomes easy and ensures that economic order quantity is achieved
for all lot orders.
 Material planning smoothens capacity utilization and allocates correct time to products
as per demand forecast.

Disadvantages of Material Resource Planning

 Material planning is highly dependent on inputs it receives from other systems or

department. If input information is not correct than output for material planning will
also be incorrect.
 Material planning requires maintenance of robust database with all information
pertaining inventory records, production schedule, etc. without which output again
would be incorrect.

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 Material planning system requires proper training for end users, as to get maximum out
of the system.
 Material resource planning system requires substantial investment of time and capital.

Material Resource Planning - Inter dependency of Business Function

Material planning not only benefits operation department but is also beneficial to the other
department of organization. They are as follows:

 Material planning is useful in determining cash flow requirement based on material

requirements and final dispatch schedules.
 It helps procurement team in scheduling purchase of necessary material.
 It helps the sales team in determining delivery dates for final products.

Implementation of Material Resource Planning

Implementation and success of material resource planning dependent on following factors:

 Acceptability of by top management about advantages and benefits

 Proper training and participation of all workers and personnel
 Precision and accuracy of input data for accurate and reliable results

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