2.4.3. Matching operations plans with capacity
When planning operations ideally the organisation would like to have
Capacity = Average Utilisation Rate
However, where the amount by which the average utilisation rate falls below 100 percent is actually called the capacity cushion . In excess capacity may exist.
Capacity = 100 - Average Utilisation Rate
However, where the amount by which the average utilisation rate rises above 100 percent a capacity deficiency , or too little capacity may exist.
The overall efficiency of capacity planning may be set by determining the ratio of actual output to effective capacity.
Efficiency = Actual Output / Effective Capacity
Effective Capacity the maximum possible output given the product mix, scheduling difficulties, machine maintenance quality factors and so on (Stevenson 1993:242).
Actual Output is the rate of output actually achieved. It cannot exceed effective capacity and is often less that effective capacity due to breakdowns, defective output, shortages of materials, and similar factors (Stevenson 1993:242).
In simple terms Average Utilisation Rate can be now focussed down to determine utilisation as a ratio of actual output to design capacity.
Utilisation = Actual Output / Design Capacity
Designed Capacity the maximum output that can be attained (Stevenson 1993:242).
For business, irrespective of size or goods and services, the aim is generally to ensure efficiency. Efficiency may exist in the operations but capacity planning suggests optimal long term output needs to be achieved. This is where planned capacity and allocation of resources matches needs. If it is too little, output targets cannot be reached and if it is too much, the cost of excess capacity detracts from operational efficiencies.
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