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Capacity Planning

Amanda Scheldt
Last Updated May 17, 2022 9:44 am

Capacity planning is a process that helps organizations determine the resources needed to meet the demand of consumers. It is a vital component of running an efficient business with minimal to no disruption.

A company’s capacity planning strategy often assesses how much it can achieve, produce, or sell within a given period of time.

What Is Capacity Planning?

Capacity planning is the strategy of specifying resource capability to meet anticipated demand without disruption. It allows companies to accurately forecast their future resource requirements based on current and past trends.

This process is a critical part of the business strategic planning process and ensures the organization has enough people, equipment, materials, and facilities at all times. Capacity planning is a crucial part of the strategic planning process because it provides information about what resources need to be available for an organization’s operations and projects.

Capacity planning also looks at how an organization plans for workload, including staffing levels and scheduling processes, to ensure demand is met.

The capacity planning process commonly includes these four main strategic steps for businesses to forecast appropriately:

  1. Measure: Estimate your existing demand by using historical data on service levels and current business objectives to determine current capacity levels.
  2. Analyze: Compare accurate service or production levels with your estimates; identify trends or variances in expectations versus reality; and determine if there may be external factoring, such as equipment failures, in your results.
  3. Track: Maintain a consistent record of changes over time, so you can quickly identify trends or deviations from standard operating procedures (SOPs).
  4. Identify: Specify operational and production areas where improvement is needed and prioritize production and projects to meet the demand effectively.

Learn about capacity planning essentials at Project-Management.com.

Capacity Planning vs. Resource Planning

Capacity planning is a proactive approach to workforce and workload planning. It focuses on the right amount of capacity to meet business demand with minimal or no workload interruption. Companies determine how much capacity is needed based on their current operations and tasks alongside their desired business goals.

Comparatively, resource planning is a reactive, ongoing process that helps businesses meet their goals and initiatives in the most cost-effective way possible. It focuses on planning resources as needs arise and removing bottlenecks and challenges as they occur.

Resource planning can ultimately lead to workforce over-provisioning, because there’s no way for the system to comprehend what future workloads will look like or how changes might affect current resource utilization patterns.

How Does a Business Do Capacity Planning?

The capacity planning process usually begins with defining strategic objectives and goals. Objectives can be competitive, such as outperforming competitors or gaining market share. And goals can be internal, such as increasing efficiency, reducing costs, bettering customer service, or improving quality control.

Once businesses establish their strategic goals, they need to examine how well they currently meet those business goals and what adjustments will be necessary to keep meeting them in the future.

Business Use Cases for Capacity Planning

Businesses should utilize capacity planning in these four key areas to optimally forecast their strategy:

Product Capacity Planning

Ensure your organization has enough of a product, or the materials required to make the product, to meet customer demand. The more valuable the planning, the fewer lost sales and less waste the business will produce.

Workforce Capacity Planning

While product capacity planning manages products, workforce capacity planning manages the people. Businesses need to make sure enough workers have the proper skill sets to meet consumer expectations. Efficient workforce capacity planning ensures there is the right headcount for each type of worker, so they stay busy and prevent lulls in the business process.

Tool Capacity Planning

This process focuses on the actual equipment or software needed to complete the production process. Ideal tool capacity plans utilize all available equipment to ensure production continues; otherwise, there is a risk of wasted capacity and lost revenue.

Production Capacity Planning

This reflects the peak production that can be delivered simultaneously, assuming maximum efficiency of product, workforce, and tool capacities. This allows businesses to build out process improvements focused on improving efficiency and accuracy alongside the production process.

What Industries Use Capacity Planning?

Capacity planning is used in a variety of industries to forecast business and workforce needs. Some of the industries and business departments that most commonly rely on capacity planning include:

Looking for better enterprise tools to work on capacity planning? Learn about the Best Enterprise Resource Planning (ERP) Software and Tools here.