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Part Three
Planning and control
Figure 11.15 illustrates both plans on a cumulative basis. Plan 1, which envisaged two
drastic changes in capacity, has high capacity change costs but, because its production
levels are close to demand levels, it has low inventory carrying costs. Plan 2 sacrifices
some of the inventory cost advantage of Plan 1 but saves more in terms of capacity
change costs.
Figure 11.15 Comparing two alternative capacity plans
Capacity planning as a queuing problem
Queuing theory
Cumulative representations of capacity plans are useful where the operation has the ability
to store its finished goods as inventory. However, for operations where it is not possible
to produce products and services before demand for them has occurred, a cumulative representation
would tell us relatively little. The cumulative ‘production’ could never be above
the cumulative demand line. At best, it could show when an operation failed to meets its
demand. So the vertical gap between the cumulative demand and production lines would
indicate the amount of demand unsatisfied. Some of this demand would look elsewhere to
be satisfied, but some would wait. This is why, for operations which, by their nature, cannot
store their output, such as most service operations, capacity planning and control is best
considered using waiting or queuing theory.