Why you should be capacity planning

The basics and benefits of capacity planning

Capacity planning is an approach that helps you to establish the amount of production capacity needed to satisfy the manufacturing requirements.

The impact of capacity planning is reflected on the profitability of the business and, when done right, it can help to identify which activities should be scaled back and which activities should be increased. In essence, effective capacity planning helps you identify when your resources are being over-utilized, how to spot bottlenecks in an organisation, and enables you to be one step ahead of risks, before they become a serious problem.

The basics of capacity planning

The goal of capacity planning is to even out costs for production against the required resources. This means balancing manufacturing supply with demand. In order to achieve this goal, a company first needs to set a scope and create a capacity plan. Using monitoring and measurement tools can help you make proactive adjustments to the workload, identify trends and stop potential bottlenecks before they arise.

When calculating capacity, a variety of elements must be taken into account, such as the amount of machinery required, the size of the workforce to run those machines, the hours available, the combination of products to be manufactured, the utilisation of equipment and the efficiency rate. These are all factors that will help the organisation determine whether they need additional resources to fulfill the predicted demand. With a proper capacity plan, managers can be proactive in adding or reducing resources to ensure they meet their expectations.

Depending on your business, capacity planning reviews could be performed bi-yearly or as often as every quarter. Long-term capacity planning should consider both aggregated and disaggregated levels, where aggregated planning considers a perspective of 2 to 18 months, while disaggregated planning considers a shorter perspective of up to 3 months. Disaggregated capacity planning focuses on smaller time periods based on the wider plan.

Advantages of Capacity Planning

Lower Costs

Capacity Planning can help you cut costs by improving efficiency. By tracking current operations and predicting future needs, companies are able to make more accurate predictions about the future. You can compare past and current production data and make adjustments to stay on track. You can also measure the impact of different labour strategies, equipment, speed or product lines.


Labour is a big part of production capability and as such, it becomes a crucial component in capacity planning. By correctly forecasting the number of employees required for your operations, you can reduce staffing costs. Moreover, utilising capacity planning can help you fill potential skill gaps and avoid overworking employees, meaning less overtime, more effective training and better utilisation of the factory’s equipment and workers..

Continuous Improvement 

When you start to measure your operations and set up KPI’s for capacity planning purposes, you can also easily identify areas for improvement and optimise efficiency. This is a great synergy that give you double payout for the work put in.

Expansion and budgeting

If your company is in an expansive phase, it is crucial to keep operations aligned with your cash flow and prevent overspending. Knowing your factory capacity will allow for more sustainable growth and minimise capital risks. Moreover, it could be worthwhile to review demand planning & forecasting processes and potentially invest in solutions that help you and your business get a better understanding of required purchase and related supply chain costs.

Decrease Out of Stock situations 

Optimised capacity is the first step in maximising stocks. It helps to ensure that your factory has the necessary materials and components at hand when they're needed. That way, you don't risk overstock or running out entirely, which also means reduced lead time to customers and improved customer experience.

Improve Supplier Relationships  

Your suppliers will thank you for continuously providing a capacity plan they can work with and rely on. They will be more willing to take risks on your behalf, negotiate prices further and increase investment in your business. Make a plan with your suppliers on how  and when they would like to receive the data. The more you partner with them, the better and easier the planning will become.

Get going

If capacity planning is overwhelming, start small and add on over time. Some companies simply share when they plan to order certain items and volumes, but you can also decide to only focus on core items in the beginning. It is an investment in time, but once you have locked down a process you will surely reap the benefits and advantages.