What is the relationship between capacity planning and inventory management

what is the relationship between capacity planning and inventory management

Capacity planning is the process of determining the production capacity needed by an Capacity management is concerned about adding central processing units IT capacity planning has been developed with the goal of forecasting the A large capacity does not necessarily imply high inventory levels, but it can imply. Capacity planning is one means of managing resources to garner the most profit for When a company implements a mixed strategy, inventory and workforce. In order to find whether capacity management is ore than just inventory Capacity Planning: The goal of capacity planning is to provide . Fig: Demand Vs . Capacity four scenarios So capacity management matches the current capacity with the demand to Strategic management of supplier manufacturer relations.

It is also a strategy aimed at reducing stockout costs. A large capacity does not necessarily imply high inventory levels, but it can imply higher cycle stock costs.

Excess capacity can also be rented to other companies. Advantage of lead strategy: First, it ensures that the organization has adequate capacity to meet all demand, even during periods of high growth.

This is especially important when the availability of a product or service is crucial, as in the case of emergency care or hot new product. For many new products, being late to market can mean the difference between success and failure. Another advantage of a lead capacity strategy is that it can be used to preempt competitors who might be planning to expand their own capacity.

Being the first in an area to open a large grocery or home improvement store gives a retailer a define edge. Finally many businesses find that overbuilding in anticipation of increased usage is cheaper and less disruptive than constantly making small increases in capacity. Of course, a lead capacity strategy can be very risky, particularly if demand is unpredictable or technology is evolving rapidly. Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond due to increase in demand North Carolina State University, This is a more conservative strategy and opposite of a lead capacity strategy.

It decreases the risk of waste, but it may result in the loss of possible customers either by stockout or low service levels. Three clear advantages of this strategy are a reduced risk of overbuilding, greater productivity due to higher utilization levels, and the ability to put off large investments as long as possible.

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Organization that follow this strategy often provide mature, cost-sensitive products or services. Match strategy is adding capacity in small amounts in response to changing demand in the market.

This is a more moderate strategy. Ensure that each production department has exactly the right materials at the right time. The prime objective of Production planning is to ensure a customer satisfaction. By creating a cost efficient production system, organization will be able to minimize defects, reduce prices, and quicken throughput, making more reliable products at lower prices available more quickly to your customers. The production schedule is drawn in the production planning department Production scheduling has three primary goals or objectives: The first involves due dates and avoiding late completion of jobs; The second goal involves throughput times; The third goal concerns the utilization of work centers.

Production scheduling involves due dates and avoiding late completion of jobs. The firm wants to minimize the time a job spends in the system, from the opening of a shop order until it is closed or completed. It Concerns the utilization of work centers. Firms usually want to fully utilize costly equipment and personnel.

Inventory Control An inventory is a stock or store of goods.

Production Planning and Inventory Control - Assignment Point

Keeping an optimal amount of raw materials in stock is a crucial component of any production-oriented organization. Before a product can be manufactured, the raw materials must be in stock and in good quality.

Supply Planning and Inventory Management Software

Inventory control is a crucial part of the production system. Essentially inventory control is concerned with production planning. It determines inventory of a finished product or inventory of materials used in making such products. Inventory control is affected by changes in customer demand, holding costs, ordering costs and back order costs.

what is the relationship between capacity planning and inventory management

The nature and importance of inventories controls Inventories are a vital part of business. Not only are they necessary for operations, but also they contribute to customer satisfaction. A typical manufacturing firms carries different kinds of inventories, including the following: Raw materials; Partially finish goods work in progress ; Finish goods; Goods in transit to ware house or customers; Function of inventory control To meat anticipated customer demand; To smooth production requirement; To protect against stock outs; To take advantage of order cycles To hedge against price increases To permit operations To meet anticipated customer demand: The inventories refer to as anticipation of stock.

The requirements of a customers lead to maintain sufficient stocks which may possible by using efficient tools of inventory control To smooth production requirement: Firms have experience seasonal demand often builds up by inventories during preseason periods to meet overly high requirements during seasonal periods. Historically, manufacturing firms have used inventories as buffers between successive operations to maintain continuity of production.

Firms have used buffer of raw materials to insulate production in delivers from supplier. Companies have taken closer look at buffer inventories. To protect against stockouts Delayed deliveries and unexpected demand increase the risk of shortages. The risk of shortage can be reduced by holding safety stocks.

  • Similarities Between Capacity Planning & Aggregate Planning
  • Production Operations Management
  • Capacity planning

To take advantage of order cycles: It is usually economical to produce in large rather than small quantities. To minimize inventory costs a firm buys large quantities that exceed immediate requirements.

Capacity planning - Wikipedia

To hedge be cautious against price increases: It depends on the ability of storage. The fact that production operations take a certain amount of time means that there will generally be some work in progress or any other factors may lead to pipe line inventories. Objective of Inventory control Inadequate control of inventories can result in both under and overstocking of items. Understocking results lost sales and dissatisfied customers.

Overstocking can be increased holding cost as a result increase product price. The overall objective of inventory management is to achieve satisfactory levels of customers. Balance of stocking requires to satisfy the customers.

Requirements for effective inventory Management has two basic function concerning inventory. To establish a system keeping truck on items in inventory and make decision about how much and when to order.

what is the relationship between capacity planning and inventory management

To be effective management must have the following: