Role or Forecasting in capacity PlanningThe marketing department plays a major role in providing demand forecasts based on which both long term as well as short term capacity planning can be done. Figure below shows the different demand patterns or trends possible in a demand forecast provided by the marketing department.Four types of general trends are possible in demand forecasts growth decline cyclical and stable. The growth trend in demand forecast is an indicator of capacity expansion requirements in the future. Under this situation, provisions should be made for capacity expansion in the future. For example the area of the factory premises should be kept large enough when the plant is built keeping in view the future expansion possible. The decline rend of a product indicates that in the future the company will have to think of unitizing the existing capacity in the processing of some new products. The cyclical demand trend of a product requires the company to produce some other product which has and opposite cyclical demand so that the crest of the demand pattern of on e product can be balanced by the troughs of the demand pattern of another product. Figure shows two products A and B which have opposite cyclical demand patterns so that the combined demand pattern of the two products is fairly stable. For example a company manufacturing water cooler as well as blower room heater will experience this kind of a situation.
Figure: Trends in Demand Forecasts
Capacity expansion is not the solution for growing demand trend. Other possible measures are meeting the growing demand by overtime on part of workers and running the plant in more shifts giving subcontracts to other small manufacturers. Or accumulating inventory during periods of low demand for utilization during period of high demand. Mature products and services have more predictable demand patterns compared to new products.