Role or Forecasting in capacity Planning

The 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.