Capacity Planning (recognising business constraints) (QAA 3, 4)

Objective:

To ensure that the business owner calculated and taken into consideration the factors that may place limits or constraints on the business productivity.
To give clearer picture of how the business will be managed on a day to day basis.
To show that capacity plan relates directly to business sales and cashflow forecasts.

Overview:

This activity is designed to provide an opportunity for the entrepreneur/ small business owner to estimate the capacity of their proposed business in the tables, then summarise this information and consider what measures they would take if they were not working to full capacity or if were working to overcapacity.

Activity:

How many hours per week will you require to fulfil all the functions of the new business?

By reflecting on the business presented, does the entrepreneur/ small business owner already have some equipment, stock, staff, premises and how much total hours/time spent in service, production, preparation etc. that are/can be used in the business?

how many hours will be spend making product, designing advertising leaflets, writing new menus, dealing with telephone enquiries, making sales, ordering stock, shopping, cleaning the premises etc.?
Will the business requires additional staff either at the start or once sales increase, which would increase production demands?
What is the most beneficial role for new staff to play?
Choosing the right person for the right job is crucial in order to maximise the effects of the financial outlay on business profits?
Estimating the right level of stock?
Need investing money in lots of equipment?
Do you need space in your business?

Once the entrepreneur/ small business owner have broadly identified the above issues, it’s advised that they conduct an in-depth capacity planning exercise analysis covering areas and sections as follows:

Time

Think about the hours of business you will operate (opening hours). Will this be 9-5 or will your hours be more flexible i.e. longer hours, evenings or weekends?
How many hours a week will be spent in production, design or ordering and controlling stock?
If you are making/manufacturing a product how many products can you make in a day?
How much time will be spent interacting with customers, selling and travelling?
Take into account the additional activities that will take up your time on top of production and sales.
At what point will you employ staff, work with a partner or subcontract?

Staff

Decide if and when you will need to employ staff.
Include information about their roles, necessary skills and experience, any training they may require, working hours and levels of pay.
Give details of any rota that you will be working to.
Include job descriptions and C.V.s in the appendix.

Stock: Thinking about your stock levels:

How much cash can you afford to tie up in stock?
How quickly can your suppliers deliver?
How regularly will you need to re-order?
How frequently will you change/up-date your stock lines?
Will you stock high turnover / low profit items or high profit / slow turnover items?
Will you have any special storage requirements for stock e.g. temperature, valuables?
Will you require a license to store stock e.g. hazardous substances, livestock?

Equipment

Is the equipment absolutely necessary?
What equipment will you require should you expand to provide further services?
Who will operate it and will they require training and/or a licence?
What insurance and maintenance will be required for the equipment?
Should you lease or purchase?
Have you got the space?

Space

Are you going to work from home, will you expand to an office or unit?
Will you need space for storage of stock and equipment?
How will you secure/insure this space, do items require special conditions e.g. temperature, ventilation?
Will you need more space with an increase in staff?

Once the above capacity issues have been completed, it is only then that the operational aspect of running the business can be estimated. The owner will have to calculate whether the cost involved will increase production capacity sufficiently to meet demand and still make a profit or the other way round. If operation costs are higher than at first anticipated, it may be that the new business owner needs to re-evaluate these costs. For example, consideration of renting items of equipment instead of buying, subcontracting production. Time, equipment, space and stock are all linked together and dictate the production capacity of the business and also consider staffing.