Capacity Planning: A Case Study From Cigarette Production Available to Purchase

It is conventional for a manufacturing company to equip itself to cope with a demand greater than that considered most likely to arise. Often the costs associated with excess capacity are not high, and so little energy is expended on determining least‐cost solutions and options close to them. Increases in machinery costs in the mid 1970s necessitated one cigarette manufacturer to rethink its policy towards machinery purchase; in particular that governing the size of its machinery contingency allowance—the machinery to hold over and above that required to meet the most likely forecast of demand. This article describes the background to the reframing of this policy on machinery acquisition, including an analysis of the structure of demand for cigarettes and ways of achieving an appropriate level of supply.