Cambridge Syllabus Notes

Operations Strategy – Planning Operations & Capacity Planning & Analysis (CPA)

1. Why Plan Operations?

Effective operations planning ensures that a business can:

Match supply with demand – avoid stock‑outs and over‑production.
Optimise resources – make the best use of labour, equipment, materials and information.
Control costs – minimise waste, idle capacity and unnecessary overtime.
Support the overall business strategy – align day‑to‑day activities with cost‑leadership, differentiation or niche goals.
Manage risk – anticipate bottlenecks, disruptions and capacity constraints.
Integrate functions – coordinate decisions with HR, Marketing, Finance and IT.

2. Key Components of Operations Planning (Cambridge 9609 – 9.3.5)

Demand forecasting
Capacity planning and analysis (CPA)
Process design & layout
Inventory management
Scheduling & workforce planning
Network diagrams & critical‑path analysis (CPA tool)
Linkage to HR, Marketing, Finance and IT

3. Capacity Planning & Analysis (CPA)

3.1 Capacity Utilisation

Capacity utilisation measures how much of the available productive capacity is actually used.

Formula	Explanation
Capacity Utilisation = (Actual Output ÷ Design Capacity) × 100 %	Actual Output = units actually produced in a period. Design Capacity = maximum output possible under ideal conditions.

Typical benchmarks:

70‑85 % – efficient use of resources without excessive strain.
>90 % – risk of breakdowns, overtime and reduced quality (over‑capacity).
<70 % – under‑utilised assets, higher unit costs (under‑capacity).

3.2 Three Stages of CPA

Capacity measurement – quantify current capacity (units per hour, machine‑hours, labour‑hours).
Capacity gap analysis – compare forecast demand with measured capacity.
Capacity adjustment – decide whether to increase, decrease or maintain capacity.

3.3 Capacity‑adjustment Strategies

Strategy	When Used	Typical Actions	Impact on Over/Under Capacity
Lead	Demand expected to grow rapidly and reliably.	Buy new plant, add shifts, outsource ahead of need.	Reduces risk of under‑capacity but may create over‑capacity if demand falls.
Lag	Demand volatile or uncertain.	Use overtime, temporary staff, subcontractors only when required.	Minimises over‑capacity; higher risk of stock‑outs.
Match	Forecasts are accurate and stable.	Adjust capacity in line with forecast (e.g., add one shift per 10 % demand increase).	Balances cost and service level; depends on forecast accuracy.

3.4 Methods of Capacity Adjustment

Overtime / extra shifts – short‑term, higher labour cost.
Sub‑contracting / outsourcing – useful for variable demand, but may affect quality control.
New equipment or plant expansion – long‑term, high capital cost.
Process redesign (lean, Six Sigma, ERP) – improves efficiency without adding resources.
Workforce flexibility – cross‑training, flexible contracts (HR influence).

3.5 Influence of HR, Marketing & Finance on Capacity Decisions

HR: staffing levels, skill mix, training programmes and flexible work arrangements determine how quickly capacity can be scaled up or down.
Marketing: promotional campaigns, product‑line extensions and pricing strategies directly affect forecast demand, which in turn drives capacity requirements.
Finance: cash‑flow, budgeting, cost of capital and profitability targets set the financial ceiling for capacity investment or the willingness to incur overtime costs.

3.6 Role of IT & AI in Modern Operations Planning

Demand‑forecasting software – statistical and AI models (e.g., machine‑learning time‑series) improve accuracy.
AI‑driven scheduling – algorithms allocate labour and machines to minimise idle time.
Internet of Things (IoT) – real‑time monitoring of machine utilisation and predictive maintenance.
Enterprise Resource Planning (ERP) systems – integrate finance, HR, procurement and production data for holistic capacity decisions.

3.7 Step‑by‑Step CPA (with formulas)

Gather historical sales data and produce a demand forecast (e.g., using moving average or AI model).
Calculate current capacity:
Current Capacity = (Total Available Hours × Utilisation Rate) ÷ Time per Unit
Identify the capacity gap:
Capacity Gap = Required Capacity – Current Capacity
Analyse the gap in monetary terms (cost of overtime, cost of new equipment, cost of subcontracting).
Select the most appropriate adjustment strategy (lead, lag, match) and method (overtime, new plant, outsourcing, lean redesign).
Implement the chosen actions, monitor utilisation and revise forecasts regularly.

4. Network Diagrams & Critical‑Path Analysis (CPA Tool)

Network diagrams (activity‑on‑node) are a compulsory part of Cambridge 9609 (9.3.5). They visualise the logical sequence of activities, identify the critical path and help calculate floats.

4.1 Symbols Used

Node (rectangle) – represents an activity.
Arrow – shows the direction of flow and dependency.
Dummy activity (dotted line) – used only to preserve logical relationships when no work is performed.

4.2 Key Terms & Formulas

Earliest Start (ES) – earliest time an activity can begin.
Earliest Finish (EF) – EF = ES + Duration.
Latest Start (LS) – latest time an activity can start without delaying the project.
Latest Finish (LF) – LF = LS + Duration.
Total Float (TF) – TF = LF – EF = LS – ES. Amount an activity can be delayed without affecting the overall project finish.
Free Float (FF) – FF = Min(ES of successors) – EF. Delay that does not affect any successor.
Critical Path – longest path through the network; all activities on it have TF = 0.

4.3 Example: Branching Project (5 activities)

Figure 1 – Network diagram (A → B → D, A → C → D, D → E)

Activity	Dur (days)	ES	EF	LS	LF	TF	FF
A	3	0	3	0	3	0	0
B	4	3	7	3	7	0	0
C	2	3	5	5	7	2	2
D	5	7	12	7	12	0	0
E	3	12	15	12	15	0	0

The critical path is A → B → D → E** (total duration 15 days). Activity C has a total float of 2 days and can be delayed without affecting the project finish.

4.4 Mini‑Exercise (Revision)

Project X – four tasks

Task 1: 3 days (no predecessor)

Task 2: 5 days (must start after Task 1)

Task 3: 2 days (can start after Task 1, independent of Task 2)

Task 4: 4 days (requires completion of both Task 2 and Task 3)

Using a network diagram, determine:

Critical path

Total float for each task

Overall project duration

Answer key (for teachers)

Task ES EF LS LF TF

1 0 3 0 3 0

2 3 8 3 8 0

3 3 5 6 8 3

4 8 12 8 12 0

Critical path: 1 → 2 → 4 (duration 12 days). Task 3 has a total float of 3 days.

5. Linking Operations Planning to Business Strategy

Cost‑leadership – maximise utilisation, adopt lean production, use ERP for waste reduction, keep capacity close to 80‑85 % to avoid overtime.

Differentiation – maintain flexible capacity (e.g., multi‑skill workforce), rapid response to custom orders, invest in IT‑driven forecasting to meet niche demand.

Focus / Niche – tailor capacity to a specific market segment, possibly outsource non‑core processes while keeping core capacity in‑house.

Operations planning must therefore be coordinated with:

HR – recruitment, training, flexible contracts.

Marketing – promotion calendars, new‑product launches, seasonal peaks.

Finance – budgeting for capacity investment, cost‑benefit analysis of overtime vs. new equipment.

IT – data‑driven forecasting, real‑time monitoring, AI‑based scheduling.

6. Common Pitfalls in Operations Planning

Over‑reliance on short‑term forecasts; ignoring longer‑term market trends.

Neglecting the influence of external factors (supplier reliability, regulatory changes, technological advances).

Failing to involve cross‑functional teams (HR, Marketing, Finance, IT) in capacity decisions.

Under‑estimating the cost, time and quality implications of capacity adjustments (e.g., outsourcing may affect brand perception).

Skipping critical‑path analysis, leading to unrealistic project schedules and hidden bottlenecks.

Ignoring capacity utilisation benchmarks, resulting in chronic over‑ or under‑capacity.

7. Summary

Planning operations through systematic Capacity Planning & Analysis and the use of network diagrams with critical‑path analysis enables a company to:

Align production capability with reliable demand forecasts.

Maintain an optimal utilisation level (typically 70‑85 %) to control costs and preserve quality.

Choose the right capacity‑adjustment strategy (lead, lag, match) and method (overtime, new plant, outsourcing, lean redesign).

Integrate decisions with HR, Marketing, Finance and IT, ensuring that people, money, information and technology support the chosen operational level.

Identify and protect the critical path, allowing realistic project timetables and effective risk management.

By mastering these tools and concepts, students can confidently answer all Cambridge 9609 (9.3.5) assessment objectives and understand how operations planning underpins a firm’s competitive strategy.

the need for planning operations