is the capability of manufacturing or service resource such as a facility, process, workstation, or piece of equipment to accomplish its purpose over a specified time period.
establishes overall level of productive resources for a firm. Determines which level of capacity to operate at to meet customer demand in a cost efficient manner.
Balancing Capacity and demand
too much capacity-- cost rise
too little capacity -- customers are lsot
Capacity Expansion strategies
timing of capacity expansion in relation to steady growth in demand
capacity increase depends on
volume and certainty of anticipated demand, strategic objectives, cost of expansion and operation
best operating level
% of capacity utilization that minimizes unit cost
% of capacity held reserve for unexpected occurrences
100% - Averaged resource utilization % = this
long range capacity planning
greater than one year planning horizon, facility location
intermediate range planning
six to nine months, aggregate capacity
short range planning
one to less than six months, scheduling
economies of scale
it costs less per unit to produce high levels of output
diseconomies of scale
it cost more per unit to produce higher levels of output
a way to achieve economies of scale without extensive investments in facilities and capacity by focsing on narrow range of goods and services, target market segments, and dedicate processes to maximize efficiency and effectiveness
capacity increases before demand
capacity increases after demand
alternates between lead and lag strategy
capacity increases and demand follows before capacity
capacity greatly increases before demand
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