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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.

capacity planning

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

Capacity cushion

% 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

focused factory

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

lead strategy

capacity increases before demand

lag strategy

capacity increases after demand


alternates between lead and lag strategy

incremental expansion

capacity increases and demand follows before capacity

one step

capacity greatly increases before demand

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