An UPPER LIMIT or CEILING on the load that an

operating unit can handle. The load might be in

terms of the number of physical units produced, or
the number of services performed. The operating
unit might be a plant, department, machine, store,
or worker. Capacity needs to include equipment,
space, and employee skills.
1. What kind of capacity is needed?
2. How much is needed?
3. When is it needed?
Capacity essentially limits the rate of output possible.
Capacity decisions affect operating costs
Capacity determines initial costs
Capacity decisions often involve long-term
Capacity decisions affects competitiveness
Capacity affects ease of management
Capacity is useful for forecasting purposes
Business Inputs Outputs
Auto Manufacturing Labor Hours, Machine Number of cars per shift
hours
Steel Mill Furnace size Metric tons of steel per
day
Oil Refinery Refinery size Barrels of Fuel/day
Farming Number of hectare or Metric tons of
Farm size; number of grain/hectare/year, liters
farmers and equipment of milk/day
Restaurant Number of seats Revenue generated per
day
Theatre Square meters of floor Tickets sold/performance
size
 EFFICIENCY = Actual Output
Effective Capacity

 UTILIZATION = Actual Output

Design Capacity
A. Facilities E. External Factors
• Design • Product Standards
• Location • Safety Regulations
• Layout • Cause oriented groups
• Environment • Pollution Control Standards
B. Product/Service F. Policy
• Design • Organizational policies
• Product/Service Mix * Functional policies

C. Process G. Supply Chain

• Quantity Capabilities * Supplier partnerships
• Quality Capabilities
D. Human Factors H. Operational
• Job Content • Scheduling
• Job Design • Materials Management
• Training and Experience • Quality Assurance
• Motivation • Maintenance Policies
• Compensation • Equipment Breakdowns
• Learning Rates
• Absenteeism and labor turnover