Capacity Management

Understanding Capacity
What is Capacity?
• Capacity is the capability of a manufacturing or service resource such
as a facility, process workstation, or of equipment to accomplish in
purpose over a specified time period.

- the main rate of output per unit of time or

- as units of resource availability
Economies and Diseconomies of Scale
Capacity decisions are influenced by economies and diseconomies of
scale.
• Economies of scale are achieved when the average cost of a good or
service decrease as the capacity and or volume of throughput
increases.
• Diseconomies of scale occur when the average unit cost of the good
or service begins to increase as the capacity and/or volume of
throughput increases
Capacity Measurement in Operation
Capacity measures are used in many ways.
• Long terms planning
• Short-term management activities.
Capacity Measurement in Operation
Safety Capacity
• some amount of safety capacity (often called capacity cushion),
defined as an amount of capacity reserved for unanticipated events
such as demand surges, materials shortages, and equipment break-
downs.
Capacity Measurement in Operation
Capacity Measurement
• the act of ensuring a business maximizes its potential activities and
production output—at all times, under all conditions.
Long Term Capacity Strategies

• Long-term capacity planning must be closely tied to the strategic

direction of the organization.
• “The process through which a company prepares for future growth and
expansion.”
Long Term Capacity Strategies
Capacity Expansion
• Capacity requirements are rarely static changes in markets and
product lines and competition will eventually require a firm to either
plan to increase or reduce long-term capacity.
Long Term Capacity Strategies
Capacity Expansion
Four basics strategy for expanding capacity
1. One large capacity increase
2. Small capacity increases that match demand
3. Small capacity increases that lead demand
4. Small capacity increases that lag demand
Short Term Capacity Management

• If short-term demand is stable and sufficient capacity is available,

then managing operations to ensure that demand is satisfied is
generally easy.
Short Term Capacity Management
Managing Capacity by Adjusting Short Term Capacity Levels.

• When short-term demand exceeds capacity, a firm must temporarily

increase its capacity, or it will be unable to meet all of the demand.
Managing Capacity by Adjusting Short Term Capacity Levels.

Short-term adjustments to capacity can be done in a variety of ways;

• Add or share equipment - Capacity levels that are limited by machine
and equipment availability are more difficult to change in the short
run because of high capital expense
• Sell unused capacity
Short Term Capacity Management
Managing Capacity by Adjusting Short Term Capacity Levels.

• Change labor capacity and schedules - Labor capacity can usually be

managed easily through short-term changes in workforce levels and
schedules.
• Change labor skill mix - Hiring the right people who can learn quickly
and adjust to changing job
Short Term Capacity Management
Managing Capacity by Adjusting Short Term Capacity Levels.

• Shift work to slack periods - Another strategy is to shift work to slack

periods.