The Importance of the Developing Capacity Strategies

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Table of Contents

Introduction
Main body
Conclusion
References

Introduction

Capacity is an upper limit of services that can be provided or products that can be produced. If an operating unit offers less than clients require, it can lose its market share, but if supply exceeds demand it may lead to additional costs. It is an option to sell the excess, in some situations, introduce new products and services, or transfer manufacturing to a location with lower labor costs (Stevenson, 2014). However, these are only temporary decisions, and it is best to prepare in advance to avoid over-capacity by a strategic managerial approach.

Main body

The way companies plan their capacity depends on the area of their operations, the technology they employ, fluctuations in demand, and other factors. In some organizations, capacity choices are made once for a long time, while in others, they are regularly audited. One of the main aspects of this process is defining the capacity metrics of an operating unit and calculating its design capacity, effective capacity, and actual output (Stevenson, 2014). However, it is equally important to collect information and make predictions regarding long-term demand dynamics.

In some areas, demand volatility becomes a serious problem for capacity planners but some trends such as seasonable fluctuations and predicted economic difficulties associated with decreases in purchasing power could be recognized. Seasonal variations lead to unevenness in capacity requirements, but knowing them in advance, managers can make certain allowances (Stevenson, 2014). Production processes or offering services or facilities can be scheduled the way to minimize losses.

Capacity planners can employ several effective strategies. First, they can design flexibility into the systems introducing provisions for future expansion (Stevenson, 2014). It is also advisable to identify the stage of development of an operation unit since the optimal capacity would be different for products or services that have just been introduced, seized a large part of the market, or entered a decline stage (Stevenson, 2014). When planning an expansion, it is also essential to look at “the big picture” (Stevenson, 2014). One should evaluate how different parts of an operating unit would correspond to the planned growth.

Conclusion

Although different strategies can be used, there are several essential steps. They include estimating future capacity requirements, evaluating the existing capacity, investigating alternatives, and, after the implementation, monitoring performance (Stevenson, 2014). Employing developed capacity planning strategies can ensure that a company avoids under- and over-capacity.

References

Stevenson, W. J. (2014). Operations management (12^th ed.). McGraw-Hill Education.

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The Importance of the Developing Capacity Strategies

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