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Managing capacity

Capacity is the maximum rate of output for a facility. The facility can be a workstation or an entire organization. The operations manager must provide the capacity to meet current and future demand; otherwise, the organization will miss opportunities for growth and profits. Capacity plans are made at two levels. Long-term capacity plans, which deal with investments in new facilities and equipment. These plans cover at least two years into the future, but construction lead times alone can force much longer time horizons.

Short-term capacity plans focus on work-force size, overtime budgets, inventories, and other types of decisions. Long-term capacity planning is crucial to an organization’s success because it often involves large investments in facilities and equipment and because such decisions are not easily reversed. Capacity can be stated in terms of either input or output measures. Output measures giving the number of products or services completed in a time period are useful when a firm provides standardized products or services.

However, a statement of the number of customized products or services completed in a time period is meaningless, because the work content per unit varies. Demand for customized products and services must be translated into input measures, such as labor hours,

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machine hours, and material requirements. Capacity choices must be linked to other operations management decisions. The four steps in capacity planning are (1) estimate capacity requirements, (2) identify gaps, (3) develop alternatives, and (4) evaluate the alternatives.

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