Capacity Management

Why Is Capacity Management Important?

Capacity Management refers to the actions of ensuring a business maximises its potential activities and output at all times and under all conditions to ultimately achieve maximum profit.

The challenge for capacity management is how to increase a production unit’s capacity to maximum without increasing the costs to the point at which there is no overall financial benefit.

If every production line has a constraint (bottleneck) then focusing improvement effort on that constraint is the fastest and most effective path to increasing capacity and improved profitability.

What Does Capacity Mean?

Capacity represents the available resources that can be leveraged to meet a certain level of demand.

In a hospital, capacity would be determined by the number of beds, the availability of medical staff, the hours during which operating theatres and diagnostic equipment (i.e. scanners) are in use.

In a restaurant it could include the number of tables and chairs, the level of staffing and the opening times.

What Are the Responsibilities of Capacity Management?

Managing the capacity of a production unit involves achieving as close to the design capacity measure as possible by optimising the people, machines and processes to best effect.

It should also factor in the requirement of the production unit to meet demand from the customer. Demand is a complex function influenced by a wide range of variables such as weather, consumer buying power, economic conditions, promotions, competitor performance etc. These factors are constantly changing making the entire demand planning and consequently capacity management, a very challenging activity.

Many internal factors such as machine downtime or staff sickness, or external factors such as a sudden upturn in demand from the marketplace or a change in the regulatory environment, can alter the balance between supply and demand and change the objective for capacity managers. If this situation carries on over the longer term and threatens the profitability of the unit then steps must be taken to improve capacity.

What Are the Three Sub Processes of Capacity Management?

For high volume production line products, capacity will be expressed in terms of actual output capacity. This along with design capacity and effective capacity are the core measures of capacity in a production environment.

Design capacity is the theoretical capacity that the work centre is capable of processing, whereas the effective capacity is the actual capacity of the work centre after taking avoidable and unavoidable losses into consideration. The ratio between the two will provide the level of efficiency of operation.

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Capacity Management


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