Operations Management: An Integrated Approach, 5th Edition

CAPACITY PLANNING

Capacity can be defined as the maximum output rate that can be achieved by a facility. The facility may be an entire organization, a division, or only one machine. Planning for capacity in a company is usually performed at two levels, each corresponding to either strategic or tactical decisions, as discussed in Chapter 1. The first level of capacity decisions is strategic and long-term in nature. This is where a company decides what investments in new facilities and equipment it should make. Because these decisions are strategic in nature, the company will have to live with them for a long time. Also, they require large capital expenditures and will have a great impact on the company's ability to conduct business. The second level of capacity decisions is more tactical in nature, focusing on short-term issues that include planning of workforce, inventories, and day-to-day use of machines. In this chapter we focus on long-term, strategic capacity decisions. Short-term capacity decisions are discussed in Chapter 14.

Capacity

The maximum output rate that can be achieved by a facility.

Why Is Capacity Planning Important?

Capacity planning is the process of establishing the output rate that can be achieved by a facility. If a company does not plan its capacity correctly, ...