Strategic Capacity Management - Operations Management Review Notes
Capacity is the ability to hold, receive, store, or accommodate. In a business sense, it is viewed as the amount of output that a system is capable of achieving over a specific period of time.

Strategic capacity planning has as its objective, to determine the overall capacity level of capital-intensive resources - facilities, equipment, and overall labor force size - that best supports the company's long-range competitive strategy.

Capacity utilization rate = Capacity used Best operating level

Capacity used
– rate of output actually achieved
Best operating level
– capacity for which the process was designed

Economies of scale
Signifies that as production volumes increase, the average cost per unit decreases.

The experience curve
As plants produce more units, they gain experience in their production methods, which in turn, results in reducing the per unit costs of production in a predictable manner.

Capacity flexibility
Capacity flexibility means having the ability to rapidly increase or decrease production levels or to shift production capacity quickly from one product or service to another. Such flexibility is achieved through flexible plants, processes, and workers, as well as through strategies that use the capacity of other operations.
Issues to be considered in adding capacity are:
-maintaining system balance
-frequency of capacity additions
-the use of external capacity.

Capacity strategies can be proactive, neutral, and reactive. Reactive and neutral strategies are not responsive to anticipating future growth or building a facility for future demand.

Capacity planning decisions are based on forecasts for product demand, labor requirements, and equipment requirements.

Decisions include whether to add capacity, determining capacity