Strategic Capacity Plan

Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. There are two different types, which are design and effective capacity. Design capacity is the maximum amount of work that an organization is capable of completing in a given period. Effective capacity is the maximum amount of work that an organization is capable of completing in a given period due to constraints such as quality problems, delays and materials handling. The goal of capacity planning is minimizing the discrepancy between the capacity of an organization and the demands of its customers, which results in inefficiency, under utilized resources or unfulfilled customers (Definitions, 2006).

Target wants to gain a competitive advantage over their competitors by committing to growth and delivering superior return to their shareholders. Commensurate to the long term objective, Target Corporation has continually increased earnings per share every year. Target knows that they deliver excellent quality of products, but the company needs to lower its cost in order for them to stay competitive with their competition. With a lower price coupled with a high quality product, allows Target to gain more customers over time and therefore increasing their returns.

Although Target is know for its quality products, the company is weak in managing its costs (Thinking Made Easy, 2010). Target should commit on managing its cost to gain the lowest costs over their competitors and gain competitive advantage. The company with the lowest cost in today’s market may not always be better. Target utilizes a cost leadership strategy. When a company uses this type of strategy, it should be expected that they seek an economic level of quality where the total cost of added quality and lost customers is