Capacity in Manufacturing

There are two different ways to define capacity in manufacturing. “Capacity is the highest achievable output over a specific time period. In situations where the output is non-homogeneous, capacity could be measured in terms of available machine hours”.

The initial definition calculates capacity with respect to products per unit time, making it tough to precisely take into account setup times. Usually, the time that capacity is available is decreased depending on average proportion of time which is used for setups. This type of standard approach signifies that all deviations from normal operations result in flawed capacity estimations and plans, but as setup times are non-negligible in the majority of manufacturing operations, these should be considered explicitly. This leads to a second definition of capacity, making use of the available (work) time per (calendar) time unit; e.g. hours per day.

Capacity as a decision category deals with the timing and amount of capacity acquisitions relative demand. The amount of capacity which could be integrated is influenced by the kind of operations, e.g. manual or machine-based, the timing of the capacity addition warrants strategic consideration. Nevertheless, the volume of capacity has an effect on the timing, because big or small increases is likely to make it pretty much simple to follow the demand pattern. As an example it is reasonably easy to follow the demand pattern if operations are manual, the addition of one more operator will give you a little boost in capacity, in contrast to process industries the capacity acquisition is usually of utmost strategic value.

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There are three standard capacity strategies employed by various businesses when they consider increased demand; lead capacity strategy, lag capacity strategy and the match capacity strategy.

A lead capacity strategy, or “lead strategy”, means that capacity is acquired prior to any demand increase, making certain that demand can always be fulfilled by internal operations. What this means is that there is usually an over-capacity. Manufacturers like this strategy because it reduces risk. As client satisfaction becomes extremely important, companies don’t want to fail to meet delivery dates because of insufficient capacity. However, if the demand is not generated then the organization will have excess inventory along with the expenditure of ramping up capacity needlessly.

A lag capacity strategy, or “lag strategy”, means that capacity is never added unless it can be fully utilized. Employing a lag strategy means that market demand patterns should be cautiously monitored and/or that subcontractors or contract manufacturers are needed. This strategy lowers a company’s risk. By not investing at a time of lower demand and postponing any substantial capital expenditure, the organization will enjoy a more steady relationship with their bank and investors. The disadvantage is that the organization would probably have a period when product was unavailable before the capacity was finally enhanced.

The match capacity strategy, or “match strategy”, means where capacity should try to closely follow the demand, keeping over- and under-capacities at a minimum. Even though this approach attempts to reduce the over and under capacity of the other two methods, businesses also get the worst of the two, were they will find themselves over capacity and under capacity at different times.

In this article, we have discussed about capacity in manufacturing. There are different capacity strategies utilized by various businesses.