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Capacity is the amount of goods that a firm is capable of producing over a specified
period of time. Capacity can be defined as highest reasonable output rate which can be
achieved with the current product specifications, product mix, work force, plant and
equipment. It is the maximum possible output or use from a system under normal design
or planned conditions in a given time period.
Capacity planning is the process of establishing the output rate that can be achieved at a
facility.
Production managers are more concerned about the capacity for the following reasons:
2. Capacity decisions
The demand forecasting of goods and services then must be translated in to a measure of
capacity needed. On the basis of forecasting of demand for products, organization will be
able to determine the various resources needed for producing such goods.
3. Facilityplanning
Capacity decisions automatically lead to the setting up of necessary facilities in order to
produce goods and services as determined the previous steps. Facility planning can be
done either by the expansion or contraction of existing facilities or by setting up of
additional new facilities.
4. Decisions and implementation
Finally, alternative resource requirements plan should be properly evaluated. The
feasibility of plans along with its economic impact needs to be analyzed. Detailed study
of economic impact of resource requirements is essential to make the capacity planning a
reality.