The creation of capacity means committing financial and other resources to it mostly on substantial basis. It is an investment decision. It brings out the operational strategy of an organization. In services of organizations, it means creation of more space, furniture, and other accessories and equipment. Planning for capacity is in response to the future growth and expansion plans, market trends, sales forecasting, multiple scenario analysis and our policy towards risk capacity planning decisions has to decide a centralized capacity at one geographical location or decentralized decision of plants at several locations, Some other considerations also affect capacity decisions. How to tide over a temporary deficient in capacity by operating additional shifts giving over-time or holiday work? How best we should satisfy the market demand either the demand to be fully met or can we allow some lost sales? All these factors are a part of capacity planning.

What is Capacity?

A dictionary meaning of Capacity is the ability to hold, receive, store, or accommodate. The capacity is also defined as the maximum output of a system in a given period of time under ideal conditions. Thus the annual capacity of Bajaj is seven lacs scooters currently. It means the production is limited to this productive capacity over a period of time, here a year. The capacity however is subject to the intensiveness of use of the facilities. Imagine a transformation process having many sub processes, each of these interlinked. Here capacity’s is determined by the capacity of that sub process which produces the least. If we want to upgrade the capacity, we can do so by balancing the equipment to create a better balance amongst the processes. The concept of capacity is thus invariably connected with the weakest link in the chain. This means that even when the capacity is fully utilized in terms of definition of capacity, there may be individual processes that may remain underutilized

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