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Prepared by-

Ankit agarwal

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What is Capacity?y Capacity is the capacityof productive unit to produce

within given time period.

y Normally it is expressed in terms of output in unit.

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yExample:If a small machine is capable of producing 5oo unitsper shift and the shop works one shift in a day and 5

days in a week, the capacity of shop can be calculatedas-

500 units per shift X 1 shift per day X 5 days per week=2500 units per week.

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Continued.y If the plant manager says that we are running at 90%

capacity, it means the production is:

2500 X 90%= 2250 units/ week

Thus, capacity means not the actual output but thequantity that a firm is capable of producing.

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However, the capability also depends on theintensiveness of use of the productive unit.

Example:In the above shop, if it is possible to work 3 shift perday and 7 days in a week, the capacitywould be:

500 X 3 X 7 = 10500 units per week.

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Capacity MeasuresORGANISATION MEASURE OF CAPACITY

Airline Number of seats/Flight

Hotel Number of rooms, number of beds

Oil Refinery Barrels of oil/day

Electric company Megawatts of electricity/hour

Paper producer Tons of paper/week

Warehouse Cubic feet of space

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Types of Capacityy Majorly there are 3 types of capacity:

Potential capacity. Immediate capacity.

Effective capacity.

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Capacity planning

yA capacity plan translates an output plan into inputterms by approximating how much of capacity will be

consumed.y Capacity is to be planned keeping in mind future

growth and expansion plans of organisation, salesforecasting and other factors.

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Estimating Future capacity Needsy Capacity requirement can be evaluated from two

extreme perspectives:

1.Short Term Requirement.2.Long Term Requirement.

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Short Term Requirement Manager estimates the product demand for short term

work load.

Manager anticipate the output requirements fordifferent product or services upto next 12 months.

Then they compare requirements with existingcapacity to findout when capacity adjustment are

needed.

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Long Term Requirement More difficult to Determine because future Demand

and Technology are uncertain.

Todays product may not even exist in future.It depends on Marketing plans, Product development

and life cycle of Product.

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Strategies for Modifying CapacityyAfter Assessment of existing and future capacity

requirement, the Manager is required to find out

alternative ways of modifying capacity.

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Short term Responsey 1.Fundamental capacity is fixed.

y 2.In short term adjustment of decreasing or increasing

capacity are possible.y 3.What adjustment are to be made depend upon

whether the conversion process is labor or capitalintensive and the product is one that can be stored in

inventory.

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Long run Responsey 1.If serious decline in demand can terminate

operation.

y2.They me reduce capacity or shut down is last resort.

y 3.New ways should be found out to maintain and useexisting capacity because a great deal of effort, capitalandHuman skills are involved in it.

y 3.Market research is done to determine how existingcapacity can be used and adopted to meet futureproduct demand.

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Thank you