Capacity is often defined as the capability of an object, whether that is a machine, work center or operator, to produce output for

a specific time period, which can be an hour, a day, etc. Many companies ignore the measurement of capacity, assuming that their facility has enough capacity, but that is often not the case. Increasingly software programs like enterprise resource planning (ERP) and warehouse management systems (WMS) calculate throughput based using formulas that are dependant on capacity. Companies measure capacity in different ways using either the input, output or a combination of the two as the measure. For example, a recycling company calculates their capacity based on the amount of material they clear from the inbound trailers at their plant, while a textile company calculates capacity based on the amount of yarn produced, i.e. an output. Companies use two measures of capacity, theoretical and rated. The theoretical capacity is defined as the maximum output capacity that does not allow for any downtime, while rated capacity is the output capacity can be used for calculation purposes as it is based on a long-term analysis of the actual capacity. Capacity Strategies There are three basic capacity strategies used by different organizations when they consider increased demand; lead capacity strategy, lag capacity strategy and the match capacity strategy. Lead Capacity Strategy As the name suggests, the lead capacity strategy adds capacity before the demand actually occurs. Companies often use this capacity strategy as it allows company to ramp up production at a time when the demands on the manufacturing plant is not so great. If any issues occur during the ramp up process, these can be dealt with so that when the demand occurs the manufacturing plant will be ready. Companies like this approach as it minimizes risk. As customer satisfaction becomes an increasingly important, businesses do not want to fail to meet delivery dates due to lack of capacity. Another advantage of the lead capacity strategy is that it gives companies a competitive advantage. For example, if a toy manufacturer believes a certain item will be a popular seller for the Christmas period, it will increase capacity prior to the anticipated demand so that it has product in stock while other manufacturers would be playing catch up. However, the lead capacity strategy does have some risk. If the demand does not materialize then the company could quickly find themselves with unwanted inventory as well as the expenditure of ramping up capacity unnecessarily. Lag Capacity Strategy This is the opposite of the lead capacity strategy. With the lag capacity strategy the company will ramp up capacity only after the demand has occurred. Although many companies follow this strategy success is not allows guaranteed. However, there are some advantages of this method. Initially it reduces a companys risk. By not investing at a time of lesser demand and delaying any significant capital expenditure, the company will enjoy a more stable relationship with their bank and investors. Secondly the company will continue to be more profitable than companies who have made the investment with increased capacity. Of course the downside is that the company would have a period where product was unavailable until the capacity was finally increased. Match Capacity Strategy The match capacity strategy is one where a company tries to increase capacity in smaller increments to coincide with the increases in volume. Although this method tries to minimize the over and under capacity of the other two methods, companies also get the worst of the two, were they can find themselves over capacity and under capacity at different periods.

Capacity planning is the process of determining the production capacity needed by an organization
to meet changing demands for its products.[1] In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period. The phrase is also used in business computing as a synonym for Capacity Management. A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity planning is to minimize this discrepancy. Demand for an organization's capacity varies based on changes in production output, such as increasing or decreasing the production quantity of an existing product, or

producing new products. Better utilization of existing capacity can be accomplished through improvements in overall equipment effectiveness (OEE). Capacity can be increased through introducing new techniques, equipment and materials, increasing the number of workers or machines, increasing the number of shifts, or acquiring additional production facilities. Capacity is calculated: (number of machines or workers) (number of shifts) (utilization) (efficiency). The broad classes of capacity planning are lead strategy, lag strategy, and match strategy.

Lead strategy is adding capacity in anticipation of an increase in demand. Lead strategy is an

aggressive strategy with the goal of luring customers away from the company's competitors. The possible disadvantage to this strategy is that it often results in excess inventory, which is costly and often wasteful. Lag strategy refers to adding capacity only after the organization is running at full capacity or beyond due to increase in demand (North Carolina State University, 2006). This is a more conservative strategy. It decreases the risk of waste, but it may result in the loss of possible customers. Match strategy is adding capacity in small amounts in response to changing demand in the market. This is a more moderate strategy.

In the context of systems engineering, capacity planning[2] is used during system design and system performance monitoring. Capacity planning is long-term decision that establishes a firms' overall level of resources. It extends over time horizon long enough to obtain resources. Capacity decisions affect the production lead time, customer responsiveness, operating cost and company ability to compete. Inadequate capacity planning can lead to the loss of the customer and business. Excess capacity can drain the company's resources and prevent investments into more lucrative ventures. The question of when capacity should be increased and by how much are the critical decisions.

Capacity Available or Required?

From a scheduling perspective it is very easy to determine how much capacity (or time) will be required to manufacture a quantity of parts. Simply multiply the Standard Cycle Time by the Number of Parts and divide by the part or process OEE %. If production is scheduled to produce 500 pieces of product A on a machine having a cycle time of 30 seconds and the OEE for the process is 85%, then the time to produce the parts would be calculated as follows: (500 Parts X 30 Seconds) / 85% = 17647.1 seconds The OEE index makes it easy to determine whether we have ample capacity to run the required production. In this example 4.2 hours at standard versus 4.9 hours based on the OEE index. Repeating this process for all the parts that run through a given machine, it is possible to determine the total capacity required to run production.

Capacity Available
If you are considering new work for a piece of equipment or machinery, knowing how much capacity is available to run the work will eventually become part of the overall process. Typically, an annual forecast is used to determine how many hours per year are required. It is also possible that seasonal influences exist within your machine requirements, so perhaps a quarterly or even monthly capacity report is required. To calculate the total capacity available, we can use the formula from our earlier example and simply adjust or change the volume accordingly based on the period being considered. The available capacity is difference between the required capacity and planned operating capacity.