Question

What are the 4 types of capacity expansion? - benefits and the risks of each? Which one do you think is best and why?

Answer 1

Capacity expansion is the process of adding facilities to meet up the rising demand of product or services.

Types are:

1. Lead strategy: Lead strategy involve increase in company's capacity preclude of an increase in demand for its products and services. This strategy is highly risky as it involves planning for the customers which doesn't exist even.

*Benefits:* This strategy focuses on planning on big scale. Planning helps company increase thier demand and gradually increase thier revenues.

*Risks:* This strategy is riskiest of all as it's all assumption and planning. It plans for the customers which doesn't exist for the company.

2. Lag strategy: Lag strategy involves increase in capacity when there is an actual increase in demand for products and services.  

*Benefits:* This strategy increases the actual revenue and profits as customers are already existing in the market.

*Risks:* increase in demand may turnout to be lose of customers as services or products quality seems to be not same as before.

3. Incremental strategy: This stragegy believes in small or baby steps as of when there is requirememt. Adding capacity in small increments when approach full capacity.

*Benefits:* this strategy can work with proper planning because small steps leads to big results in future.

*risks:* Small steps or incremental strategy may not be in favour for the company's employess because it involves risk if employees can't see them growing.

4. Dynamic strategy: Dynamic strategy involves adding up small or large capacity according to the previous month's demand. This strategy mainly focus on forecast.

*Benefits:* Dynamic strategy can bring sudden profits as forecasting can turn out to be a big hit too. This will give more bonus to employees and it will help company rise.

*Risks:* It is highly risky somehow, as whole production and increase in capacity depends on forecast and previous month's sale. The plus point of previous month may turn out be minus point for coming month.

I personally feel, incremental strategy is best because it involves least risk and minimal benefit as baby steps can go long way too.

*PLEASE RATE WITH A THUMBS UP *