Question

HELPPPP write 2 full paragraphs (half page):
Explain what capacity management is and why it is strategically important.

Answer 1

Capacity management refers to the process by which business determines the production capacity that is important to meet the demands for the products of an organization. This ensures that business maximizes it's potential activities and production output.

Capacity planning can be explained broadly using lead strategy, lag strategy, match strategy and adjustment strategy.

• Lead strategy refers to the process of adding capacity after anticipating an increase in demand. This strategy is also referred as aggressive strategy as it attracts customers away from the competitor. This is done by improving the service level, reducing lead time and reducing stock out costs.
• Lag strategy refer to the strategy where the capacity is added only after the organization is running at full capacity.
• Match strategy refers to adding the capacity in smaller amount based on the changing demand in the market.
• Adjustment strategy refers to adding or reducing capacity is small or large amount based on changing demand in the market.

The reasons capacity planning in operations management is considered a strategic decision are: -

• It has direct impact on the organization’s ability to meet the future demand.
• Operational costs get affected by the capacity decision.
• It has direct impact on the initial cost.
• Capacity decision focus on long-term commitment of resources.
• Competition is affected by capacity decision.
• Globalization has increased the importance and complexity of capacity decision.