Approaches to Expanding long term Capacity

There  are two  major  approaches to  expanding  the long  term capacity  viz.

1. All at once and
2. Building  a capacity  incrementally

1. All at once approach: Consists of the  decision  to build  ultimate  facility  at one  time and  then  growing  into it  over time.

The  benefits of this  approach  are:

• Little danger of having  to turn  down  business  due to  inadequate capacity,
• Less interruption of production,
• One large construction projects costs less than  several  smaller projects,
• Due to  inflation construction costs will be higher in the  future.
• Most  suitable  for nature  products with  stable  demand.

2. Building  capacity  incrementally approach  is one in which  capacity is built incrementally  as the demand grown,

The benefits  of this  approach are:

• Less dangerous  if forecast needs  do not  materialize.
• Funds that  could  be employed  for other  kinds  of investments  will not be  tied up in excess  capacity.
• More  suitable  for new  products.