Timing and Sizing Expansions:

Another issue pertaining to capacity strategy is while to expand and by how much. Figure illustrates the two extreme strategies:

Expansionist Strategy

It involves large, uncertain jumps in capacity.

Wait-and-See Strategy

It involves smaller, more uncertain jumps.

During an industry wide economic crisis in the late year of 1980s, ABC, a firm with seven specialty apparel store divisions, opted for an expansionist strategy by aggressively opening new outlets and expanding existing ones. The effect of the expansions in outlets stores was that the Flave became one of the largest stores in the country. The ABC holdings had grown by 27 % and its sales by 68 %. The strategies for a firm can change over time.

Figure: Capacity Strategies

The timing and sizing of expansion are two interrelated terms, that means if the demand is enhancing and the time between increments increases, the size of increments should also increase. The expansionist strategy stays ahead of demand and therefore it minimizes the chance of sales lost due to insufficient capacity. While, wait and see strategy lags behind demand because it relies on the short term options such like overtime, stock out, temporary workers, subcontractors, and postponed preventive maintenance to meet short falls. Though, these options also have their own drawbacks like overtime requires extra payment to the workers and may result in lower productivity and quality during the overtime hours and union agreements may even limit the amount of allowable overtime. In contrast, some of the short term options may make the wait and see strategy a best option.