Capacity Planning:

The management should plan the capacity of its processes after deciding what products or services should be offered and how they should be made. Capacity is the maximum rate of output for a process. The operations manager should have the capacity to cope up with present and future demands; or else the organisation shall miss chances of growth and profits.

Capacity plans are made at two levels, long term capacity plans and short term capacity plans. Long term capacity plan deals with the investments in new facilities and equipment. These plans extend at least up to two years in future. Service industries accounts for more than 68% of the total investment. Such kind of large investments requires very good management participation and approval because they are not reversed. Short term capacity plans targeted on the workforce size, inventories, overtime budgets, and other types of decisions that we explore in later chapters.