Production and process capacity

Capacity in a production or process sense (Production Capacity) refers to the maximum amount of output that can be obtained through a certain machine or production line. Capacity can also be expressed in terms of an output rate of a certain number of units per unit of time.

Capacity can be different when producing different products or it can be flexible and adjusted; this can make stating a certain capacity difficult, because it will ultimately depend on the product mix, which can sometimes follow the pareto principle, produced and production downtime. Certain machinery and plants can state peak capacity, this is the maximum output amount, but it cannot be sustained for long periods of time or with a greater amount of resources. Thus the best figure to use is the most stable and efficient operating level capacity which delivers the optimum cost curve for the operation. Capacity is an important input into setting production targets and goals

When a plant is first designed capacity planning is one of the first steps in the supply chain design process. The objective of capacity planning is to have enough production ability to meet the market’s requirements without excessive lead time delays. Capacity planning also forms part of the strategic planning process, in deciding the optimum design capacity for upgrades and market timing. When the needs of the market have been evaluated and relevant market studies completed then the next step is to creat a capital expenditure request for management to analyse the merits and investment returns of building such production capacity.

The use of capacity is most commonly measured by the capacity utilization rate . This is a good indicator of an excess or deficit of capacity within the business and industry in order to supply current and expected demand. This figure can also vary among inventory/production models, stock building cycles, seasonal demand cycles, and warehousing practices.