Question

Lanthrop, Inc., has had a successful year and projections look good for the next quarter. The management team is examining a plan to expand services to an additional city. Can the current system meet the additional demands? What types of information would be needed to make the decision?

From a business perspective, what is the concept of capacity? Provide 2 examples.

Answer 1

Current system may or may not meet the additional demands, depending upon the capacity of the Business Incorporation. The projections may look good for the next quarter, but it may possibly seem so owing to the current business proposition in the market, the resource capacity and the consumer base. There needs to be same level of acceptation of the offering in the additional city as well to make Lanthrop, Inc., successful. In this regard, there needs to be a market segmentation done once again before the expansion plans are on the chart. A product gap analysis is also desirable to comprehend if the consumers in the additional city views the product and its offering in the same manner as in the current city or is there any customization needed. The SWOT analysis shall further help to survive the existing competition in the new market. The size of the market shall further help to determine the time-scale of achieving the profits from the new market. In addition, a systematic business strategy and plan needs to be in place with tactical project plan and budgeting to ensure the survival of the business.

From the business perspective, capacity is that quantity of work that could be successfully managed by an Organization in terms of their overall availability of resources, tools or processes. Capacity does not remain static but could be adjusted as the Business and market needs. For example, in case of recession in the market, Capacity could be reduced by subtracting certain resources from the Business while in case of inflation, more resources could be added to expand and boost the business operations. The Teams, Facilities, Infrastructure and few of its examples. Let us view of the examples in detail:

Let us take an example of Plant Production Capacity. Plant Capacity means that level of production in the Plant that is capable to meet the demands of the Organization’s production activities. In this regard, Capacity planning is used which is a long-term conceptual tool in Product and Operations Management that helps to understand whether the production capacity is sufficient enough to meet the capacity levels as required by the Master schedules. Moreover, upon evaluating the differences between the available capacity and the required capacity, Capacity Planning concept in turn is useful to negotiate any required changes to the Master schedules accordingly. The capacity requirements could be therefore altered to match the Production and Marketing demand based on various activities such as adding of more shifts to boost the capacity of production or application of overtime allowances in order improve the performance levels of the workers, subcontracted labor force or deployment of additional machinery and equipment, etc. As this concept does not consider any schedule receipts neither the actual inventories nor stock in hand while estimating the capacity requirements, ‘Capacity planning’ is simply a statement of gross production requirements. Thus, this tool is basically undertaken to evaluate the important resources against the validity of the Master schedules in order to generate the MRP plans in an exhaustive manner. In terms of business, it therefore helps in Inventory control.