Topic: BusinessStrategy

Last updated: May 6, 2019

The timing of capacity changeChanging the capacity of an operation is not just a matter of deciding on the best size of a capacity increment. The operation also needs to decide when to bring ‘on-stream’ new capacity. For example, Figure 6.10 shows the forecast demand for the new air-conditioning unit. The company has decided to build 400-units-per-week plants in order to meet the growth in demand for its new product. In deciding when the new plants are to be introduced the company must choose a position somewhere between two extreme strategies:? capacity leads demand – timing the introduction of capacity in such a way that there is always sufficient capacity to meet forecast demand;? capacity lags demand – timing the introduction of capacity so that demand is always equal to or greater than capacity.Figure 6.10(a) shows these two extreme strategies, although in practice the company is likely to choose a position somewhere between the two.

Each strategy has its own advantages and disadvantages. The actual approach taken by any company will depend on how it views these advantages and disadvantages. For example, if the company’s access to funds for capital expenditure is limited, it is likely to find the delayed capital expenditure requirement of the capacity-lagging strategy relatively attractive.

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