Measuring Capacity
Capacity can be measured in terms of the inputs or outputs of the conversion process. For a company with single product or similar products in its portfolio, capacity is given as the number of units per month. But for an organization with a multitude of products in its product portfolio, capacity is measured in a common unit such as sales in a monetary unit per week, month, or year. In service organizations measuring output is not possible, so the input rate capacity is used to measure the capacity. For example, a hospital measures capacity in terms of the number of beds available, airlines use the number of seats available in a particular time period, etc. Measuring available capacity exactly is not always possible as capacity is dependent on many factors. For example, machine breakdown, employee absence, and other similar factors can lead to disruption in production, affecting the final capacity. So, decisions on capacity availability are taken after considering unavoidable interruption in productions.
To measure capacity, we use the following formula:
Capacity = Available time * Utilization * Efficiency
The capacity utilization rate measures the capacity level at which a production process is operating.
Capacity available indicates the capacity level for which the process is designed (i.e. designed capacity). Capacity utilization rate is measured in percentage terms.
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