Reference no: EM132166004

Question: Operations Capacity Management

The process of planning business operations starts with defining, measuring, and determining the policies of management that will shape the firm's operational capacity. According to Slack, Brandon-Jones, and Johnston (2016), a company's operation capacity is the "maximum level of value-added activity over a period of time that the process can achieve under normal operating conditions" (p.324). In simple terms, capacity is the value-creating ability of an organization's resources (Rahabok, 2016). Operations managers must decide how to plan and control a company's operating capacity to meet the demands placed upon it. The task of planning and controlling capacity so that it can aptly respond to demand fluctuations is called capacity management (Slack et al., 2016). Capacity and its management are indispensable to the creation of a sustainable and profitable business organization (Rahabok, 2016). Slack et al. (2016) state that the decisions that operations managers take to devise their company's capacity plans and controls will affect various aspects of organizational performance.

One of the performance facets that capacity management is likely to affect is cost. More precisely, the balance between demand and a firm's value-creating capability will affect costs. If capacity is more than demand, then it is highly likely that a company is under-utilizing its value-creating ability and accordingly, it will incur high unit costs (Rahabok, 2016). The balance between a company's value-creating ability and demand will also have an impact on revenues, but oppositely in comparison to the effect that it would have on costs. If capacity levels exceed demand at any point in time, then the firm will be able to satisfy demand, and it will lose no revenue. Other aspects of corporate performance that capacity management is likely to affect are the quality of a firm's products or services, working capital, and speed of response to consumers' demand (Slack et al., 2016). The premise that capacity and its management influence organizational performance points out to the need to answer the question, "what steps can operations managers take to ensure effective capacity management?"