Approaches to expanding long term capacity, Operation Management

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Approaches to Expanding long term Capacity

There are two major approaches to expanding the long term capacity viz.

All at once and
Building a capacity incrementally

1. All at once approach: Consists of the decision to build ultimate facility at one time and then growing into it over time.

The benefits of this approach are:

Little danger of having to turn down business due to inadequate capacity,
Less interruption of production,
One large construction projects costs less than several smaller projects,
Due to inflation construction costs will be higher in the future.
Most suitable for nature products with stable demand.

2. Building capacity incrementally approach is one in which capacity is built incrementally as the demand grown,

The benefits of this approach are:

Less dangerous if forecast needs do not materialize.
Funds that could be employed for other kinds of investments will not be tied up in excess capacity.
More suitable for new products.

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