4.5 Defining and Measuring Capacity
When selecting a measure of capacity, choosing a metric that does not require frequent updating is advisable. For instance, using dollar amounts as a capacity measure can be problematic, as in the case of a restaurant with a capacity of “$1 million in annual sales.” Such a measure becomes less reliable over time due to price fluctuations, necessitating constant updates.
In scenarios involving multiple products, measuring capacity in terms of each product is preferable. For example, stating that a firm’s capacity is to produce either 100 microwaves or 75 refrigerators provides greater clarity than simply stating a capacity of 100 or 75 units. This approach avoids ambiguity and ensures accurate capacity assessments for each product line.
An alternative method of measuring capacity is referring to the availability of inputs. This approach can be particularly useful when dealing with diverse output types, as it allows for a more holistic assessment of the resources required for production.
It is crucial to recognize that no single measure of capacity can be universally applied across all situations. The appropriate capacity measure must be tailored to the specific context and requirements at hand. Factors such as the nature of the products or services, the production processes involved, and the organization’s operational complexities should guide the selection of the most suitable capacity metric.
Organizations can gain a more accurate and actionable understanding of their production capabilities by adopting a context-specific approach to capacity measurement, enabling informed decision-making and effective capacity planning strategies. The following table shows examples of output and input for capacity measures.
| Type of Business | Input Measures of Capacity | Output Measures of Capacity |
|---|---|---|
| Car manufacturer | Labour hours | Cars per shift |
| Hospital | Available beds | Patients per month |
| Pizza parlour | Labour hours | Pizzas per day |
| Retail store | Floor space (sq. ft.) | Revenue per sq. ft. |
“7 Strategic Capacity Planning” from Introduction to Operations Management Copyright © by Hamid Faramarzi and Mary Drane is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.—Modifications: used section Defining and Measuring Capacity, some paragraphs rewritten; added additional explanations.
