Two Ways to Measure Capacity

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Marten van der Zee
Analyst, Netherlands
No single capacity measure is best for all situations. In general, capacity can be expressed in one of two ways: output measures or input measures. Output Measures of Capacity: these are best used for individual processes within the firm, or when the firm provides a relatively small number of standardized products. Capacity would be measured in the numbers produced per day. As the amount of customization and variety of products increase, output-based capacity become less useful. Input Measures of Capacity: these are best used for low-volume, flexible processes. The problem with input measures is that demand is invariably expressed as an output rate. Capacity Utilization is the degree to which a resource such as equipment, space, or the workforce is currently being used. Utilization is a percentage, measured as the ratio of average output rate to maximum capacity. Always make sure the average output rate and the maximum capacity are both measured in the same entities: in eith (...) Read more? Sign up for free


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