Two Ways to Measure Capacity

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Marten van der Zee
Analyst, Netherlands

Two Ways to Measure Capacity

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 either time, costs, units or currencies.

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