Defining and Determining Capacity

Abstract

‘Capacity’ in this chapter is defined broadly as the major capital or fixed assets of a business — the buildings, land, plant and equipment. Decisions to commit relatively large proportions of plant and the limited resources of a small business in buying capacity need to be treated with great care. Small business ventures are extremely vulnerable; they are rarely able to hedge their judgements in the area of investment decisions. This is, however, an area where very often decisions are taken intuitively — often almost as an act of faith. There can be a feeling that investment in capacity is essential to support growth, to increase competitiveness, and consequently to increase market share. It can be assumed that this is the way to make your cash work for the business. Through more conservative eyes, the picture looks very different. Investment in capacity has an inevitable timescale, implies specific commitments, reduces options, and ties up cash. It makes a fundamental impact on what can and what cannot be done in terms of organising the production/operations processes.