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Capacity Planning in Operations Management

10/02/2017

Capacity lead strategy foresees the growth in demand and weaves a net to capture that demand, by employing more staff or storing more supplies. This forceful strategy accompanies with the market penetration strategy as counterpart on another. Both aim to acquire more customers in an expanding market; or establishing a steady position while trying to enter a new market. Christmas seasonal sale is one ideal example to observe firms’ implementation of capacity lead strategy: a forecast is usually prepared from summer, and from that new employees are recruited, goods are imported, and promotions are ready to launch at once. This movement allows the firm to overwhelm their capacity constrained competitors.

Average capacity strategy balances between leading upfront and lagging behind demand. In this method, capacity is expanded at the same time with increasing demand. Excess output is presumed to be sellable, as well as shortage is believed to be tolerable, maybe with promotions after to gain loss of customers.

Capacity lag strategy chases demand after evidence of its growth is clear and significant. The conservative movement protects the company from costly overproduction. This practice usually ignores growth opportunities during peak demand periods, but instead it results in a higher return on investment. Ambitious entrepreneurs may blame this move for the loss of customers. Cost is another consideration when deciding to implement this lagging behind demand strategy: it saves cost by remaining stable in operations. Seasonal personnel can be expensive with non-negotiable salary demand in peak periods. Therefore, capacity lag strategy is favourable in less competitive industries; or their products and services have been standardised across the industry.

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