Capacity Management

What is 'Capacity Management'

The management of the limits of an organization's resources, such as its labor force, manufacturing and office space, technology and equipment, raw materials, and inventory. Capacity management also deals with the capacity of an organization's processes – for example, new product development or marketing – as well as with capacity constraints that arise when various resources are combined. Since capacity constraints in any process or resource can be a major bottleneck for a company, capacity management is of critical importance in ensuring that an organization operates smoothly.

BREAKING DOWN 'Capacity Management'

Inadequate or improper capacity management can affect a company's financial performance and impede its business prospects. For example, a company that has introduced an innovative new product and mounted an aggressive marketing campaign to promote it must ensure that it has enough manufacturing capacity to meet the expected surge in demand. If manufacturing capacity is insufficient, the product may be sold out before it is replenished in retail outlets, which could lead to a shortfall in sales and cause disappointed customers to look for other alternatives.

RELATED TERMS
  1. Aggregate Capacity Management

    The process of planning and managing the overall capacity of ...
  2. Capacity Requirements Planning ...

    An accounting method used to determine the available production ...
  3. Excess Capacity

    A situation in which actual production is less than what is achievable ...
  4. Fiscal Capacity

    In economics, the ability of groups, institutions, etc. to generate ...
  5. Activity Capacity

    The degree to which a particular action is expected to perform. ...
  6. Capacity Utilization Rate

    A metric used to measure the rate at which potential output levels ...
Related Articles
  1. Investing

    Calculating the Capacity Utilization Rate

    Capacity utilization rate is a ratio used to compare a current usage level against a maximum potential level.
  2. Markets

    What is Capacity Utilization Rate?

    The capacity utilization rate shows how much a firm or economy is producing as a percentage of what it’s capable of producing.
  3. Investing

    Capacity Utilization: A Strike Against Rate Hikes

    Despite a recent jump in certain prices indices, capacity underutilization suggests inflation is not a threat, and a more dovish Fed should be welcomed.
  4. Is It Time To Short This Industry Favorite?

    A combination of capacity growth, higher fuel prices and worries about the health of the global economy have sent airline stocks skidding this year. The US Global Jets ETF (NYSE:JETS) is down ...
  5. One Airline Ready To Fly Higher And One Not Cleared For Takeoff

    A combination of capacity growth, higher fuel prices and worries about the health of the global economy have sent airline stocks skidding this year. The US Global Jets ETF (NYSE:JETS) is down ...
  6. Markets

    Brexit Fallout: Delta Cuts Capacity on U.K. Routes

    Delta Air Lines (NYSE: DAL) reported better-than-expected second-quarter results on Thursday morning, sending the stock up close to 4% in early trading. Planned cost cuts from reducing the capacity ...
  7. Financial Advisor

    Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  8. ETFs & Mutual Funds

    3 Reasons Why XLE & USO's Performances Will Be Limited

    Discover the three reasons why the United States Oil Fund and the Energy Select Sector SPDR Fund will likely underperform after the first quarter of 2016.
  9. Markets

    Are Markets Ready For An Interest Rate Hike?

    Despite financial market fears over the uncertainty of Greece’s debt crisis and the recent drop in China’s stock-market, Federal Reserve Chairwoman Janet Yellen has reaffirmed the Fed’s plans ...
  10. Markets

    What Happens in a Make-or-Buy Decision?

    A make-or-buy decision happens when a company must choose to either manufacture an item itself, or buy it premade from a supplier.
RELATED FAQS
  1. How should I invest $10,000?

  2. Does the law of diminishing marginal returns only apply to labor?

    Learn more about how the law of diminishing returns is used by economists and businesses. Find out more about the laws of ... Read Answer >>
  3. How long should an expansionary economic policy be implemented?

    Finding the optimal time period to end expansionary economic policy is an urgent issue; the key is found with capacity utilization. Read Answer >>
  4. What economic indicators are important to consider when investing in the chemicals ...

    Discover the most important economic indicators to consider when investing in the chemicals sector. The chemicals sector ... Read Answer >>
  5. How much oil must be produced to maintain inventory levels in the United States?

    Learn more about the petroleum inventory available in the United States, how it is stored and the volume producers must maintain ... Read Answer >>
  6. What is the difference between work in progress (WIP) and raw materials in accounting?

    Learn about the difference in inventory financial accounting between works in progress and raw materials, as reported in ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center