Capacity Management

DEFINITION of '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.

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