What is 'Aggregate Capacity Management '

Aggregate capacity management is the process of planning and managing the overall capacity of an organization's resources. Aggregate capacity management aims to balance capacity and demand in a cost-effective manner. It is generally medium-term in nature, as opposed to day-to-day or weekly capacity management. The term "aggregate" denotes the fact that this form of capacity management considers a resource such as manpower or production capacity in total, without distinguishing between different types.

BREAKING DOWN 'Aggregate Capacity Management '

As an example of this concept, in a plant that manufactures various types of computers, aggregate capacity management would take into account the total number of computers to be manufactured over a three-month period, without considering the composition of the product mix – desktop, laptop or tablet computers. An aggregate capacity plan assumes the mix of different products and services will remain relatively constant during the planning period.

Aggregate capacity management is generally a three-step process – measuring aggregate demand and capacity levels for the planning period, identifying alternative capacity plans in case of demand fluctuations, and choosing an appropriate capacity plan. Operations managers are usually faced with a forecast of demand, which is unlikely to be either certain or constant. They will have some idea of their own ability to meet this demand, but before final decisions are made, they must have quantitative data on both capacity and demand. So step one will be to measure the aggregate demand and capacity levels for the planning period. The second step will be to identify the alternative capacity plans that could be adopted in response to the demand fluctuations. The third step will be to choose the most appropriate capacity plan for their circumstances. Demand forecasting is a major input into the capacity management decision. As far as capacity management is concerned, there are three requirements from a demand forecast.

Why Aggregate Capacity Management is Important

It's quite important for an organization to understand the capacity of its resources. This knowledge will help the business know and understand its production capacity and limitations and what will lead to further sales forecasting and prompt supply of products to go to the customers. Aggregate capacity management also helps a company maintain the right amount of balance between the demand and supply without stressing out the resources. Resources can vary from company to company, but aggregate capacity takes into account both manual and machinery resources and does not really differentiate between the two.

RELATED TERMS
  1. Capacity Cost

    A capacity cost is an expense incurred by a company or organization ...
  2. Capacity Utilization Rate

    The capacity utilization rate is a metric used to measure the ...
  3. Activity Capacity

    Activity capacity refers to an activity's upper threshold of ...
  4. Capacity

    Capacity is the maximum level of goods and services output that ...
  5. Account Aggregation

    Account aggregation is a process by which accounts are linked ...
  6. Aggregate Limit

    The aggregate limit is the maximum amount an insurer will pay ...
Related Articles
  1. Investing

    What You Should Know About Risk Tolerance and Risk Capacity

    When deciding how to invest, you need to consider your risk tolerance and your risk capacity.
  2. Insights

    Cost-push inflation versus demand-pull inflation

    Gain a deeper understanding of aggregate supply and demand, forces which raise the price of goods and services.
  3. Insights

    When Will the Recovery End?

    The U.S. economy is running out of the capacity to sustain growth. Two measures are especially revealing in this regard: the Federal Reserve’s (Fed’s) measure of industrial capitalization and ...
  4. Investing

    Delta's 3 Key Financial Ratios (DAL)

    Learn why a smaller sales growth rate is actually good for an airline company such as Delta to achieve a better operating margin and higher stock valuation.
  5. Managing Wealth

    Leveraging Leverage For Bigger Profits

    Leverage is like fire. Find out how to use it to heat up your investing without burning your portfolio.
  6. Investing

    Central Bankers' Role in Keynesian Economics

    Learn about the role of monetary policy in Keynesian economics, and examine how central banks impacted aggregate demand in the aftermath of the 2008 crisis.
  7. Investing

    5 Wind Energy Stocks To Watch

    One shining example in the renewable energy space is the wind energy sector. Capacity continues to grow and offers a value among the renewable energy sectors.
  8. Investing

    5 Reasons Airline ETFs Are Doing Well Despite Oil Bounce (JETS, AAL)

    Learn why airline stocks and exchange-traded funds are increasing their profits consistently as oil prices are also on the rise.
  9. Financial Advisor

    How to Save Clients from RMD Aggregation Mistakes

    Advisors can help clients avoid required minimum distribution mistakes in their retirement plans.
  10. Financial Advisor

    Will Popularity Be the Downfall of Smart Beta ETFs?

    Will the popularity of smart beta ETFs also be their downfall?
RELATED FAQS
  1. How do regular and aggregate supply and demand differ?

    Aggregate supply and demand is the total supply and total demand in an economy at a particular period of time and particular ... Read Answer >>
  2. How does aggregate demand affect price level?

    Prices coordinate supply and demand, and they are also determined by it. There is no clean, direct link between aggregate ... Read Answer >>
  3. How can you calculate diminishing marginal returns in Excel?

    Marginal returns may be calculated using Excel to help determine if additional production would result in prohibitive expense. Read Answer >>
  4. Is demand or supply more important to the economy?

    Learn more about the impact of supply and demand in an economy. Find out why companies study supply and demand as part of ... Read Answer >>
  5. What are some common examples of demand shock?

    Learn about some common examples of demand shock. Find out how demand shocks lead to surprisingly rapid increases or decreases ... Read Answer >>
Trading Center