What Is Aggregate Capacity Management?

Aggregate capacity management (ACM) 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.

How Aggregate Capacity Management Works

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.

Key Takeaways

  • Aggregate capacity management (ACM) is a management strategy that seeks to optimize a firm's overall capacity utilization over its resources.
  • ACM does not distinguish between the types of resources a firm has at its disposal.
  • ACM follows a 3-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.

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.