Long-term capacity plans deal with

Long-term capacity plans deal with investments in new facilities and equipment at the organizational level and require top management participation and approval because they are not easily reversed. These plans cover at least two years into the future, but construction lead times can sometimes be longer and result in longer planning time horizons.As already seen in our opening vignette, long-term capacity planning is central to the success of an organization. Too much capacity can be as agonizing as too little. Often entire industries can fluctuate over time between too much and too little capacity, as evidenced in the airline and cruise ship industry over the past 20 years. When choosing a capacity strategy, managers must consider questions such as the following: How much of a cushion is needed to handle variable, or uncertain, demand? Should we expand capacity ahead of demand, as Tesla did with battery production, or wait until demand is more certain? Even before these questions can be answered, a manager needs to be able to measure a process’s capacity. So a systematic approach is needed to answer these and similar questions and to develop a capacity strategy appropriate for each situation.