Increasing or decreasing capacity b

Increasing or decreasing capacity by itself is not as important as ensuring that the entire supply chain, from order entry to delivery, is designed for effectiveness. Capacity decisions must be made in light of several long-term issues such as the firm’s economies and diseconomies of scale, capacity cushions, timing and sizing strategies, and trade-offs between customer service and capacity utilization.Therefore this chapter focuses on how managers can best revise capacity levels and best determine when to add or reduce capacity for the long term. The type of capacity decisions differ for different time horizons. Both long-term as well as short-term issues associated with planning capacity and managing constraints are important and must be understood in conjunction with one another. While we deal here with the long-term decisions shown below in the capacity management framework, short-term decisions centered on making the most of existing capacity by managing constraints are more fully explored in Chapter 5, “Constraint Management.”