An operations and supply chain management view of capacity emphasizes the time dimension of capacity.
Three time horizons are generally used: long range (greater than a year), intermediate range (6 to 18 months), and short range (less than a month).
To distinguish between the absolute maximize capacity of the system (the highest output rate attainable) and the rate that is sustainable by the system (that it can be run at efficiently and for a long period of time), the term best operating level is used. The utilization of the system is a measure of how close the system is operating relative to the best level.
When a producing resource, such as a manufacturing plant, gets larger and volume increases while the average cost per unit of output simultaneously drops, then the resource is exhibiting economies of scale.
At some point, the resource may be too large and the average cost will start to rise. This is when diseconomies of scale are a problem.
Focused manufacturing plants are designed to produce multiple products using a concept called plant within a plant to improve economies of scale even though multiple products are produced in the same facility. This type of facility demonstrates the concept of economies of scope.
Having capacity flexibility is often important to meeting the needs of a firms customers.
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