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Capacity is the ability often related to production. Undercapacity would mean that the organization can increase their output without adding on to their facility.

For example, an auto parts plant may have the capacity to produce 100 parts per hour, but currently only running 80 parts per hour. They could increase their capacity without any major changes to their plant.

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16y ago

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What are the pros and cons of using average demand to assess capacity requirements?

Using average demand to assess capacity requirements offers the advantage of simplicity and ease of calculation, providing a straightforward basis for planning. However, it can be misleading, as it does not account for variability or fluctuations in demand, potentially leading to overcapacity or undercapacity situations. This approach may also ignore seasonal trends or unexpected spikes in demand, which can affect service levels and operational efficiency. Therefore, while average demand can serve as a useful starting point, it should ideally be supplemented with more dynamic forecasting methods.


Briefly describe how uncertainty affects capacity decisions in managing capacity?

Uncertainty significantly influences capacity decisions by complicating forecasts of demand and resource availability. When managers face unpredictable market conditions, fluctuations in customer preferences, or supply chain disruptions, they may opt for flexible capacity strategies, such as maintaining excess capacity or using temporary labor. This approach allows organizations to adapt quickly to changes, but it can also lead to higher costs if not managed carefully. Ultimately, balancing the risks of overcapacity and undercapacity becomes crucial in decision-making.


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