Capacity management is one of the biggest and most controllable factors in profitability.
The most relevant point for measuring capacity is the bottleneck. This is the point that limits the amount of final production (i.e., throughput).
For example, a machine may be able to only process 100 units a day. It doesn't matter how much you speed up other machines in the process; you won't produce more than 100 units on average. If you produce more before that machine, it piles up in front of that machine. If you have more capacity after that machine, you have idle time waiting for units from the bottleneck.
Managing capacity means:
Identifying the bottlenecks at reasonable production levels for the budgeted period
Determining how to increase their capacity so they don't limit production
Aligning all capacity for reasonable production amounts—in other words, not wasting money on overcapacity
Capacity management is crucial to profitability.
CFO Perspective Resources
- The Goal by Eliyahu Goldratt
- Bottleneck: A Point of Congestion in a Production System on Investopedia