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What Is Capacity Analysis?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 23 August 2016
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Capacity analysis is an evaluation of the production capabilities at a plant or similar facility. This can be performed as part of a comprehensive review, or as a stand alone research project. Companies may call upon third party services for an objective and neutral capacity analysis. They can also work with internal analysts and specialists to perform this review, which may be necessary if a facility handles sensitive products.

In a capacity analysis, the goal is to determine the maximum possible output, given current conditions at the facility. A final document may also discuss ways the output could be increased with measures like adding equipment or workers. Analysts can break down this information in charts to show how much it would cost to improve production, and how much the company could stand to gain from such measures. This can also include analysis of the long term impacts of increasing capacity, such as a better ability to meet rush orders in the future or to grow with industry demand.

Financial analysts typically play a role in capacity analysis, as do people like engineers. The project can require a site visit to inspect the facility, meet with employees, and examine equipment. Some consultants utilize computer models and other high tech measures to provide detailed and accurate reports. Modeling can be particularly useful for activities like simulating the net impact of replacing equipment, adding workers, and making other changes to the factory environment.

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Companies may order a periodic capacity analysis to make sure their factories are operating at their best. An understanding of capacity and potential can also be important for business planning. For example, a company might need to know that it would be possible to double production capabilities at a plant. This could help company officers make decisions about what kinds of products and services to offer in the long term.

This can also be part of an evaluation for the purpose of streamlining a company, determining which factories to take offline, and improving efficiency. Factories operating well below capacity may not be a good long term investment. A company could shift production to other facilities, stop production on products with poor returns, and close a factory. These measures could help reduce costs and refocus investment and development activities on the products most likely to pay off. The shuttered facility could then be sold to provide cash flow, and eliminate the need for expensive maintenance.

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