What Is Strategic Capacity Planning?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 March 2020
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Strategic capacity planning is a process that seeks to balance the use of available resources so that they are used to best effect while resulting in the optimum level of output. In many businesses, this involves giving a great deal of attention to each step in the production process to ensure that little to no waste is created during that process, and the cost of production is kept as low as possible while the greatest quantity of goods and services are produced and sold. There are a number of factors that go into strategic capacity planning, including understanding customer demand and the ability of the company to adjust its operation to meet that demand.

When thinking in terms of strategic capacity planning, the approach of understanding the condition of the marketplace is essential. In an economy that is driven by customer demand, it is important to ascertain how may units can reasonably be expected to be sold in the market, and at what price. Data of this type helps to set the goals for the production process, in that companies can use the data to determine how much they can invest in the way of resources and still generate enough products that will sell and make at least some profit off each unit sold.


To that end, strategic capacity planning will seek to identify the costs associated with producing a certain number of units of finished products and compare that figure to the price that each unit can command in the current market. The idea is to look closely at each component relevant to the creation, sale, and marketing of the product and arrive at a unit price that will generate a return while also remaining within the price range that is likely to be attractive to customers. Typically, this means addressing each step in the process to identify the most cost-effective means to achieve the desired goal.

An overall approach to strategic capacity planning will begin with the selection of raw materials, proceed through the actual production process, encompass administrative and support expenses involved with the business model, and even include attention to the costs of shipping the sold goods to buyers. At its best, this type of planning makes it possible to keep inventories low but still at a level that can meet consumer demand, effectively avoiding paying taxes on a high inventory of finished goods while also preventing a temporary shortfall that could drive customers to seek similar goods from competitors.


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