Capacity management is vital to any organisation.

It contributes towards an organisation’s performance

with proper utilisation of resources. Capacity simply refers to the capabilities a company has in reaching
its output level within a specific time period. Therefore, capacity management is likely to affect all areas
of operation.
Organisations practice capacity management in different ways. Effective capacity refers to the maximum
level of output an organisation strives to achieve with proper utilisation of resources subjected to certain
constraints within a long time period (Olhager, Rudberg and Wikner, 2001). For example, an airport may
have an effective capacity of managing 80 flights per day. Constraints could be any bottleneck that delay
the organisation’s output delivery. In the same example, the airport may want to connect with more
destinations via offering more airlines, yet the airport may have a less number of runaways and gates that
affect as constraints.
Peak capacity is the maximum level of output an organisation could produce within a short period of
time. For example, considering the example of the airport, the airport may expand its operations during
Christmas increasing the number of airlines due to high demand of air travel.
However, a question may arise as to which is the most effective type of capacity management. From my
personal perspective, that may vary depending on the nature of the organisation. Businesses such as fuel
stores need continuous supply due to constant demand yet this may not be the case in production of
winter clothes.
Capacity cushion acts as a buffer with excess stock. It helps the organisation to face sudden increases in
demand and or temporary losses in production capacity. However, according Lovelock (1984) argues that
it is impractical for service based industries to maintain a buffer. Thus, capacity cushion cannot be
applied to all types of organisations. Although it appears safe for manufacturing industry to have a
capacity cushion the need for that may vary in another industry.
Reference
Lovelock, CH 1984, ‘Strategies for Managing Demand in Capacity-Constrained Service
Organisations’, The Service Industries Journal, 4(3), pp.12-30.
Olhager, J, Rudberg, M and Wikner, J 2001, ‘Long-term capacity management: Linking the perspectives
from manufacturing strategy and sales and operations planning’, International Journal of Production
Economics, 69(2), pp.215-225.