OPERATIONS STRATEGY

In cases where capacity expansion will be undertaken, there are two strategies for determining the
timing and degree of capacity expansion.

expand-early strategy (i.e., before demand materializes). The intent might be to achieve economies of
scale, to expand market share, or to preempt competitors from expanding. The risks of this strategy
include an oversupply that would drive prices down, and underutilized equipment that would result in
higher unit costs.
wait-and-see strategy (i.e., to expand capacity only after demand materializes, perhaps incrementally).
Its advantages include a lower chance of oversupply due to more accurate matching of supply and
demand, and higher capacity utilization. The key risks are loss of market share and the inability to meet
demand if expansion requires a long lead time.

capacity disposal strategies – Is important in cases where capacity contraction will be undertaken, This
can be the result of the need to replace aging equipment with newer equipment. It can also be the
result of outsourcing and downsizing operations.