Amount of output a system is capable of achieving over a specific period of time.
Efficiency = Actual output/ Effective capacity
Utilisation = Actual output/ Design capacity
Capacity planning is central to the long-term success of an organisation. Capacity plans are made at two levels:
(i) Long-term capacity plans which deal with investments in new facilities and equipments covering the requirements for at least two years into the future.
(ii) Short-term capacity plans which focus on work-force size, overtime budgets, inventories etc.