Production Capacity Law and Legal Definition

Production Capacity is the volume of products or services that can be produced by an enterprise using current resources. Three commonly used definitions of capacity are as follows :

1.Design capacity: It refers to the maximum output that can possibly be achieved.

2. Effective capacity: Effective capacity is the maximum possible output given constraints such as quality requirements, product mix composition, machine maintenance and scheduling problems.

3. Actual output: It is the rate of output actually attained. It is typically less than the effective output caused by machine breakdowns.

Insufficient capacity will lead to poor delivery performance, increased work-in-process inventories and frustrated manufacturing personnel. This can lead to reduced customer satisfaction and reduced profitability prospects. On the other hand, excess capacity can burden the company with needless expenses. Capacity planning can help in optimal utilization of resources.