Aggregate Capacity Management – Definition

Cite this article as:"Aggregate Capacity Management – Definition," in The Business Professor, updated February 22, 2020, last accessed October 20, 2020,


Aggregate Capacity Management Definition

Aggregate Capacity means the overall operations of an organization. Management means to manage the company’s resources in the most effective way. The process of balancing the organization’s resources and how they can be best utilized for market purposes is known as Aggregate Capacity Management.

Capacity management can be either long-range, medium-range or short-range but the aggregate is medium range. Since it is medium-term in nature, its time period ranges between 6-18 months.

It is different from the weekly or daily capacity management and to determine the aggregate capacity management, these resources are equipment, production capacity and workforce.

A Little More on What is Aggregate Capacity Management

The three step process involved in Aggregate Capacity Management:

  • Measuring aggregate demand
  • Identifying alternative capacity plans
  • Choosing the appropriate capacity plan

The company will have to, based on quantitative data, determine or forecast the demand so as to determine the proper capacity planning to tackle the circumstances. The planning system helps the company to handle a change in demand and take advantage of new opportunities and reduce production costs. The company considers the number strength of the workforce and production is modified as needed to meet demand throughout the period.

Demand forecasting is a major factor in capacity management decisions.

Why Aggregate Capacity Management is Important

Resources taken into account for aggregate capacity vary from one company to another but generally these are considered; human resources, raw material, operations, and financial planning. These are essential since it helps the company in trimming the production processes  Aggregate planning plays an important part in achieving the objectives of the company. Why it is important:

  • It helps the company to keep a balance between the demand and supply
  • Maximize the utilization of its production capacity
  • Improve profits.
  •  It helps make appropriate changes in productions and workforce
  • It helps to reduce overall variable cost

Reference for “Aggregate Capacity Management” › Insights › Markets & Economy…

Academics research on “Aggregate Capacity Management”

Capacity management, Slack, N. (2015). Capacity management. Wiley Encyclopedia of Management, 1-2. The most common use of the word “capacity” is in a physical sense, for example, as applied to the fixed volume of a container or the space in a building.

[CITATION] Aggregate Capacity Management, Slack, N. (2015). Aggregate Capacity Management. Wiley Encyclopedia of Management, 1-3. Aggregate capacity management is the activity of setting the capacity levels of an organization in the medium term.

The Business Development and Sales-Service Processes, Tonchia, S. (2004). The Business Development and Sales-Service Processes. In Process Management for the Extended Enterprise (pp. 97-124). Springer, Berlin, Heidelberg. The processes of “Business Development” are responsible for the changes and innovations that are made in a company; their primary scope is to supply new operative specifications to the “routine” processes (i.e. “Supply Chain”, “Sales”, “Customer Service”). More specifically (Figure 5.1) they serve to plan how the company should place itself on the market (both sales and services), the features of the product, how to manufacture it, and which suppliers and production system (= supply chain) to refer to.

Commissioned paper: Capacity management, investment, and hedging: Review and recent developments, Van Mieghem, J. A. (2003). Commissioned paper: Capacity management, investment, and hedging: Review and recent developments. Manufacturing & Service Operations Management, 5(4), 269-302. This paper reviews the literature on strategic capacity management concerned with determining the sizes, types, and timing of capacity investments and adjustments under uncertainty. Specific attention is given to recent developments to incorporate multiple decision makers, multiple capacity types, hedging, and risk aversion. Capacity is a measure of processing abilities and limitations and is represented as a vector of stocks of various processing resources, while investment is the change of capacity and includes expansion and contraction. After discussing general issues in capacity investment problems, the paper reviews models of capacity investment under uncertainty in three settings:

Operations research and capacity expansion problems: A survey, Luss, H. (1982). Operations research and capacity expansion problems: A survey. Operations research, 30(5), 907-947. Planning for the expansion of production capacity is of vital importance in many applications within the private and public sectors. Examples can be found in heavy process industries, communication networks, electrical power services, and water resource systems. In all of these applications, the expansion of production capacity requires the commitment of substantial capital resources over long periods of time. Capacity expansion planning consists primarily of determining future expansion times, sizes, and locations, as well as the types of production facilities. Since the late 1950s, operations research methodology has been used to develop various models and solution approaches suitable for different applications. In this paper, we attempt to unify the existing literature on capacity expansion problems, emphasizing modeling approaches, algorithmic solutions, and relevant applications. The paper includes an extensive list of references covering a broad spectrum of capacity expansion problems.

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