Question

What is the fundamental distinction between design capacity and effective capacity? Provide a brief example. Distinguish between utilization and efficiency. Why is the capacity decision important?

Answer 1

Design capacity is the maximum result of the theory of a system over a period of time under good conditions. Instead, effective capacity is the capacity that a company expects to meet current operational constraints. The effective capacity is often lower than the design capacity because the facility may be designed for a previous generation product or a different product combination from the current product. For example, a restaurant may have 100 seats, but it only opens 60 places every night because it can not find a server with enough capacity.