What is the role of capacity management in an organization

By Indeed Editorial Team

Updated July 22, 2022 | Published April 20, 2021

Updated July 22, 2022

Published April 20, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Successful businesses often thrive because of their ability to adapt to changing circumstances. Capacity management is a critical business function that makes sure companies remain as productive as possible in all scenarios. If you're interested in learning how to maximize your business's profitability, you might benefit from understanding the various applications of capacity management.

In this article, we review what capacity management is, what it's used for and how it can benefit a business, then offer tips for managing a company's capacity.

Key takeaways

• Capacity management is a business practice organizations use to maximize their production methods, resource uses and strategies. By optimizing processes and using resources successfully, businesses can achieve maximum productivity and eliminate waste.

• Capacity management can refer to IT processes or to production.

• Capacity management is a continuous process that requires frequent evaluation and optimization in order to respond to changes in technology, demand and business functions.

 

Capacity management is a business practice that compares production needs with the use of resources to ensure a company can consistently meet changing demands.

A business studies its maximum production potential to determine its capacity. It then measures actual productivity to identify where the business isn't meeting capacity or is putting too much stress on its systems. Businesses take these insights and implement changes that resolve the problems they diagnose. Capacity management helps businesses prepare for the future by testing scenarios that would challenge the current productivity limits of a company.

Related: Demand: Definition in Economics and 7 Types of Economic Demand

What is capacity management used for?

Capacity management relates to two different but related business functions: the production of goods and services and the performance of information technologies, or IT. Here are how they might apply to your organization:

Production capacity management

Capacity management can examine how efficiently your company uses resources to manufacture goods. These resources include owned or rented space, employees, equipment and machinery, raw materials, product components, packaging supplies and modes of transportation.

A shortage in a single category of these resources can prevent successful production and disrupt order fulfillment. Conversely, an excess of resources might represent an inefficient use of money that can reduce profit.

There are several common factors that affect demand for products. Capacity management can help your company prepare for:

• Seasonal changes: Your business might adjust production somewhat throughout the year to follow general demand patterns, such as greater consumer spending towards the holidays. However, some companies have highly seasonal demand that requires cutting costs when demand is low and ramping up production when it's high.

• Economic events: Your company can try to predict overall economic trends to understand short- and long-term demand patterns. It also might value production flexibility to protect against dramatic and unforeseen economic events.

• Market trends: Your company's market share likely changes as competitors enter or leave your market. These shifts directly influence how many resources your company needs.

• Industry trends: Sometimes larger industry trends affect most of the firms in the market. For instance, if electric cars become increasingly widespread, then oil companies might experience changes in demand, which would require them to adapt. 

Related: Supply and Demand: Definition and How It Works

Information technology capacity management

Capacity management also might refer to the ability of an organization's computer networks to handle data processing and network traffic. Your business might require intensive computing power to conduct research or develop products, or it might need to handle large amounts of users to prevent site crashes or malfunctions.

IT capacity management improves computing processes by:

• Assessing capability: IT capacity management establishes the maximum processing power of computer systems and their ability to meet performance targets.

• Monitoring usage:  Businesses can benefit from understanding the actual usage of their computing system's resources.

• Tuning: IT capacity management enables businesses to adjust their systems’ configuration to improve computing performance without increasing cost.

• Demand management: Organizations can adopt better practices to reduce strain on computing systems. For instance, a company might reschedule maintenance tasks so they don't conflict with periods of higher usage.

• Capacity planning: IT capacity management enables organizations to prepare for their business's eventual computing requirements. They might plan hardware purchases or software upgrades to ensure the company is ready for the future.

Related: Information Technology Skills in Demand Today

Benefits of capacity management

Here are the several ways capacity management benefits companies' production and IT systems:

Ensuring adequate productivity

Often, creating a single product involves several supply chains, production facilities and distribution networks. This complexity can make it difficult to determine if your business is on track to fill all its orders on time. Capacity management confirms if current production methods are adequate or not.

Most businesses have expectations for their IT systems’ performance. Capacity management informs you if those expectations aren't being met. Remaining aware of your system's actual performance prevents you from continuing to spend on IT services you aren't actually receiving. 

Related: FAQ: What Is Capacity Planning? (Definition, Types and Tools)

Identifying waste

Capacity management identifies resources that aren't being used or that cost more per unit than necessary. For instance, capacity management might identify if an older piece of manufacturing equipment that requires constant maintenance is worth the cost. You might recognize that investment in a new piece of equipment would enable you to produce more units of product with the same amount of space while avoiding repair costs.

Often, an IT system's current configuration fails to achieve maximal processing power. Capacity management suggests how to modify your network infrastructure to boost computing performance. For example, businesses sometimes don't install enough memory on their servers, leading to slower processing. If your company invested in servers to provide a certain level of processing power, it's wasting the initial investment until you install the appropriate amount of memory.

Related: What Is a Capacity Report? Definition, Benefits, Types and Tips

Locating systems issues

Capacity management helps your business locate exactly where or why an issue occurs. Your company's findings can have important effects beyond productivity. If a company has two similar production facilities, but one produces more product per employee hour, your company might recognize a need to improve employee management in the underperforming facility. It might be the case that improving the work environment for your production staff directly improves productivity as well.

Troubleshooting is an essential ability for resolving IT issues. Capacity management similarly traces problems in computing performance to the network components that aren't properly functioning. By running test scenarios, your company can also locate systems issues that could arise in the future and prevent them from actually affecting business flow.

Related: A Beginner's Guide to Information Technology

Preparing for the future

Capacity management ensures that each stage of your company's expansion is responsible and profitable. As your business gets better at understanding demand cycles, it can predict production needs and purchase resources when prices are lower. It also is better prepared for the inevitable changes in demand that affect your bottom line.

With so much commerce and work dependent upon computing systems, protecting your IT system's functionality is critical. Capacity management ensures that the investments your company makes in hardware and software result in reliability and excellent performance when you require them most. By reducing your business's spending on IT, capacity management also helps it remain financially healthy in the long run.

Related: How To Measure Demand Capacity (Plus Why It’s Important)

Tips for managing capacity

Here are several tips that apply to successful capacity management in both production and IT systems:

1. Understand your resources

Capacity management is most successful when your organization has a comprehensive understanding of its resources. When focused on only one issue or one scenario, it's easy to exclude some resources from your thinking and overlook potential solutions. Before attempting to improve your capacity management, be sure that you have organized and listed your company's resources as well as possible.

2. Test multiple scenarios

Both production and IT systems are complex networks where local issues can affect the functionality of the whole. With so many variables, it's a challenge to test every scenario. However, it remains important that your company uses capacity management to explore as many productivity or processing challenges as it can.

3. Study the past

Most companies experience some difficulty with meeting production goals or maintaining fully functional IT systems. Your organization can benefit from examining the previous challenges it has faced in order to develop better practices for the future. You also might review case studies of other companies that have encountered production or IT issues and learn from their responses.

4. Prioritize carefully

Capacity management is an ongoing process, meaning your company can expect to discover new areas for improvement continually. You may begin addressing one issue before recognizing a vulnerability in your production or IT system that poses a greater risk to operations. Make sure that your approach to capacity management allows you to prioritize the most urgent tasks and projects so you actually avoid the issues you identify as possibilities.