Capacity is defined as the output- or
revenue-generating ability of an entity or a component thereof. It is a
measure of the ability to produce goods, services and revenue.
Not all capacity concepts or components are created equal. Capacity's several components include, of course, the physical facilities that exist 24/7 although they may not be utilized 24/7
for various reasons. Because physical capacity is not easily adjusted
in the short term, the notion of fixed physical capacity is central to
much of the RM literature. Another component of capacity is personnel
or the level of staffing provided to make the physical facilities
operational. The amount of personnel capacity is discretionary and in
many cases may be easily modified in the short term. Processes employed constitute a third component that affects how physical facilities and personnel are utilized to produce output.
Because
they are internal to the organization, these three components of
capacity depend on decisions made by management. A fourth capacity
component is at least partially external: the supply chain (purchases)
that reliably provides the goods and services necessary for the
organization's outputs. Thus, we may think of the ‘four Ps’ of capacity:
- Physical
- Personnel
- Processes
- Purchases
Capacity illustration
To
illustrate, observe that from a physical facilities viewpoint a
restaurant's capacity consists of the size of its dining area and its
kitchen. The number and capabilities of food preparation and service
personnel also affect capacity. Processes utilized include the various
techniques of preparing and delivering output. Although a fast-food
restaurant's capacity differs from that of a fine dining restaurant of
comparable size – a fast food outlet's physical capacity is able to
serve more customers due to shorter preparation and service times – it
will not necessarily produce more revenue. Finally, the ability to
service customers depends on a steady and reliable supply of food and
service products.
All four restaurant capacity
components – physical facilities, personnel, processes and supply chain –
interact to create the restaurant's revenue potential. Thus managing
the revenue process requires measuring capacity on the various
dimensions discussed above, and to analyze how those dimensions of
capacity are being utilized. The CAM-I capacity model, discussed next,
offers a useful framework for such analysis.
Summary and Conclusion
Building on the theme that proper consideration of
capacity and its components is central to any effective RM scheme, we
examined the insights provided by the CAM-I capacity model. The
breakdown of capacity utilization into idle, non-productive and
productive components provides a convenient framework for managerial
review and analysis. Why is capacity idle? Are there impediments to its
use? Should previous conclusions about the non-marketability of idle
capacity be re-examined? Are there new and creative ways to put some
idle capacity to work? How much capacity is non-productive and why? Can
ways be found to convert non-productive time to productive? Analyses
such as these can help identify new revenue opportunities. A CAM-I
capacity analysis provides a straightforward framework for identifying
revenue-generating enhancements without sophisticated mathematical
analysis.
A further impact of capacity analysis is
the recognition that capacity to generate revenues does not depend
solely on physical facilities. Personnel, supply chain and processes
also play a role; all four components should be considered.
Capacity
analysis has its limitations. The analysis works best for entities
where physical capacity directly limits revenues. Thus it is most
readily applied in industries that have been the mainstream of the RM
literature – airlines, hotels, restaurants, golf courses and the like.
The analysis is also relevant to most manufacturing environments,
although complicated by how multiple products impact the use of physical
facilities. The most challenging applications lie in retail and service
businesses, where physical assets play less of a role in RM. However,
in such environments the other elements of capacity – personnel, supply
chain and processes – may take on greater importance. More study is
needed on these dimensions of capacity analysis.
Overall, capacity analysis, especially the CAM-I framework, can be a valuable tool for RM.
Further more information about this articles, please you check on Journal of Revenue and Pricing Management or e-mail to rhuefne@buffalo.edu.
By Ronald J Huefner & James A Largay III
Repost by Acarre Community Media
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