Valley First

Capacity Planning

Expansion is a sign of a healthy business but don't just grow for the sake of growing. If you own a business that has a physical location, you'll need to understand capacity planning.


Creating the perfect space

When you decide that it's necessary to expand or relocate, you'll need to begin the search for a new facility. It's important to choose a facility that meets not only your needs, but is also a place where your customers feel comfortable. You've heard it said that white space around text is pleasing to the eye—well, same goes for your place of business, especially if you're in a retail setting. Creating a warm, welcoming environment is ideal for presenting your products (or services) to your customers. Avoid clutter and an overwhelming assortment of stuff piled everywhere—it creates stress and indecision in your potential customer and there is a high likelihood that they'll go elsewhere to find what they're looking for. Brushing up on the art of feng shui wouldn't hurt either.


If customer demand is more than your production capacity, consider buying from outside supplier to meet the demand. If customer demand is less than production capacity, consider sharing your output with other manufacturers. Best case is when customer demand is equal to production capacity so this is the goal.

Determining the size you need

It's important that your facilities are the right size. Unnecessarily large facilities may create a drain on your finances and slow your growth. Small facilities may require you to relocate or expand before you're financially able. Don't underestimate the effect a small facility can have though; cramped quarters can be an enormous efficiency problem for workers. Plus, being crowded is just plain uncomfortable.

Take into consideration the type of business you're in as well. If you're a manufacturing company, you'll need enough space to run the entire operation, plus you'll need space to warehouse your merchandise—you'll likely find these facilities in more industrial areas of your community. If you're an eclectic antique-dealer with a small shop in the city, however, a small retail store front in a high traffic area might be better.

Capacity planning classifications

  • Long term capacity—long range capacity of an organization is dependent on working conditions, optimal production levels, employee work schedules, and the state of the equipment your using, among other things.
  • Medium term capacity—this is strategic capacity planning within a timeframe of 2 to 3 years.
  • Short term capacity—this is strategic planning undertaken for a daily weekly or quarterly time frame.

New employees

It's also crucial to have the right number of employees to promote and support growth. Having too many employees not only slows financial growth, but can cause workplace inefficiency if your workers are idle. That said, you don't want to overwork your employees. Aside from the costs of overtime, tired and irritable employees will have poor morale, which could cost you more than just money.

Things to consider

  • Do you have the money to pay for an increase in employee wage and benefit expenses?
  • Do you have the time to train new employees?
  • Will new employees free up time for you to market your services?
  • Will they directly increase production or allow you to serve more customers or clients?
  • Are there new roles that need to be filled in order to provide new or better services?

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