Designing a capacity of manufacture

1. SHORTAGE or EXCESSIVE
Which one is better? Shortage or Excessive.
We are talking about production capacity. Since a market is a volatile realm. There’s
no an everlasting certain calculation about demands. At other side, a production
facility must to be designed according to certain capacity. With a certain capacity
level, we can list all the cost’s driver easily with the result that we can calculate
production cost. With a certain production capacity, we can calculate all the needed
resources. Next, will give a certainty about cost’s calculation which is the prominent
condition of price’s decision.
Manufacturers are facing a dilemma while designing their production capacity.
Difficult decision must to be made by board of directors whether increase or maintain
the existing capacity while facing an increasing demands. A increasing demand is
seemed like a decieve trigger. Which triggers us to greedily increase the capacity by
instant. It’s phenomenon like a buble, that will be blown up at any time. China is one
example of over capacity case. There are many manufactures in china are nowadays
running in over capacity especially it’s industries of steel and property. The plant is
set up in high installed capacity, and now only running at a half. Burden a
manufactures with a high fixed costs.
On the contrary, same case as above, we are facing an increasing demands, but we
decided to maintain the existing capacity. Resulted to opportunity loss, loss a
opportunity to sell much more and give the competitor a highway to overtake us.

2. The win-win solution is to shift the risk to third party. A scheme of subcontract the
job to third party is one of the solution for the dilemma. Other, for a Go Public
Company is much easier to gain public funding to increase the capacity, and let the
public bear all the risks. Commonly, the company will establish a subsidiary company
to handle this strategy.
If the increasing demands seemed as a inclining trend in a long period, it can be
considered to increase an installed capacity on our manufacture. Extended Plant can
be placed at new area with lower labor cost, lower material cost, lower trasportation
cost, and lower tax, or using a new technology which can saving many costs.
Improved technology is proved in saving labor cost and material cost in manufacture
with it’s ability to increase the output with same input, in some case with a lower
input.
To avoid the shortage or excessive capacity, it starts from the marketing’s eyes to see
and forecast the demands using data which collected diligently. There are some
methods of forcasting demands, such as:
(1) Time series projection methods:
 Moving average method
 Exponential moving method
 Trend projection method
(2) Causal methods:
 Chain ratio method
 Consumption level method
 End use method

3. The key of forecast is: accuracy, supply, and record history.
There are now many automatic computer programmes to handle the calculation of
forecasting such as minitab, SPSS, and simply using microsoft excell.
I believe that shortage of capacity is still better than the excessive one. Excessive
capacity burden a manufacture with high fixed cost (real cost). Shortage capacity only
lead a manufacture to opportunity loss ( not a real loss), which will be solved soon by
many ways such as subcontract company, subsidiary company, or increasing installed
capacity once we sure the increasing demands is an inclining trend. An large
excessive capacity indicates that there is a buble happened. A buble phenomenon is
like an epidemic spreads out the world and able to destruct a nation’s economy.
Keep away from greedy.
Pungging, July 25th , 2016
Cheers,
Felix Budi J