ABSTRACT
The effective capacity can be defined as the amount of material or product available at each upstream stage of the supply chain. Beginning with the end user, how much could the upstream supplier provide at any given time to customers and so on up through the various tiers of the chain? Some texts measure capacity in the supply chain based on the capacity of warehouses, in the sense of how much can physically be stored. While storage space might be a concern if you are the manager or owner of a warehouse the effective capacity is how much can pass through your warehouse in a given period, rather than how much you can physically store. Movement through the warehouse will be limited by the speed and reliability of inward supply and by the availability of outward transport. The objective of good warehouse management is not to have huge amounts of material, but to have a high rate of throughput. Dangers and costs of large stocks of slow-moving stock at any stage of the supply chain are:
• Cost of premises • Cost of capital (interest on cash tied up in stock holding) • Handling costs • Insurance • Damage and deterioration of materials • Stock shrinkage due to miscoding and theft • Loss due to obsolescence, fashion changes and passed used by dates
Thus, the effective capacity is measured in terms of throughput for each stage of the supply chain. At the end of the supply chain effective capacity is the amount of finished product that can be supplied to end users on a daily basis. For example, in the military capacity could be measured by the number of rounds of ammunition, or the number of ration packs that could be supplied daily to the front line. Capacity is not the number that is supplied, but the number that could be supplied if required.
