Capacity (Case Study Sample)

Analysis Essay
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Institution:
Capacity
Overcapacity and under capacity
Over capacity means more producing a lot of goods or services than the need that is there. In a business or industry setting, overproduction is a point or situation where the production exceeds the amount that they can sell, thus leading to a surplus. This means that there will be more products on offer at the market than the available demand at that time.
Under capacity is the opposite of this. Under capacity is a situation where there is a less production of goods and services by the company, business, or industry than the customers are willing to purchase. This means that there is a less supply of the goods and services from the suppliers than the customers are seeking to buy. This means that there will be an increase in the prices of these goods and services and consequently an increase in the profits that the suppliers will get.
In theory, when in the industry there is excess in capacity, it is expected that the prices will fall down meaning that most producers are likely to have a reduction in sales and most likely profits. Typically, overcapacity starts when there is a boom in the market. This is because most of the banks and companies are more than willing to put their money into more production. When production is over, the market will become very saturated since there too many products have been produced. This then leads to a reduction in the prices of goods, the revenues from such sales will go down, the loans that had been borrowed will not be paid, and finally the economy will be affected negatively (Emmons, 1999).
Over the last ten years, the world has experienced over production in several sectors such as in the automobile industry, semiconductor manufacturing, and in the pharmaceuticals. These have led to loss of several jobs, trade frictions, and need for the intervention of the government.
When there is underproduction in the industry, the profits will increase leading to a boom in the market. This means that there will be an increase in salaries due to an increase in revenues. This will, therefore, lead to increased investment not only in the same industry but also to the other industries.
This will then become more like a cycle, if all the factors are held constant. Assuming that the factors do not change, when there is underproduction most people will be interested to enter into the business since there has been a boom into the industry. As realized earlier, there will be an overproduction in the next time the goods are ready for sale. When there is an overproduction, people will shy away from the business since sales and returns have gone down during the time of overproduction. This will lead to underproduction and the cycle repeats itself.
However, there are other factors that do affect production leading to either under or over production. The economy is one factor that does lead to either over and under production is the economy. There are times when the economy of a country is not doing so well leading to reduced investment in most industries leading to under production. Inflation in the economy does have similar effects to production as well.
Per se, neither over nor underproduction is such a really such bad thing. When there is over production, there is a reduction in the prices of goods. This is really a very good thing to the customers. When there is underproduction, the prices are very good and the returns are very high for the suppliers.
How Honda make capacity planning decision
The wrong level of production is very unhealthy for any production company, and industry. When there is a high production in the auto mobile industry for example, Honda has been paying more to let space where they can put their cars. This increases the cost of sales.
In the automobile industry, there was a lot of over production in the years between 2007 and 2009. Underproduction has not been experienced in the recent times, save for some of the few models which might not have been widely discussed. Generally, the whole industry has been having over production.
Capacity can be classified into three levels. That is long term, medium term, and finally short term. Long term plans are the plans that affect the design, and production capacity that will affect the company and the production capacity in the long run. Honda, specifically, did open up more production plant in India in the year 2013 to produce more than 4.6 million units of motorcycles and scooters in a year. This is after they realized that the production of cycles was considerably low while the market was increasing over time. This is one move that will ensure that there will be no underproduction in the near future. They are also planning, in the Swindon plant, to lay off more than 800 people so as to ensure that they will use less labor since they are planning to reduce their production to at least 166,000 units of models such as Civic, Jazz and CR-V which will be a reduction from their usual 255,000 units in a year. This is another move that will help reduce productions ...