# Production Capacity

## What is Production Capacity?

Production capacity refers to the maximum number of products a company can produce in a given period of time. It is influenced by factors like resource availability, manpower, workday hours, etc. Calculating production capacity is the first step in manufacturing that companies can take to understand the maximum output of their facilities.

## Significance of Production Capacity in E-commerce

Data related to production capacity helps businesses make short-term goals and implement long-term changes. Some of the major benefits of keeping a check on the production capacity are:

• Keeping up with market demands: Market demands keep changing seasonally. Therefore, companies can serve their customers better by maintaining a production capacity equivalent to market demands.
• Setting goals: Keeping track of the production capacity helps business owners get a clear picture of their manufacturing capabilities. Hence, this information can be used to set realistic goals that can improve the overall supply chain.
• Saving resources: With production capacity data, businesses can avoid situations wherein the capacity is much higher than the demand. Since, in such situations, resources end up being wasted, keeping a check on production capacity is beneficial.

## Prerequisites for Production Capacity and How It Works

To calculate production capacity, you will have to determine your machine hour capacity, the formula for which is:

Machine hour capacity= number of usable machines x hours when employees can use the machines

Hence, the formula for calculating the production capacity is:

Machine hour capacity / Time (in hours) to produce one product

## Use Case with Production Capacity

Suppose you own a stationery company. You want to figure out the production capacity of pencils in your manufacturing unit. You have 8 hours working shifts with 12 machines dedicated to this task. These machines take 30 minutes (0.5 hours) to make one pencil. Therefore, your machine hour capacity is:

12 x 8 = 96