What is Practical Capacity?

Practical capacity is the highest realistic amount of output that a factory can maintain over the long term. It is the maximum theoretical amount of output, minus the downtime needed for ongoing equipment maintenance, machine setup time, scheduled employee time off, and so forth.

Example of Practical Capacity

A manufacturing plant has machines capable of producing 10,000 units per month if they operated 24/7 without any interruptions. However, to account for regular maintenance, machine setup, employee breaks, and holidays, the realistic output is reduced. After considering these factors, the plant determines it can consistently produce 8,000 units per month over the long term. This adjusted figure of 8,000 units represents the plant’s practical capacity—the highest level of output that can be sustained realistically without overworking resources or skipping necessary maintenance.

How to Use the Practical Capacity Concept

There are several ways in which you can incorporate the practical capacity concept into your operations. They are as follows:

Budgetary inclusion. Include the practical capacity level into the budget as a limiting factor, so that production is not planned at a level so high that it cannot be sustained for an extended period of time.
Capacity adjustments. If your business is routinely bumping up against its practical capacity limitations, then explore how the capacity level can be increased - perhaps through process flow alterations, additional equipment, or the selective outsourcing of certain activities.
Staffing considerations. Only hire to a level that will staff the business at its practical capacity. If you hire beyond that level, the additional staff time will not contribute to any incremental increases in sales or profits.