What is 'capacity planning' in the context of supply chain management?

Capacity planning in the context of supply chain management refers specifically to the process of determining the production capacity that an organization requires to meet the varying demands for its products. This involves analyzing current production capabilities, forecasting future demand based on market trends, and ensuring that the necessary resources—such as labor, equipment, and facilities—are available to meet these expectations.

Proper capacity planning is crucial because it helps organizations avoid stockouts (which occur when demand exceeds supply) as well as overcapacity situations (where production exceeds demand, leading to excess inventory costs). By aligning production capacity with anticipated demand, businesses can operate efficiently, ensuring they meet customer requirements without incurring unnecessary costs or resources.

Other options such as monitoring product quality, reducing logistics costs, and managing inventory control are important aspects of supply chain management, but they do not specifically address the need to match production capabilities with demand, which is the essence of capacity planning.