What is the role of capacity in a supply chain network design?

• A. Capacity determines the maximum throughput and service capability of each facility.
• B. Capacity only affects the physical size of warehouses.
• C. Capacity is unrelated to where facilities are located.
• D. Capacity determines the color coding of boxes.

Answer: (A)

Capacity sets the maximum amount a facility can process in a given period, which in network design translates to the biggest amount of product that can flow through that site and the level of service it can reliably provide. This constraint shapes where facilities should be placed, how large they need to be, and how many are required to meet anticipated demand with the target service levels. If capacity is insufficient in a region with strong demand, lead times lengthen and service performance suffers, potentially forcing outsourcing, longer transportation, or the construction of additional capacity. On the other hand, allocating too much capacity raises fixed costs and can leave assets underutilized. So, capacity directly governs throughput, service capability, and strategic decisions about location, size, and the number of facilities in the network.