There is
a direct relationship between the economic concept of demand and capacityplanning. A common problem that all production and service firms face is matching
capacity with uncertain future customer demand. This is because- “Capacity serves demand, but demand is often
stochastic”.
When the demand of a service exceeds an organization’s capacity to serve, it cannot serve its customers and loses valuable business opportunity. On the other hand, whenever an organization’s capacity to serve its customer exceeds the demand of the customer, the results are idle servers and facilities.
For example, in the telecom industry, the increasing reach of cellular technology and other kinds of wireless access is continuing to create more and more supply. But the demand is not so high comparing to the supply ability of the telecom service providers. So telecom companies strive to cut prices and offer attractive incentives to create demand in the industry.
Relevant Search Terms:
capacity planning theory
Relationship between supply and demand
economic concept of supply and demand