5 Things To Consider Before Making Capacity Expansion Decisions

Vaibhav Agarwal

Capacity Expansion Decisions are Hard Decisions.

Most companies, especially in the manufacturing industries struggle when they are faced with these situations that require significant amounts of investment in capital and leadership bandwidth. And unsurprisingly so, because the frequency of facing such situations is much lower as compared to productivity or efficiency improvement in existing capacity.

Before we move ahead, let’s clearly define capacity for us – In business parlance, “Capacity is the maximum level of output that a company can sustain to make a product or provide a service”.

Factors affecting capacity decisions

Capacity expansion decisions take into account a wide range of factors including ease of doing business, tax reforms, ease of land acquisition, geopolitical risks, manpower costs, etc. While these are macro factors feeding into frameworks for such decisions, it is important to remember some of the micro factors that could influence the future course of business.

While a capacity expansion decision might seem like a daunting task, there are some really practical tips that you can consider while doing so. These 5 simple yet practical considerations will save you from costly and painful mistakes while arriving at capacity expansion decisions.

1. Industry Ecosystem

We all live in a connected world. Operating in silos is not an option for most industries out there. Specifically, manufacturing firms depend on the supplier ecosystem more than anyone else. Do look out for co-location of companies from other sectors when making a capacity expansion decision. You could benefit from the easy availability of input materials for your production, while also getting a readymade market for your product as your output feeds into other industries which are downstream in the value chain.

2. Skill Availability

While reskilling and upskilling are on the rise, it is still important to consider the availability of a ready workforce and skills in the market. Workforce availability is determined by a range of factors, especially if your processes require specific or niche skills, it might be very difficult to have these available everywhere. So keep a watch on what skills and competencies are must-have in your workforce, and which ones can be developed on the job. Tip – Check for employee migration patterns and willingness to relocate. This could be a potential deal-breaker to get the people who will make a difference to your business in the way you desire.

3. Developmental Parameters

Quality of living, social development index, infrastructure are some of the key factors to consider in capacity expansion decisions. There are long term implications of such parameters, and operating in less ideal environments can have a spiral effect on business decisions that are not aligned to overall goals.

4. Digital Highways

Can you imagine an efficient production system without the right communication networks and technology tools? Mobile networks and broadband connectivity are pillars for seamless communication and collaboration across industries today. Consider this as an added investment if you decide to expand in a location that lacks these.

5. Outsourcing

You can choose to outsource part or all of your proposed capacity requirements. While complete outsourcing is possible, it is more common to outsource a part of your processes or operations to an external agency or vendor. Some of the most common outsourcing use cases are labor, technology, and logistics. Understand clearly what kind of outsourcing works for you, and whether your capacity expansion decision takes into account the availability and efficiency of outsourcing as you shortlist possible locations for expansion.


So do remember to take the above 5 things into consideration as you embark on your capacity expansion journey. They will make your life easier once you start investing the two most scarce resources – capital and leadership bandwidth. And yes, if you feel overwhelmed with the idea of harnessing all this information to arrive at an informed decision, please reach out to us at vaibhav@catenon.com. A recent report by Catenon India titled Manufacturing in India covers these elements in great detail, along with some proprietary findings related to human resources.

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