Capacity Cushion Definition

A capacity cushion is the amount of extra capacity that a company has to meet future demand. This can be in the form of excess production capacity, spare inventory, or unused employee time. Having a capacity cushion gives a company flexibility to respond to unexpected changes in demand.

There are several reasons why a company might want to have a capacity cushion. First, it can help them avoid the cost and disruptions of having to ramp up production on short notice. Second, it can provide some insurance against unanticipated events that could reduce demand, such as an economic downturn. Finally, it can give the company time to make changes to their operations if they need to adjust to a new long-term level of demand.

The size of a company’s capacity cushion will depend on its business needs and risk tolerance. For example, a company with very volatile demand might choose to keep a larger cushion than one with more stable demand. Capacity cushions can also change over time as a company’s needs evolve.