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132 CHAPTER 4 • CAPACiTy sTRATEgy

inadequate number of companies that produced metal ‘stampers’. These are the negative ver-
sions of the original recording that are used to flatten the vinyl ‘puck’ which then makes the
record. Similarly, human capacity was in short supply. Without access to people with the skills
to fix the delicate electronic components involved in record mastering, or repairing sensitive
machinery, plants became vulnerable to unexpected capacity reduction. When one mastering
firm’s cutting lathe (they are used to engrave music from an analogue tape or digital file onto
a blank disc that becomes the master) broke down, it took several weeks to get it back online.
Not surprisingly, the severe capacity shortages led to severe backlogs in the vinyl supply
chain, with some plants taking on triple shifts, and working 24 hours a day. Orders that used
to be cleared in weeks were taking months to complete. Typical of the frenetic search for capac-
ity was the world’s largest vinyl producer, GZ in the Czech Republic. Struggling to cope, the
company bought six ageing machines in an attempt to increase production, but reportedly
only managed to get around half of them working. According to one executive in the industry,
quality also suffered because of the pressure to produce at all costs. ‘Some vinyl pressing has
been appalling recently. It has been a real struggle for labels to get a consistently good pressing
with the plants being so busy.’

Flexibility of capacity provision

Committing to an investment in a particular level of capacity may be managed in
such a way as to facilitate later expansion. Effective capacity requires all the required
resources and processes to be in place in order to produce goods and services. This may
not necessarily imply that all resources and processes are put in place at the same time.
It may be possible, for example, to construct the physical outer shell of an operation
without investing in the direct and indirect process technologies that will convert it
into productive capacity. There may be capital expenditure efficiencies to be gained by
constructing a larger building than is strictly necessary in the medium term, which can
be fitted out with equipment when demand justifies it in the future. Clearly, there is
some risk involved in committing even part of the capital expenditure necessary before
demand is certain. However, such a strategy is frequently employed in growing markets.
Figure 4.5 shows alternative capacity strategies, and the resultant cash flow profiles, for

Figure 4.5 expanding physical capacity in advance of effective capacity can bring
greater returns in the longer term

Cash flow with
extended physical
Cash flow with two
Physical identical capacity capacity
increments
Volume capacity of Cumulative cash flow Time
facilities
Demand

E ective capacity

Time

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