Defining 'Capacity' Issues --Dickeson
So what do we mean when we say "capacity?" I submit that 24/7 is the best we can do. If we choose to operate our plants on a "usable capacity" basis, that's a matter of choice, a judgment call. We make that choice to operate more plant and equipment on more or lesser hours. We'll operate with more debt, rents, overheads and depreciation in proportion to throughput of product.
Let's call it what it is. It's a management policy decision to slow down inventory turnovers—to make less money than optimal.
When we speak of the "capacity" of our printing plant, let's put it in terms relating to a 24/7—practical capacity—basis. The divisor for a day is 24 hours, 168 hours for a week, 2,184 hours for a 13-week quarter, and 8,736 hours for a 52-week year.
If we're operating one eight-hour shift, five days a week, then we're speaking of a capacity operation of 23.8 percent. That's okay if we make that choice consciously. It's a policy decision.
It's Our Decision
When we speak of our industry as having "excess capacity" let's put it in these terms. "We've made a policy determination to operate at this level." That's a decision we've made to accommodate the human fatigue factor. We can change it by another decision tomorrow if we want to, but that's what it is today. We measure it as a percentage of the base 24/7.
It's surprising and a little shocking when we do this. When PIA or NAPL surveys to determine plant earnings, one question that should be asked is: "What is the percentage of capacity at which you've operated during the survey period?" Would we see a difference in results? Would the plants operating closer to the 100 percent level of capacity have greater earnings? What's your guess?