The company believes the industry will be more diplomatic about adding capacity

Symptom: The company believes that the industry will be more diplomatic and careful in adding capacity, despite high utilization rates.

Implications for the market:

  • Diplomacy is unlikely; capacity is likely to be readily available to customers.

    • Even in the most manufacturing-intensive industries there remains substantial cash contribution and returns from marginal sales.

    • As an industry runs low on capacity new capacity will come on stream because most companies will invest on the basis of marginal rather than full cost returns.

    • The internal debate will shift from the full cost return on the additional investment to the opportunity cost risk of losing the customer relationship.

    • Usually, the marketing and sales functions will win this battle and convince the company to add capacity to support the customer demand.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


Perspectives: Conclusions we have reached as a result of our long-term study and observations.