What is Demonstrated Capability?

Definition and Calculation

Demonstrated Capability (or Demonstrated Capacity) is a critical management principle in Integrated Business Planning (IBP) that refers to the objective measurement of a resource’s proven capacity.

Unlike theoretical capacity, which assumes ideal conditions, Demonstrated Capability represents the tangible output potential of a resource based on actual, quantifiable performance data.

• Calculation: It is typically calculated as the proven capacity derived from historical actuals.

• Metric Expression: It is usually expressed as the average number of items produced multiplied by the standard hours required to produce them. Alternatively, it can be calculated as: Hours Available × Efficiency × Utilization.

• Maximum Output: While "maximum demonstrated capacity" reflects the highest output achieved under optimized conditions (e.g., overtime), this level is generally not sustainable over the long term.

Role in Integrated Planning (IBP & ITP)

Using Demonstrated Capability ensures that plans are grounded in reality, serving as the underpinning of excellence in execution.

• Goal Setting: Planning must be based on proven performance to avoid the logical fallacy of using unrealistic "stretch goals" that set the organization up to fail.

• Supply Planning: The master supply plan must be built on demonstrated capability. Banking on improved performance before it has been proven is considered a recipe for disaster.

• Proactive Planning: It is a vital concept within Integrated Tactical Planning (ITP), ensuring that short-term execution plans remain realistic and achievable.

Application and Scope

The concept applies broadly across the enterprise, not just to manufacturing machinery.

• Broad Application: It encompasses warehouse capacity, supplier capability, and skilled labor output. For example, if a product development team has historically launched only four new products per year, planning for more without process changes is unrealistic.

• Maintenance: Developing accurate data requires a formal process that continuously measures actual performance and removes outliers. It incorporates input from supervisors to adjust for anticipated changes, such as adding shifts.

Preventing Overload

A key tenet of Demonstrated Capability is risk management. Organizations are cautioned against approving plans that are 100% loaded. Planning at near-maximum capacity leaves no room for error, increasing the risk of chaos and cost when disruptions inevitably occur.

About SIMCEL

SIMCEL unites your planning processes into one seamless platform. Whether you're optimizing inventory in Supply, refining forecasts in Demand, aligning financial strategy in Finance, or driving sustainability in Carbon—SIMCEL empowers your team to simulate, visualize, and align every decision across the business. Say goodbye to silos and hello to truly integrated, agile planning.