Capacity Creep

The natural addition of capacity to an existing facility due to the “learning curve” effect, where the facility produces more using the same assets and work force as the company makes incremental improvements in work processes. The rate that this form of new capacity adds to industry capacity depends on the growth of the industry. In general, capacity creep adds 1/2% to 1-1/2% a year to industry capacity. The faster an industry grows, the more capacity creep adds to the annual capacity of the industry. For example, capacity creep may add as little as two-tenths of a percent of total industry capacity in a market where demand is growing at less than 2% a year to as much as 6% in industries where demand is growing in excess of 30% a year.