* Corresponding author. E-mail address: jan.olhager@ipe.lin.se (J. Olhager). Int. J. Production Economics 69 (2001) 215}225 Long-term capacity management: Linking the perspectives from manufacturing strategy and sales and operations planning Jan Olhager*, Martin Rudberg, Joakim Wikner Department of Production Economics, IMIE, Linko ( ping Institute of Technology, SE-58183 Linko ( ping, Sweden Received 2 April 1998; accepted 2 February 1999 Abstract E$cient long-term capacity management is vital to any manufacturing "rm. It has implications on competitive performance in terms of cost, delivery speed, dependability and #exibility. In a manufacturing strategy, capacity is a structural decision category, dealing with dynamic capacity expansion and reduction relative to the long-term changes in demand levels. Sales and operations planning (S&OP) is the long-term planning of production levels relative to sales within the framework of a manufacturing planning and control system. Within the S&OP, resource planning is used for determining the appropriate capacity levels in order to support the production plan. Manufacturing strategy and sales and operations planning provide two perspectives on long-term capacity management, raising and treating di!erent issues. In this paper, we compare and link them in a framework for long-term capacity management.  2001 Elsevier Science B.V. All rights reserved. Keywords: Capacity management; Manufacturing strategy; Sales and operations planning; Production planning; Resource planning 1. Introduction The management of capacity in a manufacturing "rm is often divided into three or four stages, ranging from long-term capacity planning to short-term capacity control and execution. Inter- mediate capacity management is related to rough- cut capacity planning, linked to the master sched- ule, and capacity requirements planning, linked to the material requirements plan. In this paper, we deal with the longest-term perspective. The relevant issues treated at the long-term capacity manage- ment level are related to determining when and by how much the capacity levels should change. Capa- city is most often treated at an aggregate level, dealing with key work centres rather than all indi- vidual resources and based on forecasts of product families rather than of individual products. More speci"cally, long-term capacity management is most interested with the capacities that take a long time to change, either to acquire new capacity or to reduce capacity levels. Typically, the planning hor- izon is 1}5 years and the planning period is a month, at least for the "rst year, and then possibly quarters or even longer periods. The input to long-term capacity management is a sales plan, based on a demand forecast. Such a sales plan must at least cover the time perspective for acquiring new capacity or reducing the relevant capacity. The sales plan can be translated into a corresponding capacity plan. However, decisions 0925-5273/01/$ - see front matter  2001 Elsevier Science B.V. All rights reserved. PII: S 0 9 2 5 - 5 2 7 3 ( 9 9 ) 0 0 0 9 8 - 5