What best defines capacity cushion?

• A. Extra inventory held to buffer against supplier quality issues.
• B. Extra production capacity reserved to absorb demand spikes or supply disruptions.
• C. The maximum output rate during peak demand.
• D. The safety stock for finished goods.

Answer: (B)

Capacity cushion is the extra production capacity kept in reserve to absorb variability in demand or disruptions in the supply chain. It acts as a buffer on the capacity side, allowing a operation to ramp up output quickly when sales spike or when suppliers are late, without immediately hurting service levels or causing delays. This is different from safety stock, which is about inventory levels held to guard against stockouts; and different from the maximum output rate during peak demand, which describes the designed limit of what you can produce, not the spare capacity you keep available. The option describing extra inventory to buffer against supplier quality issues points to safety stock, not capacity cushion. The option about the maximum output rate during peak demand refers to the system’s capacity limit, not a reserve. The safety stock for finished goods is clearly an inventory buffer. So the capacity cushion is best defined as the extra production capacity reserved to absorb demand spikes or supply disruptions.