What is meant by capacity cushion?

Capacity cushion refers to the amount of reserve capacity an organization maintains beyond its expected demand. It acts as a buffer to accommodate unexpected increases in demand or potential disruptions in production. A well-managed capacity cushion helps ensure that a business can meet customer needs without compromising service levels, while also minimizing the risks of overcapacity and associated costs. The ideal size of a capacity cushion varies depending on the industry, demand variability, and operational strategies.