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The complex and vary of the customers' demands and the fierce competition of the market environment makes the small and medium manufacturing enterprises (SMMEs) facing increasingly challenge and pressure. The companies have to adjust the production capacity stage by stage to obtain the market opportunities and meet the long-term market demands. Capacity adjusting too many or too few is not beneficial for the company's operation. In this paper, the grey GM (1,1) prediction model and its improved models are used to simulate the enterprise's annual sales over the past decade, the model which has the least average deviation rate is chosen to forecast the sales of the next decade. The capacity expansion decision is made based on the prediction results. The decision includes the times of expansion, the optimal expansion periods and the expansion costs. The models about demands forecasting and capacity decisions are highly meaningful for theory and practice.