In simple terms, capacity planning is a critical function in supply chain management as it helps businesses plan the required levels of operations capacity they need to have to meet the current and future demand.
A strong capacity planning strategy can help you understand how effectively services are offered, and the right kind of time frame and resources required to meet current demand and cover all operational costs. The most important aspect here is to find a good balance between long-term supply and capabilities of an organization and the predicted level of long-term demand. Any imbalance between the two must be overcome by demand and supply planners and business managers to keep production flowing seamlessly despite all odds.
In fact, a robust capacity planning strategy can guard you against the risk of demand-capacity imbalance by helping you to continuously determine the resources needed to meet the demand for your products and services. In short, an effective capacity planning strategy can help you plan existing and future resources and ensure customers’ needs are served promptly.
Accurate Capacity Planning: Not Just the Responsibility of Operations Teams Anymore.
Effective capacity planning requires collaboration among various staff members from different departments and here’s how each department has a major role in defining the optimal capacity plans.
Sales and marketing team members play a critical role in capacity planning by helping you to understand customer demand and forecast future demand trends.These customer-facing teams are constantly gathering data on consumer behavior, identifying emerging trends, and forecasting future demand for products or services. Working closely with them means you can align capacity plans to the actual demand.
Production/Operations team members ensure the efficient use of resources for the smooth production of goods and services. They are responsible for managing labor, equipment and raw materials while maintaining inventory levels, scheduling production runs, and coordinating with logistics to ensure timely delivery of products or services. By collaborating with the production or operation team, capacity planners can identify bottlenecks and inefficiencies in the production process that can impact capacity.
Procurement team is responsible for making necessary materials and supplies available to meet production requirements. Your collaboration with the procurement team will ensure supplies are available when and where needed without fail.
The logistics and distribution team ensure the finished goods are delivered to customers in a timely and cost-effective manner. For a capacity planner, collaborating with the logistics team means managing transportation capacity and optimizing delivery routes.
Finally, IT team members play a crucial role in developing and maintaining systems that support capacity planning and management. They are responsible for designing software applications that can analyze data on customer behavior, sales trends, inventory levels, production schedules, logistics costs, etc., to provide insights into future demand for products or services. By collaborating with the IT team, you can ensure you’ve the best and most effective way to carry out capacity planning.
Without a doubt, effective teamwork and collaboration among these teams are essential for successful capacity planning in any organization. Each team brings unique skills sets and perspectives that can contribute to a more comprehensive understanding of market trends and customer needs for capacity planners.
Capacity Planning Best Practices to Maximize Efficiency and Productivity
1. Take holistic supply chain costs into the picture
The common mistake most capacity planners make is to pay close attention only to immediate production or inventory costs. They end up missing out on the bigger picture of the “hidden” expenses across the end-to-end supply chain.
For instance, capacity planning is impacted by variables including taxes and inventory storage within each factory and transportation expenses between them. It is, therefore, important to use capacity planning across each work location or production point throughout the supply chain to analyze the tradeoffs between the various cost factors and then make the most accurate decisions for optimizing your entire supply chain.
2. Track and measure critical supply chain KPIs
When organizations skip the “measurement” part, overall capacity planning efficiencies get compromised in the long run. By defining and tracking the most important KPIs, you can optimize capacity planning efforts on the go to achieve specific goals and unearth the sources of bottlenecks or stockout situations. Some of these key KPI parameters are inventory turnover, delivery schedules, On Time In Full rates, cash-to-cash time cycles etc.
3. Focus on overall supply chain visibility
Supply chain visibility gives the much needed clarity to assess current performance of processes, identify the possible gaps and the way materials move through the supply chain towards the final product. It can also alleviate capacity planning efforts by improving the quality of individual components where needed. With the right supply chain visibility, you can optimize the resources needed by lowering costs, balancing inventory requirements and thereby, enhancing customer satisfaction.
By adopting the right best practices, different stakeholders within your organization can answer critical questions such as:
COO and Chief Supply Chain Officers
Capacity Planners
- Can you drive timely bottleneck detection across production schedules?
- How do you enhance asset performance and reliability?
- How can you recover lost yield across the supply chain?
- How does effective capacity planning drive mid-term operational decisions?
- What is the normal performance you can expect based on your current utilization?
Operations Managers
- How does capacity utilization impact the plant floor’s actual capacity?
- How can you reallocate day-to-day production schedules based on actual capacity needs for specific resources?
- How can capacity bottlenecks be identified in a timely manner?
- Can production limitations be corrected before they adversely affect utilization?
- How can the overall throughput (gross margin) be increased?
Benefits of Leveraging an AI-Powered Capacity Planning Software
With a strong AI-driven Capacity Planning Software, you are assured of a structured approach to capacity planning and can avoid surprises along the operations value chain. A sound Capacity Planning Software can eliminate ambiguities and guesswork from production planning processes by optimizing through efficiency and planned capacity. Some of the aspects through which it can help:
- It creates possible “what if” scenarios that help identify short-term and long-term operational bottlenecks and shortcomings and work out possible alternative solutions.
- It provides reliable algorithms and manual alternatives which help organizations easily focus on customer orders and align fulfillment mechanisms accordingly.
- It ensures inventory & supply chain optimization across all levels by accurately projecting finished goods and supply chain forecasting for each component level.
- It uses relevant ERP data to continuously optimize production plans using inputs like available material, capacity constraints, and day-to-day shop floor performance.
- It provides a sound production schedule by including a demand/supply level strategy across the organization.
If integrated properly, AI-enabled capacity planning in supply chain and operations can quicken capacity-based decision-making. It uses real-time planning to ensure :
- Minimal disruptions across the production line
- Reduced delayed shipments
- Efficient resource management
- Judicious inventory planning and management
- Better use of time for planners and decision-makers to add value to other strategic areas
With ThroughPut’s AI-powered Capacity Planning Solution, businesses can accelerate their throughput with minimum operations costs. It assists capacity planners, demand planners, and demand managers leverage capacity plans to the fullest amidst challenging market scenarios.
Experience the entire gamut of capacity planning efficiencies and get started with a quick demo here.
