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Capacity Planning Strategy – Everything you need to know

capacity planning strategies

What is Capacity Planning Strategy?

Capacity planning strategy involves the process used to determine the resources manufacturers need to meet the demand for their products or services. The level of capacity directly relates to the amount of output in the form of goods and services manufacturers can produce to satisfy customer demand. 

Capacity planning strategies can guide manufacturers on how much raw materials, equipment, labor, and investment in facilities need to be acquired over a period of time to meet the future demand over products. When there is a lack of capacity planning, customers’ needs are not served promptly and these customers may be lost to competition. 

A good capacity planning strategy helps adequately plan manufacturing resources. Excess capacity means the manufacturer’s money is being spent inefficiently, and this could have been invested elsewhere for a profit instead. On the other hand, low capacity implies the inability of the manufacturer to produce as per what the customer wants at a particular period of time. 

Types of Capacity Planning Strategies

1. Lead Strategy

The Lead Strategy involves an upfront investment in more capacity that is needed and is one of the most aggressive approaches used. Manufacturers plan to increase their capacity in advance even before the actual demand increases. This takes care of anticipated demand increases. Many manufacturers use this strategy to gain market share against competitors. This is also used when competitors are prone to inventory shortages especially when demand skyrockets. The Lead Strategy has its own risk also, as if the actual demand does not match the predicted demand, manufacturers are left with excess inventory to be stored.

2. Lag Strategy

The Lag Strategy is much more conservative than the Lead Strategy as it waits until the current capacity is stretched to its limits before adding more capacity. In this strategy, manufacturers respond to an actual increase in demand and boost capacity after the current operation runs in full steam. Here, manufacturers avoid the problem of storing excess inventory but might end up losing customers to competition.

3. Match Strategy

The Match Strategy usually adopts a mid way between the Lead and Lag strategies. Instead of boosting demand ahead of time or increasing demand after the existing capacity is exhausted, this strategy uses smaller incremental changes to the manufacturers’ capacity. This is done based on the fluctuating conditions in the marketplace. Despite being more complex in nature, this is a safer bet for most manufacturers as it is much more risk-averse than the other Capacity Planning Strategies.

4. Dynamic Strategy

This strategy is a much more safer forecast driven strategy. It involves adding capacity large or small, before it is required, based on actual demand and sales forecast figures. Since this is data-driven, it proves to be much more accurate for manufacturers to plan their capacity targets and avoids wastage or shortage of capacity. However, this type of strategy does depend on good capacity planning tools which can drive accurate forecasts. 

Capacity Planning Strategy Benefits

1. Monitor Operations Costs

Capacity Planning Strategies incorporates all relevant aspects including personnel, facilities, budgets, production schedules and supplies. This can help manufacturers carefully monitor all production costs especially during periods of growth and recession. When manufacturers are able to foresee projected capacity needs, it allows them to accurately budget for upcoming changes, and apply financial resources where needed. This can also help develop relevant delivery schedules for supplies and shipping schedules for completed products.

2. Ensure Adequate Availability

With a Capacity Planning Strategy in place, manufacturers can ensure they have the necessary resources to deliver work even before a contract is signed. The Capacity Planning Strategy guides manufacturers on the scope available to undertake new projects along with inputs on sufficient resources to cater to the requirements. Using actionable analytics, manufacturers get access to key data points which accurately report the possibility of overtime based on current work schedules.

3. Maintain Production Cycles

Manufacturers can maintain proper production levels as per expected business cycles with a good Capacity Planning Strategy. Seasonal demand fluctuations can be planned for using historical data and production capacity can be easily managed to handle the rise in demand.  Capacity Planning Strategy also identifies when the business cycle might deteriorate so that seasonal workers can be employed accordingly and unnecessary expenses can be avoided. 

4. Identify Skill Gaps

Adequate capacity planning can help identify the relevant skills required to deliver key projects and plan for any skill shortages well in advance. Manufacturers can plan work accordingly and forecast skill requirements and also make decisions regarding in-house skills vs outsourced skills. Manufacturers can easily plan employee training needs and decide how projects will get delivered in the future. 

5. Plan New Production Facilities

As your company grows, you may find the need to open new production facilities. Using your capacity planning information from your existing locations, you can develop a more accurate projection of needs for facilities and personnel levels, and of the kind of production that can be expected from the new location. This is a valuable tool when putting together the business plan and budgets for your company’s growth.

6. Meet operations budget:

When manufacturers use appropriate capacity planning tools, they are able to meet demand with the least amount of waste and increase their utilization rates. It also helps them meet their budgetary requirements based on their projected sales or demand forecast and reduce additional expenses. 

Capacity Planning strategies can help increase operational performance and move closer toward achieving output targets. However, if your Capacity Planning Strategies are not customized to your company’s business model, you might land into a crisis.

Capacity Planning for Manufacturing – Process Involved

A good process plan can help manufacturers optimally configure the system to ensure SLAs are met while only investing the necessary resources needed to get the work completed. This helps manufacturers optimize the production process and make them prepared for the future.

1. Understanding the Service Level Requirements

  • The first step is to break down the manufacturing job or production order into various categories.
  •  This can help create a structured flow to quantify the exact user expectations. It includes establishing workloads, determining the unit of work, and setting service levels. 
  • Manufacturers can then decide how each work task will be organized based on labor availability, or the complexity of work involved. 
  • Finally a “service level agreement” lays out the acceptable parameters between the manufacturer and the consumer.

2. Estimating and Analyzing the Current Capacity

The next step is for manufacturers to take a deeper estimate of the existing production schedule to evaluate the final capacity. Manufacturers usually analyse separate workloads and follow these steps:

  • Compare the measurements of specific workloads mentioned in the SLA with the overall job objectives.
  • Evaluate the actual usage of multiple resources across the system 
  • Check the resource utilization for each workload and then decide which of these consume more manpower.
  • Finally calculate the most time consuming aspects of each workload to arrive at the response time taken for each job.

3. Planning for Future Requirements and Demand

  • Once the current capacity is analyzed, manufacturers can then plan for future demand.
  • By accurately forecasting the processing requirements, a system or process overload on the manufacturing set up can be avoided. 
  • Manufacturers would need a clear estimate of the actual incoming work that is expected in the coming few months. 
  • Finally, they can configure the most optimal system needed to satisfy these requirements over the forecasted period of time.

How to Structure your Manufacturing Capacity Planning Template

Here is a checklist of variables to consider while structuring your Manufacturing Capacity Planning Template :

1. Capacity

The most basic element which is the number of units available of a specific resource for a particular length in time. Manufacturers need to also account for any gaps/ holidays/ breaks / maintenance downtime if any, while calculating the capacity.

2. Setup/Run Hours

The next variable is to define how much time a specific operation on a job will take to eventually move through a resource. This is made up of a combination of setup time, which is a static number and the run time which depends on the number of items on the job. Finally, the total hours are compared to the total capacity of the resources needed for planning.

3. Utilization

This variable is a measurement of the capacity usage and measures the total usage of the resource. It is important for capacity planning, as it is a measure of the actual capacity compared to the estimated capacity.

4. Efficiency

Efficiency is defined as the measure of the actual setup/run time versus the estimated setup/run time for a work job. Efficiency can help track how much capacity is needed actually and the difference from the original plan. When this is multiplied across several job loads, efficiency can be a critical measure to define final performance.

5. Queue time/move hours

It is important to understand that just because an operation is scheduled to complete at a certain time using one resource, this doesn’t imply that the subsequent resource can immediately start running it. It usually takes a material handler to move a specific  job from one resource to the next. This can also impact the machine’s utilization, since it may sit idle while waiting for the next job to be available.

6. Offset hours

From a capacity planning standpoint, a work job may progress in different ways including offset hours. These hours that can always be offset to another job, and can help save time and resources. Knowing ahead of time of how one can plan for operations that can be offset can make a massive impact on the manufacturing capacity planning.

7. Concurrent Resources

Many times manufacturers need more than two or three resources to be available at the same time to complete a job operation. Also, the ability of the worker to run all three together may also impact the completion of the job. Sometimes it may need multiple labour resources to run each operation. This can further get complicated once all of the jobs are multiplied and therefore concurrent resources is an important aspect to consider.

With a strong Capacity Planning Software, manufacturers can ensure a structured approach to capacity planning and avoid surprises along the operations value chain. Here is a great comprehensive reference guide on how to go about selecting a  sound Capacity Planning Software and how it can help manufacturers.

Here is a great way to align your Capacity Planning Strategy with your Manufacturing Goals using a good Capacity Planning Software

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