Manufacturing companies often use planning software to help manage and control variables affecting production. Supply chain planning software, for example, uses schedules and forecasting that rely on historical and current sales data as well as incoming and outgoing logistics management practices so materials arrive when they are required and finished goods ship on time.
These systems are closed loop systems that seek to balance and reconcile inputs and outputs to realize the most cost-effective mode of production. But whether a company is large with factories around the globe, or a small to medium sized business (SMB) with only one facility,
Production capacity planning is an important element of success. Manufacturers with inaccurate or nonexistent capacity planning will incur higher costs and inefficient operations causing delivery delays and threatening future sales.
Without adequate capacity planning, a manufacturer risks overestimating capacity in a way that increases overtime costs as they seek to compensate in real-time. Conversely, underestimating capacity can result in excess direct labor, overhead and holding costs because of idle time.
To ensure that capacity planning itself is a closed loop process that doesn’t place a drag on the systems of other functional areas within a company, here are ten steps to creating a reliable capacity plan within manufacturing, here's a guide on how to create and execute a capacity plan using WorkClout:
This will vary from manufacturer to manufacturer and may vary by department and process within each factory as well. The unit of work may take the form of any number of units such as gallons per hour, pieces per minute, barrels per day or in the case of piece-work, pieces per person.
Sales departments take orders based on finished units. Purchasing managers order materials in terms of the unit of measure that accompanies the component ordered. But for Operation Managers, the workload will be the total units to produce over time for each production phase in the production process.
This is an important distinction that allows managers to define the output in units given labor and equipment constraints but still follow the assembly requirements of the final product.
Whether a discreet manufacturer, process manufacturer or assemble to order facility, an accurate BOM is crucial for capacity planning. This is true of linear, single level BOMs and especially so of complex multi-level BOMs where numerous upstream processing steps are required.
If the BOM is not accurate and does not capture all materials required, equipment processing time and labor requirements will be left out of additional calculations critical to capacity planning.
While per product processing speeds will vary based on product mix, understanding the max output of each piece of equipment prior to load will be required before calculating speed under load. Adding to the complexity, most manufacturing operations consist of equipment ranging in age and overall capability that will need to be understood as well.
Resource capacity is the number of workers available expressed as a function of the time required to produce several units and labor requirements will vary based on product mix and number of processing steps as required by the product’s BOM.
In products with complex processing steps or slower machine processing times, the number of Full Time Equivalents (FTE) available to produce a specific number of units per hour will go down as more labor is required to complete finished units. In simpler assembly or process operations, the number of FTEs available will go up.
However, the scale of the operation can significantly impact the labor available for accurate capacity planning as well. In larger factories, higher volume may lend itself to more consistent FTEs per process, whereas in smaller operations, FTEs may require additional cross-training in other process areas to fully utilize labor. Both can impact accuracy of capacity planning in different ways if not accounted for.
Few steps are as important in creating an accurate capacity plan as creating standard times for each process and the resources required to complete the work. Here, the previous five steps are measured in real-world conditions to create a process routing that states the optimum expected output per machine and per product type. These measurements must consider several variables including:
The goal is to develop the process routing for each product that incorporates these variables and the labor, max load, unit of measure and workload required to produce units according to the BOM.
Resource utilization considers which scheduled production requirements use the most resources. It is essentially a labor plan given the production schedule, number of upstream, midstream and downstream processes required, and the FTEs required to complete them.
This labor requirement can be analyzed in conjunction with the process routings as defined by the production schedule to determine if the factory has the labor required to complete the schedule within the allotted time.
With the above steps in place, managers can establish a matrix for an optimum production level for manufacturing. While the goal will, of course, be 100% completion of schedule, the measurements, available labor, FTE requirements and available hours given the factory schedule can help managers plan for swings in demand.
For upticks in demand, they can know the overtime, weekend work and additional overhead labor that will be required to meet the production level with the most cost-effective allocation of additional time and resources. Likewise, if demand drops, managers are more able to meet the production level through proportional adjustments in those variables using short-term action.
Manufacturing consists of balancing inputs and outputs using available resources over time. When measured properly, this allows for an optimized capacity plan. However, there are times when swings in demand due to seasonal demand or shifting consumer tastes overwhelm an operation’s ability to produce to schedule.
Many constraints consist of bottlenecks that are only bottlenecks when demand is excessive. One way to address this is through gap analysis. Gap analysis can determine the weak points or bottlenecks.
By identifying these gaps and comparing them to historical data, managers can craft an appropriate response given the gap’s frequency. This may be an overtime plan, a sub-contracting fall back or, in the case of frequent gaps, a recommendation for additional capital equipment to increase overall capacity.
Once the above steps are in place, managers can analyze past performance and develop improvements. This may include developing both short-term and long-term capacity plans.
Short term plans generally involve scheduling, labor and balanced resource planning, while long term capacity planning may include strategic decisions such as the addition of shifts, expansion of facilities, new capital equipment or automation through technology when demand is on a forecastable and dependable growth curve.
By utilizing the steps above, Operations Managers can chart a path to create a plan for themselves to develop accurate and actionable capacity plans.
These plans will allow their operation to operate more efficiently, create less waste, lower holding costs such as inventory for raw materials and WIP and plan and deploy cost effective labor for any product mix. And an accurate capacity plan will close the loop in production in a way that feeds the accuracy of other closed loop systems such as ERPs and supply chain planning systems as well.
If you want to see 3 Case Studies and Examples, check out part 2 of this post: https://www.workclout.com/post/3-case-studies-examples-of-capacity-planning
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If you want a free consultation on how to approach capacity planning at your factory, feel free to book a time with a capacity planning expert here: https://meetings.hubspot.com/workclout/free-30-min-supply-chain-consultation
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