What is capacity planning?

Capacity planning is almost always involved, whether directly or indirectly, with the work Visual South does with manufacturing companies. Over the years, we’ve learned the best processes for capacity planning, but let’s first define the term, so we all begin on the same page.

Capacity is the amount of work a manufacturing company is able to complete in a given period of time.  Depending on what the company is making, this calculation can be simple or pretty complicated.  The factors involved in gauging capacity are typically:

• Resources, like machines (a punch press, a CNC machine, etc.).
• People to operate those machines.
• Time, or the availability of the people and machines in a given time period (day, week, or month). Commonly, manufacturing companies will define time availability as “shifts.” A company that manufactures 24 hours a day would typically divide the day in to three shifts of eight hours each.
• Utilization, or how much the people and machines are working during a given time period. Utilization can be affected by machine down time, both planned and unplanned. It can be affected by people, too. Someone may not show up for work because they are sick, or an employee with less experience will take longer to accomplish a particular task than what’s standard. 

The number of resources, combined with their time availability, along with their utilization in a given period of time, determines your efficiency as a production organization. Manufacturing companies want to be as efficient as possible so they can acquire more customers and sell more products faster. This balancing act is essentially manufacturing capacity planning.

What are solid processes for capacity planning?

There are a variety of processes and strategies for capacity planning in the manufacturing industry, and the applicability of any strategy is highly dependent on the company. Most companies strive for a balance, but a balance is not always possible. For example, a company may desire to only make products when it has an order for those products. This allows the company to make sure it has materials and capacity concurrently, then execute production of the product in the most efficient way possible. This is a make-to-order process for capacity planning. However, this approach has flaws. For example, if a business is seasonal, it typically cannot add enough capacity during the high-demand time frame to make product as it is ordered. A company like this would most likely adopt a make-to-stock process. This involves building product based off forecasts of what is typically sold during specific time frames throughout the year, and stocking inventory levels so that once an order is placed, the product simply has to be picked, packed, and shipped. 

Related: Managing Capacity Because It’s What You Sell

Related: How to Structure Your Manufacturing Capacity to Work in Any Software

ERP & capacity planning in the manufacturing industry

ERP (Enterprise Resource Planning) software can play a critical role in the process of capacity planning, as it provides visibility into all of the factors that affect production capacity. The ERP software understands customer demand (orders or forecasts), inventory levels, supply chain lead times for raw material needs, resources, time, and efficiency, along with costing. An ERP system can support solid capacity planning processes individually, or as a combination of many modes of manufacturing (make-to-stock, make-to-order, etc.). Scheduling functionality allows for instant and real-time analysis of current capacity loads, and how an incoming order may affect your capacity. It can also provide tools that allow you to analyze your capacity and run “what if” scenarios, like “What if we added more resources?” or “What if we added more time by working on a weekend?” These analyses enable better decision making by giving managers the information they need.

Related: How to find the right ERP software

In Conclusion

Capacity is fairly simple to calculate, but it is an entirely different proposition to manage it based on demand. ERP software can help companies with manufacturing capacity planning much better than other substandard tools.

Interested in talking with someone who managed capacity for a living in a manufacturing environment? Click here to set up a free assessment of your needs with Visual South's president, Jack Shannon.