The Covid-19 pandemic outbreak placed many corporate sectors under unprecedented pressure. Global supply chains were heavily impacted with the sudden disruption of their operations and workers staying off-premise. Supply chain planners, more than ever, are now searching for ways to leverage their people, processes, and modern technologies to reduce disruptions caused by unexpected supply and demand shifts. Sounds familiar? Trust me, you are not alone! Dealing with these problems requires proper planning and long-term strategies. One of the best ways to deal with uncertain conditions is to redesign your production capacity plan.
Production Capacity Plan: Why is it Useful?
A production capacity plan balances your available production resources and your forecasted demand. Hence, understanding your production capabilities allows for a successful and realistic business plan.
Unreliable demand forecasts can be balanced by a solid production capacity plan, and help you communicate availability to customers and collaboratively plan the supply timeline. While meeting timelines are important, it is equally critical to ensure that you properly manage your customers’ expectations of your ability to fulfill orders.
The best production capacity plans leaves room to quickly add or scale back capacity resources accordingly in anticipation of changing demands.
Production Capacity Plan: A Roadmap
With the changing market requirements and environment, it has become essential for supply chain leaders to take another look at their production capacity plan. Ultimately, a production capacity plan helps you to set short term goals for your business and give a useable and realistic production plan to the shop floor (i.e. your engineering and production team). Here’s a roadmap to a well-designed production capacity plan:
- Start with a Clear Understanding of Demand
Getting to the ultimate goal of the production capacity plan we need to back up and look at the long-term plan first. The long-term plan is made first and always starts with the forecasted demand. Each plan is as good as the demand input.
Forecasting demand is the starting point of any production capacity plan. It helps the planners and production leads align the production capacity with the forecasted sales demand.
- Assess Your Current Production Capacity Plan
This requires you to analyze your equipment capabilities, current staff, and the number of hours and shifts available. It is also important not to leave out the supply chain variables, which include vendor performance, lead time, and inventory. It is critical to make a production capacity plan with a reliable, and accurate demand plan or forecast in order to assess your capability to deliver against the demand plan.
- Translate Data in a Sound Capacity Plan
Once you have a good demand plan and a full accounting of your resources, it is time to make your production capacity plan. The long-term planner hands over the rough capacity plan to the scheduler. The scheduler then looks at the short term and creates a detailed capacity plan.
In this step of the process it is important to consider day-to-day constraints such as personnel, equipment, and availability of each. It is also critical to include all stakeholders such as sales and transportation in the planning phase, as a change in the capacity plan can affect business plans and service levels.
The Value of the Production Capacity Plan
Resiliency. And here’s why.
A good production capacity plan helps you decide when you need to hire, procure new equipment, and adjust processes on time. Further, it allows you to find and see synergies between plants that produce products, and subsequently re-allocate production to fulfill demand. Lastly, production capacity plans brings to light the need to make changes in production capabilities and find outsourcing options on time to help meet demand.
One of the most important things to keep a business alive and relevant is having a connection between demand and sales. It is important to follow industry trends and news to understand your client and what their future business needs and requirements may be. Here at Profit Point, we find that the best way to be prepared for the next change in the market is to have a good production capacity plan to meet future demand while continuing to supply existing demand.
A Case Study
Here’s a look at a real customer that benefited from production capacity planning.
Our client is a company that produced raw materials for their customers, and delivers them in large bags. As their customers started adopting new manufacturing equipment at their own production facilities to gain efficiency, their demand for large bags shifted, as the new machines required smaller sized bags. Herein lies the problem: having always produced in large bags, the company had funneled their resources to it and our client was struggling to plan for the surging demand for smaller bags.
Profit Point sat down with the company’s planners and sales team to analyze the issue. We readjusted the forecast to understand the actual future change in demand. It became obvious that there is enough demand for the smaller packaging for the client to begin investing in new machines. Of course, there was lead time to procuring and deploying new equipment.
The resulting timeline was communicated to sales so they can manage their customers’ expectations. Then, as the equipment began to be deployed the supply forecast was updated. The added benefit of the new equipment was that it gave firm a lot more flexibility in packaging so they are extra prepared for future demand shifts.
The goal of redesigning the production capacity plan is to match production capacity with the global customer sales demand. It allows the company to monitor the costs better. With accurate growth strategies and understanding, the C-suite executives can plan their expansion and capacity based on demand forecasting. Improving the team with the right skillsets for meeting the required capacity also helps in preparing your company for the new normal era.
While many companies took a back seat during the initial stage of the pandemic. They have bounced back with the transformational mandates that would guarantee their success post-pandemic.
With the right production capacity plan, you can accelerate and amplify your success.