Imagining an agile supply chain can be a little like trying to picture a nimble ocean freighter: In an environment where strategies and network changes are measured in years, the idea of responding quickly and effectively to changing conditions is difficult to envision. With the right team, tools, and expertise, though, Capacity Planning strategies make it possible.
What is Capacity Planning?
To examine different capacity planning strategies, we must first understand capacity planning. Capacity Planning is determining your production capacity in order to meet changing needs and optimizing your existing resources to deliver rapid responses, as opposed to looking primarily at longer-term solutions like capital investments or altering infrastructure. It’s how you avoid getting caught either over or under-utilizing your resources. It’s all about minimizing the discrepancy between your capacity and customer demands.
Capacity Planning Strategies: Strategic vs. Operational
Capacity Planning Strategies can be classified in a few ways, and broadly speaking they differ in time horizons and the manner in which they address production needs. When Profit Point discusses the value of Capacity Planning Analytics, we tend to group capacity planning into two categories: Strategic – which looks at a longer time horizon and may involve more significant alterations to the supply chain – and Operational, which aims to use existing assets more efficiently based on sudden changes in the landscape.
Strategic Planning in the Context of Increasing Supply Chain Variability
It’s key to remember that no matter how thorough and solid your long-term strategic plan is, there’s no anticipating every possible disruption to a system. Look at the past few years alone:
- A global pandemic caused worldwide labor shortages.
- Extreme weather is shifting a diverse range of economic landscapes, from longer dry seasons impacting coffee crops to ice storms cutting power and transportation across Texas.
- Russia’s invasion of Ukraine continues to shake up food and fuel supplies in Europe and beyond.
Situations like these create conditions where actual customer demand is exceedingly prone to distortion by the time it gets to the manufacturer, and the demand signal can become errantly amplified along the way, leading to the oft-discussed Bullwhip Effect. This is where it helps to have capacity planning strategies. Solid analytics can make a big difference; making it possible to meet changes in demand by using existing and variable resources rather than investing in permanent solutions that might not be needed in the long run.
Operational Planning: Are You Doing It Right?
It’s not enough just to think tactically. You need the right analytical tools and methodology, and a sharp, diverse, and experienced team to mine the most effective insights from mountains of supply chain data. It’s an ongoing process: Responding to fluctuating demand requires being prepared – if on some level you’re not continually planning for the unexpected, you’ll have to scramble, and you’ll often wind up responding in ways that aren’t cost-effective.
For instance, one of the economic effects of the COVID pandemic was a rapid and dramatic increase in the demand for personal use products. This unprecedented spike left manufacturers wondering how to meet the new demands and adjust to the new environment.
Without a way to quickly analyze different decisions, businesses created inefficiencies in their own operations – increased inventory, carrying costs, and warehouse space, for instance – while not always achieving high customer satisfaction.
Capacity Planning Strategies: People, Process, Technology
Operational planning is a valuable and effective mechanism for improving your supply chain. To really maximize its potential, however, you need to clearly define your objectives, and the team of people necessary to achieve tangible transformation.
When we begin a partnership with our clients, we start by introducing our multi-step Strategic Network Analysis Process – SNAP™. We believe a project can be successful with the right people, process, and technology (in that order). The practicality of SNAP makes successful Capacity Planning Analytics attainable. It constructs a repeatable process by identifying the correct decision makers, defining clear objectives, and gathering good and usable data. This information is then fed into a mathematical model which generates an optimized solution that minimizes total cost or maximizes profit across the entire network.
When you build analytics into your operation, you’re less likely to miss opportunities for adapting your network: You’ve already got a clear process in place and the right people to execute it, allowing you to optimize your network capacity in hours instead of days or weeks.
Solutions Visualized, Results Achieved
While getting good input data is important (junk in, junk out), understanding the results of the model, and having a process and plan in place to act upon them is equally important. The benefit of using a tool such as Profit Network is that it allows a view into the overall network and helps provide a deep understanding of how each decision affects another. When making both strategic and tactical decisions for your network, it is important to understand how an increase or decrease in demand can affect total production, inventory levels, manufacturing costs, transportation costs, etc.
While the model will always output the optimal solution, it is not always 100% realistic in practice. Understanding the overall network and defining the right people to make the decisions will allow a company to use the insights from the analytics to create tangible change.
In a global supply chain environment where more factors than ever can affect manufacturers, distributors, and consumers, Capacity Planning Strategies and the right people implementing them can be the difference between meeting your goals or coming up short.