Tips to choose the best Capacity Planning Strategy

Manufacturers are obsessed with productivity, and rightly so. But optimizing productivity requires insights across the horizontal and vertical operations among the supply and demand chains. You need to know your production capabilities, what customers want, and how you will deliver.

Manufacturers refer to this complex coordination as capacity planning. Creating a successful capacity planning strategy is crucial to fulfill customer orders on time to minimize costs and maximize profits. It’s also increasingly difficult as supply chain problems and staffing shortages add to the already complex operation. 

Choosing the right manufacturing capacity planning strategy depends on understanding your customer demand and manufacturing capabilities deeply, even as those components are constantly changing. Clearly, relying on Post-it Notes, spreadsheets, and emails will only put you further behind against your faster, more agile, highly adaptable competitors. A modern, connected solution is table stakes for real-time manufacturing capacity planning.

What is Capacity Planning in Manufacturing?

Capacity planning in manufacturing describes the process of determining the resources manufacturers need to meet the demand for their products. Capacity planning is necessary for successful supply chain management, production scheduling, and inventory management.

1.- Not producing enough resulting in delayed or partial shipments

Produce too much and be forced to sit on inventory that adds dust and eats up your margins, or Produce the wrong products that will result in waste or rework.

Capacity Planning Strategies Explained

There are several capacity planning strategies that manufacturers use to ensure that they can effectively meet demand. Each strategy has benefits and drawbacks that must be considered before implementation.

2.- Driver-based Capacity Planning Strategies

A driver-based capacity planning strategy relies on always having access to the products, workers, and/or equipment necessary to deliver products in a way that meets customer expectations. It requires manufacturers to have:

Robust connections with suppliers so that when a new order arrives, the necessary raw materials and components never delay customer deliveries. Flexible workforces with a wide range of skills, so workers can easily shift across production lines or production can be scaled up or down as needed. Access to equipment, storage, and logistics resources needed to manufacture and deliver whatever products are currently in demand.

Benefits of a driver-based capacity planning strategy include inventory optimization and better responsiveness to demand shifts. Drawbacks include the potential for idle machinery and workforces, as well as the investments necessary to shift production as required.

3.- Time-based Capacity Planning Strategies

A time-based capacity planning strategy allows you to plan capacity around today’s needs or tomorrow’s expectations. Your capacity plan then either lags, leads, or matches real-time demand.

A lag capacity planning strategy stretches existing capacity to its current limit, then expands capacity as demand increases. Manufacturers then delay capacity expansions (and investments!) until they have demand.

A match capacity planning strategy is the middle ground between lead strategy and lag strategy and adds capacity incrementally based on current demand.

Benefits of these time-based capacity planning strategies come from the flexibility to schedule investments alongside broader financial or corporate goals. Drawbacks include being unable to meet customer expectations, tying up resources in large capital expenditures, or trying to optimize capacity planning investments to match fast-changing markets or fickle customers.


4.- Agile Capacity Planning Strategies

An agile capacity planning strategy shifts capacity to match demand, market, and sales data. It strives to eliminate manual guesswork, instead adding capacity just before it is required based on real-time demand and sales forecasts. The success or failure of agile capacity planning relies on the quality of the predictions from your forecasts. For very complex environments that deal with historical trends, seasonality, and even promotions the sales team may conduct, a more sophisticated supply and demand planning solution such as Yfos Cloud ERP, can provide even greater nimbleness to an already agile strategy.

Think of agile capacity planning as a middle ground between every other strategy but customized to align with your unique manufacturing and business goals, constraints, and capabilities. You’re making data-driven decisions so you may also use a combination of capacity planning strategies across customers, markets, or production lines. Of course, you need accurate, timely data to make the best data-driven decisions.

5.- Tips for Choosing the Right Capacity Planning Strategy

Each capacity planning strategy can be effective if it’s matched to your manufacturing goals and capabilities. But, as the economic future remains in constant flux, any strategy you choose will have to consider your ability to deal with continued uncertainty. Events of the past few years have contributed to huge volatility in supply chains, forcing manufacturers to shift capacity plans quickly based on material availability. Your capacity planning strategy must be able to maintain pace.

To be effective with any capacity planning strategy, manufacturers must have a modern capacity planning solution that integrates data from supply to sales, provides deep and comprehensive insights, and then produces accurate demand forecasts.  A cloud-based ERP system centralizes data, including production, sales, field service, inventory, and finances, onto one platform that’s accessible from anywhere.

YFOS Cloud ERP can help you streamline your operations and create a highly integrated organization. However, you need to carefully plan each step of ERP implementation to increase the chances of success and eventually generate a higher ROI.

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