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Capacity and Utilization
The Basic Challenge with Capacity is to Utilize it Well
Capacity is the sum of what your organization can create given its resources,
and often it can’t react as quickly as you’d like,
to meet sales, demands, and product mix changes.
This how-to article offers specific, cost effective actions to enable your
organization to react quickly to changing requirements.
You will want to choose the actions that fit your objectives, that can be effective
within your organization’s culture and capability.
Perhaps you need to take action to correct a particular capacity problem, or match input to varying sales
demand,
phase up or trim down, or relieve and manage constraints. If so,
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please call to discuss options
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Jack Greene at 626-375-2468. There's no cost or obligation.
Yes, you can try to do it yourself; just be sure the ones you delegate have the time and the ability.
But your reaction time may be short and, as with most complex issues experience is valuable.
JPR has the objective viewpoint and experience to suggest cost-effective options; we’ve practiced all
of the tactics below, and more; and we’ll objectively help to zero in on the most appropriate solutions for
your unique circumstances, timetable and budget.
Now, here are some ideas on capacity and how to optimize it.
Take actions to balance resources to changing requirements
It may not be easy.
Address first the high cost issues, and those that affect customer service, profitability, cash flow, return on investment. Prioritize both issues and actions. Be sure to delegate accountability as well as responsibility.
Take out the wasteful activity, the lost time, the extra inventory, the non-valued-added functions all
across the organization chart.
Given the economy, sooner is better than later.
Find and manage constraints, whether they are in process, equipment, people, facilities, or technology.
As you match labor to the current requirement, do it objectively with work measurement. The resulting
balance will be more efficient.
Cut cycle time and inventories concurrently. Reduce changeover and its cost and negative impact on
capacity and utilization. These actions tend to interfere with each other; take care.
If you have the special case of several people working closely on an assembly line type operation,
use line balance to equilibrate the work each performs. Line balancing can be very effective where close
coordination is necessary.
Match facility size and location to the current customer base and volume. Should you rent or own?
Consolidate or relocate? Outsource work or perform it in-house?
Set expectations, communicate, measure, report progress.
Know the low cost configuration of your process, keep it loaded.
Consider parting with underloaded, high cost equipment. This may be a time to move away from
obsolescent technology.
Insights and Tricks of the Trade
Many actions are cost effective; choose what fits.
Pareto, ABC, the 80 / 20 rule
Vilfredo Pareto was an Italian nobleman a century ago who first quantified that in Italy a few people had
most of the money. Everybody knows that, he quantified it. 15 to 20% have 80% of the money. It turns
out that the ratio is more or less universal, not only with cash but also inventory, or which 20 % of the
items have 80% of the value; of work elements in which 20% take up 80% of the time. It’s true of capacity
issues too.
If you don’t watch out, you will spend your time on the very large number of items, which don’t contribute
much value. Go out of your way to label the important things as A items, and spend most of your and your
people’s time on them.
You have already thought of “For want of a nail a … kingdom was lost” although the writer was not in your
century. A nail is a C item and a kingdom is an A item. Since your output may have small components as
well as large, value and cost are not the same. Value may include cost, or position on the critical path, or
client relationships, or product ship-ability.
Technical aspects of “Capacity”
1. Capacity will always depend on Product Mix of output desired.
2. Capacity will be controlled by one or more constraints. During an operation, capacity will usually be limited by equipment or process or people. At the department or plant level, capacity may be limited by the lowest of the constraints that make up the total operation. It may also be limited by materials or an independent variable such as space.
3. A basic and effective way to raise capacity is to identify constraints and quantify the values; reduce the cycle time for the lowest constraint until it no longer is the lowest; micromanage all of the limiting factors carefully; reduce the cycle time for the next lowest constraint, and so on.
4. Consider and improve factors that contribute indirectly; reduce down-time and changeover; work more hours, improve methods, cut scrap.
Right Size your Organization
"Right Size" is a modern term, and for organizations is,
The number of employees that drives the organization to function most effectively
The building size and arrangement most well suited to the business at hand
The location of facilities, and which components are in them; to serve customers and to access labor,
technology, materials
The capacity that meets current and expected demand
The workload to generate capacity, at a sustainable level
Goldilocks picked out the one
"not too hot, not too cold; not too big, not too small, but just right"
Expectations
You, and I, and the people in your company want to know what is expected of them (and their work
group and the company) and how well they do against expectations. Measure productivity, and the
results. In this economy, people are more apprehensive than usual, so expectations and measurement
and communication are even more important.
Product Quality
Keep product quality up. Let me rephrase that; keep necessary quality up. Just because extremely high
standards are necessary in pharmaceuticals and space ships doesn’t mean they are necessary for
sunglasses and kitchen cabinets. Be sure to get the accelerator and brakes and steering system in your
product line right. And remember the old adage that quality is built in, not inspected in. The capability of
your process drives the quality level, not the other way around.
Utilize surplus people; Identify and separate
them physically.
Allow or encourage early retirement. Use surplus for a labor pool to fill in for absentees; fill open jobs;
relieve at break / lunch; train in concepts such as Lean; cross train; add a production shift; man for
capacity rather than efficiency especially on bottleneck equipment; assign to overlooked functions such as
preventive maintenance; perform previously contracted functions; add features to products; perform
community service. Avoid buying equipment just for labor productivity reasons.
Merge or consolidate business, operation,
plant or facility
If your organization considers a consolidation or merger of facilities, through choice or because it has
been imposed by market forces, a successful facility project can concentrate the resources necessary
for effective operation and use economies of scale to minimize cost. In many projects, I have found
that there may be savings, but there will be costs.
Relocate for cost reasons, or to access
qualified employees or support.
It is certainly possible for a business
to cost justify another facility, instead of or in addition to, because of access to qualified employees or
specialized vendors and support; location-sensitive operating costs, community incentives and tax
combination, regulatory climate.
Define factory overhead accurately
If overhead costs are not accurately defined and allocated, the real cost to produce is meaningless at
best; at worst it is harmful because it leads to wrong decisions. Correct decisions can only be supported
by correct information. If your organization will undergo significant change, overhead will likely change, and be allocated differently. Quantify and assign overhead correctly for cost-based decisions.
Policy and Operating Options to Consider
Product pruning, lop off the non-profitable products.
Dedicated or flexible operators? Trained to make one product or many?
Dedicated or flexible process? Capable of making one product or many?
Integration of facilities; synergies possible from combination; equipment, floor space; capacity; longer
runs; management, scheduling, purchasing, overhead leverage, distribution patterns and methods.
Staff operations for 1) low cost or 2) high output? They will not yield the same direct labor cost, nor
output, nor overall productivity nor cost especially relating to absorption.
New product introduction practice; have the discipline to get it right before produce.
Make versus buy analysis, vertical integration offers promise?
Capacity Study for Vendors, or Merger
Candidates
Consider capacity for vendors or prospective vendors, or merger / acquisition candidates.
Define problems and costs; strengths and potential; any constraints, show-stoppers and deal breakers,
for the unique circumstances of each situation.
Thanks for the attention; I hope this was useful. If you need to correct a particular capacity problem, or match input to varying sales
demand, phase up or trim down, or relieve and manage constraints,
to inquire. We'll be glad to discuss your circumstances as well at 626-375-2468.
Either way, there is no cost or obligation.
JPR has practiced all of the tactics presented, and more, and we’ll objectively help to zero in on the most appropriate solutions for your unique circumstances, timetable and budget.
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