Tips to Overcome Capacity Planning Challenges
In my role at LLamasoft, I travel the country, and occasionally the globe, helping customers with their toughest supply chain challenges. And at some point, any company that produces goods is going to face the challenge of looking for a better way to manage their capacity. In the past that may have resulted in an annual project to get a look at their current capacity levels and make some adjustments for the next several years. But supply chains, consumer demand and capacity needs don’t only change once a year.
What Factors Can Impact Capacity?
It’s no secret that supply chains are inherently complex and that complexity only increases over time as companies grow. Often an organization will acknowledge that they have capacity problem, but are unsure of what levers to pull to address capacity issues, nor are they sure of the best time to make a change without causing major disruptions. For example, a company may know that they need to add a work center or they will run out of capacity. But, should that work center also run overtime? There is a real need to evaluate many interconnected alternatives to determine the best path forward. There are a host of factors at play and pulling the wrong lever at the wrong time can have ripple effects throughout an organization.
Adding to the mix, external factors can have significant impacts on capacity. Is demand seasonality a factor, making capacity levels fluctuate dramatically between high and low seasons? Has a natural disaster or other risk, such as a flood, fire, or port strike caused a work center to shut down or be unavailable, causing the need to shift production to another work center or plant, or outsource production?
Proven Strategies to Better Manage Capacity
While it can be hard to predict the future in terms of unforeseen external events, supply chain modeling technology can empower companies to more frequently assess their capacity needs and make the right shifts in strategy to make improvements for next week, next month, next year and beyond.
When determining the right approach for capacity, companies typically seek to evaluate the trade-offs between internal investment in infrastructure to support greater capacity, outsourcing, or pre-building inventory. Another major consideration is balancing those plans with the potential risks of estimating demand – what can an incorrect assessment mean for costs if you over or underestimate where the market is going? By leveraging scenario analysis, organizations can run simulations of the potential impacts on the whole depending on which shifts in strategy they implement. This allows supply chain professionals to know which options are the best to fit organizational goals as well as build out contingency plans should the market make an unexpected shift. Offering a flexible optimization capability plan gives organizations the ability to look across their network at a granular level and determine the right alternatives for addressing capacity issues over short, medium and long-term horizons.
Capacity Planning Case Study
One U.S.-based leading mining company was struggling to maintain and allocate capacity to meet their end-users increased demand. To better manage these challenges, the company leveraged LLamasoft technology to run a daily production plan. This very operational approach enables the organization to refresh their capacity needs frequently, ensuring they are operating under the best plan for any given week – optimizing constraints and costs across their end-to-end supply chain. Instead of what had been the traditional approach of assessing a yearly capacity plan, the company worked backward, starting with a very operational daily and weekly view and demonstrating immediate impact to the business every week. Using a repeatable automated process, this company could update their data to account for daily changes to customer demand, supply, as well as engineering improvements. With this new process, the organization was able to drive an immediate three percent increase in revenue, with plans to expand in the future. This more granular approach is where LLamasoft customers are making the largest inroads in terms of long-term sustainability and largest savings gained.
To complement this operational model, the company then built a quarterly, annual and five-year model to obtain a long-term capacity plan for their business. Also, as we’ve established, networks don’t change on an annual basis. Read the full capacity planning case study here.
However, the only way to maintain this operational approach is with the use of automation. Once an automated flow is established, with buy-in and support from the IT team and with the use of tools like Data Guru, companies can quickly answer millions of questions about their existing network, down to the work center and SKU level.
Want to learn more about how to uncover capacity improvements in your network? Get in touch and we’ll walk you through how hundreds of the world’s largest companies are using this technology to beat the competition.