Manufacturing Capacity Planning

Do you have enough? How do you know if you have enough? How much is enough? What are the consequences if you don't have enough? For that matter, what are the consequences of having too much? In case you didn't know from the title of this presentation, I'm talking about capacity.

There are fundamentally two things required to meet customer commitments or the Master Schedule: material and capacity. Having the material is, of course, critical. But having enough capacity to convert that material into a saleable product is equally important. From a planning perspective, there is a key difference between material and capacity. You can stockpile material in advance of need as inventory in order to smooth out production and to act as a buffer against the unexpected. But capacity cannot be stored for later use. If you have it and don't use it, you lose it. To paraphrase a popular song of the 1960s, "If I could put capacity in a bottle ..." Well, if I could figure out how to do that, I'd be a millionaire.

Manufacturing companies facing the highly competitive global environment that exists today would like to have just the right amount of capacity when it is needed—neither too little nor too much. The consequence of having less capacity than you need is obvious: you will fail to meet the expectations of your customers and your operating plans. On the other hand, what's wrong with having more than you need? Isn't it wise to have some capacity in reserve to handle unexpected situations? The answer is "yes, within reason." But too much "excess" capacity is costly. The difficulty is in determining how much is really enough.

Most manufacturing companies would like to operate in a some­what stable environment: stability in the work force, stability in the work flow, stability in cash flow, and stability in several other business functions. But the relationship of available capacity to required capacity often see-saws back and forth: first there is not enough capacity, then too much, then not enough again. No one would prefer to be in the position of having to flex total capacity daily or even weekly, although some companies do exactly that.

It is frustrating when a manufacturing company never seems to have the right amount of capacity at the right time. For instance, what reaction do you often get from Production Control or Manufacturing when Sales wants another customer order jammed into an already overloaded master schedule? Or when a planner goes out on the floor and insists that the latest "hot" job be in stock by this afternoon. Only fear of the consequences keeps one from replying with a line from another song from the 1960s: "Take this job and shove it! I ain't workin' here no more!"

Fortunately, the global competitive war has awakened the com­petitive spirit in American industry. The Just-In-Time manufac­turing crusade has taught us that stockpiling material is wasteful and undesirable from an overall business perspective, and can be avoided without sacrificing service or stability. Through the diligent application of JIT principles and techniques, the flow of material into and through a manufacturing plant can be quite smooth and stable. The credo of JIT has been "the right material in the right quantity at the right place at the right time". Living up to that credo has caused people to be creative and innovative in solving material flow problems without resorting to inventory.

The same credo could be applied to capacity: "the right capacity in the right amount in the right work center at the right time". In fact, the results of the JIT efforts have not only solved material flow problems, they have also made significant improvements in capacity problems. For instance, rapid changeovers have not only reduced the delays in material flow, they have also improved the flexibility and utilization of equipment.

However, most of the JIT techniques focus on execution of current plans, not planning of future activities. The issue in capacity planning is anticipating changes in capacity requirements in time to do something about them. Companies who are winning the global competitive war anticipate their capacity requirements in advance and manage them to meet the changing needs of the marketplace and the business goals of the company.

To be Continued

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