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Published in COR

1 out of 2 Agencies Do not Know their Production Capacity

Manufacturing agencies are always looking for ways to maximize their production process and delete inefficiencies by increasing productivity and minimizing production costs. Agencies in today’s competitive environment are increasingly investing their resource into accurate production planning.

Calculating production line capacities is one of the basic steps manufacturers can take to understand the maximum output of their customer demand.

Furthermore, market demands rely on production capacity figures to make sound financial plans and meet demands. Businesses need to properly calculate production capacity and inform supply chain management to make accurate business decisions.

In this article, we’ll talk about capacity planning strategies to improve your agency manufacturing operation’s productivity and efficiency.

But first…

What is production Capacity?

Production capacity is the maximum manufacturing process input an agency can produce using its human resources over a specified amount of time. These metrics are important because it informs over some time the value chain of the manufacturer’s decision-making in both the short term and long term.

For Instance, if a manufacturing business initiatives fulfill a higher quantity of orders, the decision-makers need to know if the operation can sufficiently meet the increase in demand. Additionally, manufacturers’ incentives use production capacity to inform labor utilization as well as Capex decisions including their raw materials and facilities.

Therefore, manufacturers need to know their operation’s production capacity because it informs both administrative and facility decisions, enabling businesses to maximize the procurement of production efficiencies.

How to Increase Production Capacity

For businesses looking to scale up their operations, there are a couple of different options they can explore to increase production capacity. A few examples include:

  • Add more work shifts

A manufacturing business can increase production capacity by lengthening the amount of time available for production. Manufacturers can do this by instituting overtime pay to encourage employees to work extra hours.

Alternatively, manufacturers can adopt a shift-based operation. Different groups of employees ensure that the machines run longer, increasing production capacity significantly.

  • Outsource Production

Sometimes, your machinery might be working at its peak, but not enough to meet consumer demand. Manufacturing businesses can increase production capacity by outsourcing the work to a contract manufacturer to help meet demand in the short term.

  • Adopt lean manufacturing practices

Lean manufacturing practices ensure that production operations run as efficiently as possible, eliminating different forms of waste that can take place in a manufacturing facility.

As a result, all inputs go towards ensuring that machines and employees are working towards delivering more products.

  • Improve equipment effectiveness

Adopting proactive machine maintenance ensures that the equipment is always in good working condition. Consequently, there’s less machine downtime to interrupt the production operation.

By maximizing overall equipment, businesses can marginally increase production capacity.

  • Invest in new technologies

Whether you can afford lower prices or higher prices in machinery, you must have the machinery to increase output. This is more feasible when the existing equipment is. This is more feasible when the existing equipment is already working at full capacity but still doesn’t meet your capacity requirements. These types of Capex are important to consider in case studies for businesses looking to grow over longer time horizons, whereas outsourcing may be a better option for businesses looking for a short-term fix to their production facilities as a result of seasonality, for example.

3 Capacity planning strategies you should know

There are three types of capacity planning strategies you need to know as a project manager: lag, lead and match. They differ depending on how far into the future you want to look, and each carries pros and cons.

Let’s look at the different capacity planning strategies in more detail.

1) Lag strategy

Lag capacity planning involves increasing your capacity in reaction to an increase in demand. for example, imagine your digital marketing agency has a capacity of 10 graphic designers. When you have already booked all 10 and a new graphic design task comes in, you can hire an additional graphic designer to fill in the blanks.

This may be the most appropriate capacity planning strategy if you operate a stable business where resources are not often affected by unexpected demand. This type of strategic planning prevents excess inventory and resource wastage, such as idle employees, because it is based on actual customer needs.

However, this new product or system is called lag because there is a lag between the demand arising and the resource being found. It may not be recommended for agencies with unpredictable demand forecasts, and it adds stress as you try to find quality content at late notice

2) Lead Strategy

Lead strategic planning is a more aggressive capacity planning approach than lag strategies because it’s based on the potential or future demand.

To go back to our graphic design team, this might happen if you decide to start promising your client’s a 24-hour turnaround on design projects. Noticing that your 10 graphic designers are sometimes booked up, you decide to add another five members to the team in anticipation of demand for your new service.

Taking a lead strategy approach to resource planning is focused on gaining an edge over market competitors since your organization already has additional capacity in anticipation of high demand. Your maximum capacity is high and your production capabilities are ready to be employed. All you need now is customers!

However, the risk with this workforce capacity strategy is that you have excess capacity sitting idle while waiting for demand to rise as forecasted.

Not only does this draw on your budget in the short term, but if the increased demand does not materialize, you may regret your decision to hire more staff.

3) Match Strategy

The last of the three capacity planning strategies is the match strategy. This dynamic strategy involved steadily adding to your current production capacity to match the demand that’s coming in

Let’s go back to the 10 graphic designers scenario. As you start negotiating a new contract, you also start recruiting and onboarding one or two additional. designer to meet the additional design capacity requirements. You’re ready for the consumer demand to surge, but you aren’t depleting your budget for the demand that hasn’t materialized.

The match strategy is the most used by organizations during capacity management because it is less risky than the lead strategy and has more prepared resource capacity that the lag strategy.

By monitoring market trends, establishing an adjustment strategy, and keeping track of actual versus forecasted needs, your agency can meet anticipated demand while optimizing resource utilization.

Benefits of Capacity Planning

Strategic planning is essential to an organization’s capacity management. Here’s why:

  • Improves project results

Having a carefully planned capacity strategy brings more precision to the deliverables of the project. When you have the right resources for the job, every step can be completed on time and by the person with the right skills.

On an internal level, capacity planning also helps to improve transparency among team members, as they are more aware of their roles. This helps avoid setbacks and unplanned changes in the project execution. Long Term this will reflect in your agency’s reliability and reputation.

  • Boosts employees morale

The process of capacity planning gives you a long-term view of your resources, which can change the way you make a day to day decisions for the better! Rather than encouraging staff to work outside their skill set to get a job done, you’ll know when you need to upskill, hire, and utilize different resources.

In this way, capacity planning helps improved team utilization, which prevents burnout, boredom, and unrealistic expectations among your team. The result? employees who are more skilled, productive, and engaged.

  • It is cost effective

Not having a capacity plan presents some serious risks to your company. If your current capacity doesn’t provide enough resources for the future project, the project’s success, and your reputation, are at risk. Conversely, if you have too much capacity and not enough work coming in, that depletes your profits.

Effective capacity planning enables you to increase margins by being prepared for your future resource needs. This allows you to improve your resource management, and market share, optimize the actual capacity of each member of the team, and ensure you meet customer demand every time, and avoid bottlenecks.

  • Make data-informed decisions

When you lay everything in a resource planning tool – whether that’s a spreadsheet or resource planning software you can see how your projects, budgets, and staff connect. Seeing all that information in one place helps you make decisions based on concrete data.

  • Budget more intelligently

Over-servicing clients is an easy way to go over budget. Capacity planning can help you:

  1. Avoid putting in more labor hours than necessary on a given project.
  2. Eliminate uncomfortable conversations with clients about unexpectedly high invoices.
  3. Justify negotiations when asking for a budget or rate increase.

When understanding how much each employee’s labor costs for each project, you can make smarter decisions about staffing and assignments. For example, entry-level employees with lower billing rates can work on low-lift tasks. Then you can save expensive, experienced employees hours for more complex, high-level work.

Understanding everyone’s labor costs will help you assign the right people to the right decisions and projects at the right time while sticking to your client’s budgets.

  • Avoid burnout and boredom

Capacity planning helps you make sure you have enough staff to complete your projects without working them overtime. It also helps make sure that your current team has enough to do so they feel challenged at work. And finally, it helps your bottom line by ensuring that employees aren’t tacking costly busywork onto projects just so they have something to do.

By laying out all of your expected project hours in a capacity planning tool and comparing them to the hours you can expect from your staff, you can keep employees happy, avoid constant team shifts and new hires, and make sure you’re not overservicing.

  • Stay on Top of skills

Part of the capacity planning should also include a skill inventory so you know which employees can complete which tasks. Many organizations keep track of skills informally. For example, they can expect all junior staff to work at a certain level, while senior-level employees can work on more complex tasks.

Resource planning enables resource managers to consider the team member’s skills and interests before task allocation hence, enhances team engagement on every project and assuring improved productivity.

Understanding your team’s skill set can help you ensure that you always have the right amount of knowledgeable employees on hand for difficult or high-stakes work. It can also help you make sure you employ the right amount of cheaper junior staff to complete basic tasks.

  • Make better hiring decisions

With a better understanding of your project workload, your team’s availability, and the skills available to your company, you can make smarter hiring decisions.

If you’re debating whether to take on a new project, you’ll be able to see immediately if your current staff has enough time to take it on. And if you realize your team lacks a skill you know would be useful, you can better evaluate whether you need to hire a contractor for a specific project or whether a new full-time hire would be useful for long-term work.

  • Leave Time to grow

When you have the right amount of people with the right skills to complete your projects, you can start considering your company’s future.

With the necessary time budgeted for billable work, you can keep everyone happy by ensuring there’s still time to improve. Employees will appreciate the opportunity to expand their skill sets. Clients will love the new services you’ll be able to provide and the level of expertise each of your employees has. And let’s be honest, you’ll love how satisfied clients and employees will impact your profit margins.

How can your agency measure production capacity

As earlier discussed, production capacity provides key management personnel and business executives with vital information to make wide-ranging decisions regarding their operations.

Determining a manufacturing business’s production capacity varies depending on the kind of operation at hand: For instance, calculating production capacity for a high mix, low volume operation will be quite different than a high volume, mass production type business.

The first hurdle to getting your production capacity is determining machine hour capacity. This refers to the potential number of hours that a machine can be used to create products.

Machine hour capacity = number of usable machines * number of working hours

With this in hand, you can calculate production capacity for an operation that produces one type of product by factoring in the time it takes to make just one item.

Therefore, the production capacity formula:

Single item production capacity= machine hour capacity/ time taken to produce the item

Let’s take an example of a textile company making graphic t-shirts. employees work 8 hours a day using 20 design-to-garment printers to make t-shirts. It takes workers 15 minutes to complete one t-shirt.

Machine hour capacity = 8*20= 160 machine hours

Time to make one shirt= 0,25 hours

Production Capacity = 160 / 0,25 = 640 t-shirts per day.

When is Capacity Planning Required?

Capacity planning is useful and required any time you’re trying to ensure and required any time you’re trying to ensure that your supply meets demand. This means whether it’s a week, month, quarter, year, or more, capacity planning is always a good idea and a rule of thumb to stick to.

For many businesses, leaders and managers have a lot to handle. Among some of their responsibilities are:

  • Keeping track of autonomous teams.
  • Being aware of changing priorities
  • Preparing for unpredictable tasks.
  • Matrix structures.
  • Handling remote workers
  • The space between actual work and planned work.

With so many moving parts, it does make sense to go forward without a plan. Having a capacity planning strategy is a great way to get ahead of the challenges that are sure to arise.

Capacity planning is a great way to invest in your time because it helps you address possible future issues, take advantage of the benefits that come with planning, improve team performance and streamline your business tasks for increased efficiency.

Implementing COR software will only help in better Capacity planning, with its Project management, resource management, and Time management features, you’ll see how the platform copes perfectly.

Conclusion

Capacity planning will help you feel more confident in how your business is run. With the ability to see the project workloads and budgets and the availability of your staff, you’ll be able to make smarter decisions more quickly.

You’ll understand when you can take on more work without decreasing quality or increasing team burnout. And you’ll know when to hire new team members or focus on skill development based on the work you need to get done.

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