If you saw our recent webinar - The Most Under-Represented Supply Chain Skill: Planning – you know that supply chain planning activities are frequently missing from organizations. Attention is often given to demand and inventory planning while overlooking the benefits of capacity planning.
Let’s explore two examples of capacity planning, what it is, and how it pays to explore this area of your business.
Capacity Planning is the process of analyzing how much production, warehouse, or transportation capacity will be utilized, over time, in conjunction with forecasted demand. It is a core part of the SIOP process and is a marriage of demand forecasting and supply planning processes.
The channel utilization & inventory projections chart, shown above, illustrates production capacity and inventory levels over a calendar year. This model highlights open capacity (green), over-utilized capacity (red), and inventory levels as they are impacted by production capacity (blue shadow). The model shows that our example company is not fully utilizing capacity in January - June to support high levels of demand from July-November. Using forecast sales data to Increase capacity utilization early in the year, could alleviate inventory backlogs when demand peaks.
At Waypost, we work with companies to help them improve their SIOP capabilities and design tools that work with their existing systems to provide forward-looking planning abilities to help avoid inventory shortages, overstocks, and irritated customers.
Example #1
We worked with a food ingredient manufacturer to implement a planning and SIOP process. Due to limitations with the company’s planning system, we created a simple planning tool and provided coaching on how to initiate quality conversations within the broader business. The tool allowed supply chain planners to achieve several key items:
As a result, the company could make decisions that impact operating hours and inventory levels in relation to available working capital. They were also able to drive a higher level of “On Time” shipment performance, thus increasing the level of service to their customer.
The company went from a reactive state with low OTIF rates to a proactive state where they could anticipate challenges and solution paths, including a 12-month outlook on production capacity utilization and inventory requirements.
Example #2
We worked with a company that was executing a production and distribution network optimization by closing several facilities and consolidating production lines into the remaining network. The company identified a lack of supply chain expertise or bandwidth to support these closures. They contacted Waypost for interim staffing solutions and we deployed supply chain experts to support all aspects of the consolidation execution from a supply chain perspective. Our team launched four months before the first facility closure was planned.
Our team began with an inventory stocking analysis and buffer stock recommendations to support the client’s needs through the transition. We also created a simple tool to analyze inventory and MRP signals, and we worked with the engineering teams to understand the necessary processes for relocating equipment and validating the new facility including regulatory compliance.
It quickly became apparent that the 4-month timeline would not yield the inventory buffer requirements necessary before plant closure and validation at the new locations.
We escalated this issue to company leadership who asked us to create models that illustrate demand and supply scenarios and recommend revised timelines for achieving the necessary buffer stock levels for achieving project objectives.
The graph shown above is an example of the “inventory achievement analysis” we created. It is based on underlying assumptions around capacity, labor, etc., and how long it would take to get to the necessary levels of buffer stock before the plant could cease production. The new closure date was pushed out by 5 months to ensure inventory achievement and mitigation of customer back-orders.
The capacity model allowed our client to understand how to control demand, when to release labor from the plant, how much storage capacity and buffer inventory was necessary, and timing for plant closure.
The planning process was then replicated with plants that were targeted for closure as well as plants that would absorb new capacity. Without inventory and capacity planning models, our client risked a lack of insight related to timelines and realistic closure dates which could lead to an increase in back-orders without appropriate stocking levels to meet demand and production staffing challenges that accompany the delay in a plant closure.
In Conclusion
These two examples highlight how capacity planning can give a company a proactive view of their production (or warehouse) utilization, inventory requirements, and stocking risks. Even using simple Excel-based tools, this visibility helps companies avoid stock-outages and customer delays/back-orders, reduces overtime requirements, and allows for planned maintenance that can help reduce unplanned downtime. It can also help to understand if your sales team is overselling the reliable capacity of the plant.
Partner with Waypost Advisors
At Waypost Advisors, we work with companies that aim to improve supply chain management and execution. Our industry-experienced consultants specialize in providing expert guidance and support to businesses looking to optimize costs, minimize inventory, and drive pride in their teams. Our comprehensive approach leverages innovative technologies and industry “best-fit” practices to help companies achieve measurable and sustainable results. By partnering with us, clients can streamline their operations, reduce inefficiencies, and enhance customer satisfaction. Contact Waypost Advisors today for your roadmap to supply chain success.