Margins matter more than ever, in manufacturing.
Knowing exactly how many orders your team can fulfil in a day, a week or a month, ensures that your operations are always optimised – and profitable.
That’s where capacity planning comes in.
Capacity planning is an important lean manufacturing principle, enabling businesses to consistently meet customer demand, maximise team utilisation and reduce production costs.
In this post, we’ll explain:
Capacity planning is the practice of calculating how much you can deliver in a given timeframe, in order to meet customer demand. While it’s useful in most industries, capacity planning is particularly crucial in manufacturing, where under-utilised staff or machinery can have a direct impact on the bottom line.
There are three main types of capacity planning: lead, lag and match.
Start-ups, smaller manufacturers or those with a very stable customer base often adopt a lag approach, as it enables stable, more organic growth and avoids the risk of producing excess stock.
For growing businesses, lead and match capacity planning can become a better approach, enabling manufacturers to respond to demand quickly and become more competitive with pricing and turnaround times.
Capacity planning is key to running an efficient, optimised manufacturing process. At a time of rising costs, competition and skills shortages, capacity planning gives growing manufactures a vital competitive edge.
If you received a large order with a tight deadline, how certain would you be that you could deliver on time?
As your business grows, the ability to answer questions like this becomes critical and will make the difference between a production process that’s highly efficient and optimised – and one that is losing time, money (and customers).
Capacity planning isn’t easy. Under or over-estimating trends is a trap that even Amazon has previously fallen into.
When sales spiked during COVID-19 pandemic, the Amazon reacted with a massive hiring spree, onboarding more than 175,000 new workers between March and June 2020. Just one year later, as pandemic measures eased, the online retailer admitted it had hired too many workers and had ‘overstaffed warehouses’. Since Q3 2022, Amazon has totaled 27,500 layoffs.
Post-pandemic, many businesses moved to a lead capacity planning (also known as ‘just in case’) approach – purposely producing and holding more inventory to overcome supply chain disruptions and delays. It’s estimated that Australian warehouse occupiers are holding up to 30% more inventory, compared to pre-pandemic levels.
Match planning requires highly accurate trend analysis and constantly adapting your workforce, processes and equipment, ensuring that you produce enough to meet demand without the risk of excess stock. Other challenges associated with match capacity planning include:
The capacity planning is simply the process of keeping track of demand and constantly analysing and adjusting your operations to keep up – but achieving this in a sustainable way, without risking profitability, can be a very difficult task.
The first step is forecasting future demand from customers – by analysing historical purchase data, market trends, customer preferences, and other relevant factors to predict future customer buying behaviours.
This involves understanding the current utilisation and quantifying the maximum output limits that each of your existing resources (workforce, machinery, facilities and technology) can handle over a given period.
Knowing your current utilisation is, in itself, hugely useful – and can be a bit eye-opening if it’s significantly lower than expected. (As a benchmark, last year, the average capacity utilisation rate for US manufacturers was 77.1%).
Compare the forecasted demand with your current capacity limit. The size of the gap will indicate just how much needs to change in order to meet demand.
Work out what’s holding you back, causing bottlenecks and preventing you from meeting demand? Sometimes the answer might be simple, but will often relate to multiple issues, from space and equipment capacity to outdated processes.
Time to remove the barriers to meeting demand. The most common ways to increase capacity include:
Accurate capacity planning requires accurate, real-time data – and data analysis.
Wiise ERP offers the ultimate capacity planning functionality for manufacturers, with the ability to access and surface your operations data instantly, then analyse and predict demand using Microsoft Azure AI-powered reporting tools.
Wiise enables manufacturers to see exactly how each part of their production lines are working at any given time, with the ability to see drilled down performance details at a group level, work centre level and individual machine centre level.
Capacity load reporting provides an instant view of up-to-the-minute timings and output quantities of specific workstations and machines (or people), alongside the quantities needed, available capacity and ‘expected efficiency’. The expected efficiency shows the additional capacity percentage – for example, a 10% expected efficiency would mean that your team has the potential to produce 10% more orders if needed.
Keeping track of on-going capacity is easy with Wiise. When a new production order is added, Wiise automatically creates a production ‘routing’, allocating that order to a specific work or machine centre, updating that work centre’s capacity in real-time.
Simply changing the start or end dates of a particular production order will instantly update the production routing and relevant work centre’s capacity, enabling manufacturing managers to see future and predicted capacity levels.
Predicting future demand takes the guess work out of business decisions, minimising the need for ‘buffer inventory’ and helping to reduce fulfilment times.
Wiise demand forecasting provides useful worksheets where manufacturers can input historical sales, utilisation, production lead times, warehouse capacity and more to pre-empt bottlenecks and predict future demand.
The sales and inventory forecast extension uses Azure AI to predict future sales – enabling manufacturers to ramp up production ahead of time and always meet customer demand. Using sales history data, the Item Forecast pane charts your estimated sales and expected stock-outs, helping you to replenish inventory ahead of time.
Good capacity planning can have a direct impact on manufacturing overheads, margins and the bottom line. Here's how two Australian businesses created real revenue saving with Wiise capacity planning tools:
SGESCO-MAX is the Australian leader in vehicle safety and monitoring solutions. When Scott Macpherson took the reins as Managing Director, in 2020, he saw an opportunity to pivot from services to manufacturing – but needed a business system that could provide the manufacturing capabilities needed.
Within 12 months of switching to Wiise, the business had begun to see real benefits and significant time-savings, including:
In 6 years, Terra Mater Floors had grown from nothing to a 400+ customer business, with warehouses in Sydney, Melbourne and Brisbane. But, for a company that trades entirely in stock, its small business software left its staff struggling to manage inventory at the most basic level – unable to see which products were in stock or meet traceability requirements for its real timber products.
When Terra Mater’s Operations manager, David Temby, decided to switch to Wiise, his team was able to completely overhaul their internal processes – radically speeding up fulfilment times and increasing monthly orders:
Minimised downtime, faster lead times and reduced overheads are just some of the ways in which accurate capacity planning can give manufacturers a competitive edge. The longer-term benefits of capacity planning – such as modernising your operations and having the confidence to deliver on bigger, last-minute orders – are key to building a more sustainable growing business.
Ready to cut your manufacturing overheads? Speak to one of our friendly team members to find out more about Wiise capacity planning today.
For further reading on modern manufacturing solutions, check out some of our recent blog posts: