Monitoring our capacity is something many businesses do not do. If you look at how capacity needed and load is calculated, you find out in a hurry it’s very dynamic and thus very difficult to manage. What happens it seems like, is most businesses just don’t manage it. They take orders and scramble, and deal with the consequences of taking on too much work when they bump up against the problem. We usually find out we’re in trouble on a Friday or a day or two before a holiday. Now we’re faced with offering double time to employees for holiday pay to work or we go to mandatory overtime and get everyone angry because we messed up their personal plans. My experience has been the scheduler has identified the capacity shortage a couple weeks earlier but when brought to everyone’s attention, it gets ignored or blown off. This happens because every time we’ve hit the crunch for capacity, we get all the work done with double time or mandatory work. We think this is the best way to solve it. “I have to see it before I’ll believe it. Otherwise I’ll schedule overtime and not need it” Rarely does a business stop to think that waiting to the last minute is costing them a fortune. The work will get done but pay me now or pay me later but you WILL pay.
The other place capacity needed versus load issues occurs is when it’s tied in with an order that gets dropped in within lead time. We’ve seen earlier, when an order gets dropped in, the first question is always supply vs. demand. In other words, “What do we have on hand, on order, and what’s needed”. Once we’ve answered this, we turn to our lead time vs. the customer lead time. Again, “How fast do they want it vs. how fast can I respond”.
Assuming the first two questions get resolved, the next question is “Do I have enough capacity available to take this on?”(Capacity Needed vs. Load!!)
I either do or I don’t. If I do, I take on the order. If I don’t, I have a couple choices:
Find some more capacity
Reduce some load
Shift some load in or out
Mess up my factory
We again spend countless hours moaning about this when the choices are straightforward. We may find we have alternative methods of making the product. We may find someone else can make it for us and we subcontract it out. In addition, it’s entirely possible a customer we’re building an order for may not want the full quantity they bought and they’re only buying it for a price break. It may just be easier to let them keep the price break for one time and build a smaller quantity than having to pay double time on a holiday to keep a commitment we never should have made. It’s also possible we’re building something to forecast and if we have no orders yet, we should pull it out and tuck this order in. Shifting an order in and out is a little more tricky. It’s easier to pull something in if we have available time because we’re not affecting any orders downstream. Pushing an order out though might affect another order. If we decide to push an order out, we first better make sure it’s ok with the customer and that we’ve explored every alternative. We also better make sure we don’t negatively impact another order.
If we do none of the above, we’ll just get our factory messed up. What is guaranteed to happen is the delivery due date will not get met, then a decision will get made to extend lead times. Next, orders will get released earlier to the floor thinking you can get a head start which will lead to an increased number of orders on the factory floor. This increased number of orders on the floor will lead to greater work loads on the floor and longer queues at the work centers. Longer queues will lead actual lead times getting longer which leads us back to even more missed due dates and the cycle goes on. What makes it worse is upon looking out into the future, we see more of the same. This tells me, we’ll never break the cycle we’re in unless something changes.
What has to change to break out of the perpetual cycle of past due orders based on capacity is this.
Get a group working on all current and future past due orders to get them shipped
Get another group simultaneously to work on the new and current orders that are not past due and get them shipped
Get a group, again simultaneously, to figure out what the capacity is and put processes and systems in place to make sure it never happens again.
What’s interesting about number three is most of us know intuitively what our capacity is. Just ask yourself this question. “At what level of business do we seem to start getting in trouble?” Most people can tell you when things start to break down. This is demonstrated capacity and should be the level you take orders to. If you choose to take orders beyond this, then you do so with hopefully plans in place on how to hand carry the order through or knowingly taking on overtime with no surprises.
The final thing is this. Manage your capacity!!! Don’t go beyond your ability unless you do it knowingly and your willing to pay the price to accomplish it.
BLOG AUTHOR:
CHUCK NEMER
CSCP, CPIM, CLTD, CHSCA, CSSC, CPIA
FOUNDER, THE GURU OF BIZ
EMAIL : chuck@theguruofbiz.com
WE HELP SUPPLY CHAIN PROFESSIONALS MAKE MONEY, SAVE MONEY, AND FIX PROBLEMS WITHOUT PAYING BIG FEES
Chuck Nemer is a trainer/consultant with 40 years of experience in Supply Chain Management, Lean, Leadership, and APICS. He currently works with approximately 50 universities and 3000 students annually in supporting the use and play of the simulations in the classroom. Within those 40 years, he has taught, and continues to teach, professional certification classes for APICS, professional development seminars and programs on his own, and on behalf of colleges in their outreach programs to local and regional manufacturing firms.
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