Will Your Production Capacity Meet Increased Demand as the World Recovers from Covid?
With bare spaces on store shelves all too common and what could be the “Roaring 2020’s” coming in, a lot of manufacturers are considering their options for expanding capacity. Here are a few common pitfalls you’ll want to avoid when planning that new capacity.
Do you really need new capacity – or could you make better use of the production facilities you already have (and in the process boost your ROI!)? Best practices in planning and scheduling like Product Wheel Optimization may be able to “find” the extra capacity you need by hitting the sweet spot of product sequence, run frequency, and inventory to stabilize your operations and free up time on the factory floor. You may even find inventory goes down and customer service indices go up as your factory gets into a rhythm of production in the product wheel.
Building Capacity for Last Year’s Product Mix
Last year you were running high levels of OEE (Overall Equipment Effectiveness) and you still needed more units coming off the end of your lines, so you added capacity. It seemed easy to observe where your bottlenecks were and put in more or higher capacity equipment in those areas. However, you’re discovering there are still problems – because you’re making different products and/or a different mix of products than in previous years.
Today’s consumers “want what they want” and that often leads to a proliferation of products and/or shifting product mix. Bottlenecks may shift when that happens and both equipment and storage needs may change. No one can perfectly foresee the future, but simulation modeling of your production facility (or even your production facility coupled with your supply chain!) can serve as a test bed for running “what if” cases. What if demand shifts to one of “these ten possible product mixes” – do we still have the right equipment and storage? How much can the market increase the overall demand for this mix of products before you again have capacity issues. Where should you leave space in the layout for future extra equipment – of what type?
A simulation model of your current facility or supply chain – expanded to potential future facility footprints – can help you develop a ROBUST expansion plan that includes the most cost-effective equipment and facilities (FlexSim® model shown).
Whipped by WIP
You’ve added capacity and your product mix is stable, but now you’re running out of space (or shelving, or freezer space, or containers, or tanks . . .) for your Work in Process (WIP). It may be a simple matter of buying more shelves or containers (with varying lead times!) or it may require expensive and time-consuming construction – but it would have been better to have “seen the problem coming”.
In an ideal world, we would all run with minimum sized Kanban and material would just FLOW. But in reality, we have to accumulate WIP at various places in the process to “protect” (constantly feed) our bottlenecks or to balance operations when different products have substantially different equipment cycle times.
Simulation of the proposed production facility can allow us to get a handle on how much WIP we need to carry in order to smooth out FLOW in the plant.
Increased Demand, Increased Finished Product Storage?
Most of us know that when demand and production capacity increase, we don’t need to scale up finished product inventory by the same percentage. But how much should we increase inventory?
Demand and supply variability are both major factors in determining inventory levels, and both tend to decrease as volume goes up. However, if we increase capacity by replacing flexible (but slower) equipment with specialized high-speed equipment made to run lengthy campaigns – it may increase our requirements for finished product inventory. On the other hand, if we’re adding flexible lines to increase capacity above current demand, we may find that we’ve reduced production variability and added “catch-up” capacity which can substitute for inventory. We may also be able to decrease finished product inventory until demand eventually (we hope) catches up with installed capacity.
Businesses take a number of different approaches to planning for inventory: statistical methods, simulation, even “back of the envelope calculations” (usually not advisable!). But given the given the importance of the decision – because it impacts both investment and customer service – it makes sense to do rigorous analysis at the same time as we plan for extra capacity..
Statistical methods can give you a data based starting point. Inventory simulations can account for the interactions between the factors that impact inventory and give you confidence that your strategy will hold up in the real world.
Capacity and Distribution Footprint Optimized for Your Customer Footprint
So, you need to add capacity and you’re wondering where (in the U.S. or the world) to add to your “Asset Footprint”. Further, if you are building new production facilities, it may be worthwhile to review how cost effectively your distribution centers are serving your customers. (Or could you get new customers if you had production and/or distribution centers close by?)
This is obviously a multi-faceted problem. Analytics can be used to optimize where you put your facility based on: where your customers are, cost to build, costs of transportation, import and export duties, tax rates, exchange rates, and other factors that can be quantified. Further there are software tools to help compare prospective distribution center sites, based on facility costs and transportation costs, even looking at considerations like LTL (less-than-truckload) and FTL (full truckload) cost comparisons (Starboard Navigator® model shown).
Capacity Expansion Planning – Where to Start
Unless your staff already has advanced planning and scheduling, simulation, statistical analysis, and analytics capability, engaging a professional upfront in an expansion project more than pays for itself. You need to put the right added capacity in the right place, at the right time to take care of your customers and grow your business.
Looking to implement an advanced planning and scheduling system to avoid the pitfalls of capacity expansion planning? Need help analyzing your current system and new system plans to make sure they’ll satisfy expected future demand? Want to take a close look at how to optimize your distribution network?
ABOUT THE AUTHOR
J. Bennett Foster has B.S. and Master’s degrees from Va. Tech in Industrial Engineering and Operations Research. He’s a registered Professional Engineer in the state of Delaware, and a Certified Analytics Professional (CAP) by INFORMS, as well as CSCP and CPIM by APICS. After over 40 years with DuPont, he began consulting for companies such as Chemours, W.L. Gore, and Sherwin-Williams. He has worked with Zinata for over a year in the development and application of advanced planning/scheduling systems.