Table of Contents:
- What Is Capacity Planning?
- What’s the Difference Between Capacity Planning and Resource Management?
- Calculating Capacity
- Types of Capacity Planning
- Capacity Planning Strategies
- Capacity Planning in Action
- Cora SPM and Capacity Planning
Capacity planning is the process that enables you to meet your current and future demand through the most productive use of all your assets and resources, ensuring they generate their maximum ROI. It’s used throughout both the manufacturing sector and across the service industry, and is one of the most important ways for large enterprise organizations to stay profitable.
What Is Capacity Planning?
Capacity planning forces you to sit down and assess what your current capacity is, in terms of your available workforce, materials and machinery. However, your priorities will differ depending on which sector you operate in.
If, for instance, you’re working in manufacturing, you’re likely to rely more on materials and machinery than someone in the service industry, who’s going to be depending more on their workforce. This in turn will be reflected in the different strategic objectives and goals that you each have.
You then need to evaluate how effectively you’re currently deploying your different sets of resources. The two principal dangers that you are trying to avoid are: not having sufficient resources to meet future demand and committing yourself to taking on too many resources, in the expectation of a future demand that fails to materialize. With the result that the teams you’ve booked and the machinery you’ve hired sit there unused and end up costing you large amounts of money.
It is then very much connected with resource management, but is not in fact the same process.
What’s the Difference Between Capacity Planning and Resource Management?
The essential difference is that capacity planning gives you a long-term overview of a department or organization, whereas resource management is more focused on the medium and short term, and on specific assets and resources. Capacity planning then focuses on strategy, while resource management is more concerned with tactical deployment and day-to-day operations.
Your ‘capacity’ is the maximum amount you’re able to produce, and how you calculate that will depend on the sector you work in. In manufacturing the capacity usually refers to output. If it takes one person 40 hours a week to produce 10,000 of product X, and you have 20 operatives capable and available to work on that product line, then your weekly capacity for product X is 200,000.
If on the other hand you have a consultancy practice then you’ll measure capacity in terms of billable hours. If then you have 15 consultants available for 40 hours every week, you’ll have a total capacity of 600 billable hours. The purpose of capacity planning is to ensure you generate the best return from those metrics.
Types of Capacity Planning
There are 3 types of capacity planning:
Of the three sub-divisions within capacity planning, workforce is the most topical. Much has been written about the great resignation and about the current difficulties in sourcing talent, so it’s more important than ever that the right people in your organization are deployed on the right projects. A recent Deloitte survey1 of U.S. professionals found that:
“64% say they frequently feel stressed or frustrated at their current job” and “30% (blamed) unrealistic deadlines or results expectations”. – Deloitte
Capacity planning will help you address this.
Parts, products and materials
Apart from one or two niche areas within the service industry, where your work will depend on the manufacturing process to deliver the service or product you produce. You will then need a clear assessment of the parts and materials you are going to need in order to meet the demand for whatever you do or make.
Machines and equipment
Similarly, you’ll need to assess and plan for the tools and machines that the people you’ve assigned to the various projects are going to need, to be able to deliver those projects on time and on budget.
Capacity Planning Strategies
Regardless of whatever mix of people, parts and machinery is most relevant for your organization, there are 3 different strategies used for capacity planning:
This is when a company tries to anticipate (or help create) future demand for a product or service in the expectation that it will suddenly come into demand or becomes scarce. They plan for extra capacity in the hope of increasing their market share. The obvious danger being, that if the demand does not then materialize, they will be left with excess capacity and all the costs that that creates.
This in contrast is the more conservative approach, where you only ever plan for current demand, and only increase capacity in response to subsequent demand. There is no risk of being saddled with unused resources. But you are open to being targeted by less risk-averse competitors intent on profiting from what they view as a deficit of ambition.
Match is the ‘goldilocks’ approach where you try to reach a happy medium by factoring in information around market trends and demand forecasts. This strategy utilizes technology, and specifically software, to incorporate sophisticated analysis so that you can anticipate changes to demand and respond quickly and incrementally, to avoid the dangers of ending up being over-extended.
Capacity Planning in Action
Inventory of your Workforce, Materials & Machinery
The first thing that you need to do is to perform an inventory of your workforce, parts and materials and tools and machinery. With for instance, your workforce, how many employees do you have available in each area, what does that cost and what value do they generate in terms of output or income.
This will enable you to build up an inventory of your skills capacity so you can anticipate any potential gaps in the future.
This will help you identify where critical paths have formed, and where therefore they’re likely to appear in the future. Most assets and resources are relatively easy to replace, but some parts and people are in particularly short supply because of supply chain pressures and talent shortages. You need to identify these critical paths in advance so you can avoid any potential bottlenecks. All of which will give you valuable insights into your supply capacity.
Next, you’ll need to conduct an evaluation of your demand. How successfully are you meeting your current demand with the resources you currently have? How do their actual metrics measure up to how they were forecast to perform? Where were the most serious bottlenecks formed, and how did the most expensive delays come about?
All of which you now bring together so that you can form a plan for the future. How you formulate that will depend on which of the strategies you’re pursuing: lead, lag or match. Whichever strategy you pursue, it all revolves around the same thing; data.
You need to be able to store and organize all that data through a central hub, and to know that they are all completely reliable, kept permanently up to date, and that everyone is working off the same facts and figures. The only way to be able to do all of that is by employing a suitably robust software solution.
Cora SPM and Capacity Planning
Cora SPM has been designed and built to specifically address capacity planning because it’s one of the main pain points that our clients have always asked us about. Which is why we’ve created a suite of tools designed to specifically address it.
Cora makes you the ‘control tower’, digitizing all your data and documents so you can organize them all through the one, central hub. It streamlines your processes and seamlessly integrates your systems and any existing software, to ensure that everyone is working in the same, standardized way.
This allows you to perform those inventories of your various capacities in the knowledge that all that data will be reliable and up to date, and that everyone who needs to will have easy and immediate access to it.
You can then use the Scenario Comparison tools to explore what-if scenarios around possible future demand. What would happen if, for instance, you moved a project’s start date from the second to the third quarter? Could that new skills’ availability be more profitably used elsewhere, or would the cost of delaying that project outweigh those increased margins?
You can then compare projects around key performance criteria, including project delivery, department served, strategic alignment, risk, resourcing, or by building a customized metric and visualization. And different stakeholders can compare specific scenarios based on the metrics that matter most to them.
Everything can be easily visualized using graphs and Gantt charts, and all charts and data points are dynamically linked so everything gets automatically updated.
All of which will improve your project prioritization and help you to more effectively match your capacity with your current and future demand. Which will mean you significantly improve the ROI your assets and resources generate, both in individual projects and across the whole of your portfolio.
Capacity planning is just one of the areas that Cora SPM will help you reduce costs and waste and increase margins and revenue.