Figuring Out Capacity

We’re trying to figure out how much our people can produce without going to another shift or farming work out to someone else. We have no clue whether it makes sense to hire more production people, or if we do add people, what kinds of people to add.

Thoughts of the Day:  Don’t waste potential guessing how to increase capacity, when simple math will yield concrete answers. Start with figuring out how much your firm can realistically produce under current conditions. Then look for production limitations to fix and efficiency and sales opportunities to capitalize on.

Most business owners want straightforward, relatively simple approaches to understanding capacity. But they lack a way to get to an optimum solution. Here’s a model that can help you. Keep in mind that this solution is not an optimum profit model, only a capacity forecast.

Step one is to get the low-down on current workforce capability. Take a look at how many different work groups touch the product or service your company delivers. For each work group, figure out how much time each group spends producing one single unit of whatever it is that your company sells.

Now do the math:  the average number of hours worked by each work group in a typical month x number of people in each work group / the number of hours needed for that group to produce one unit.

Here’s an example. You have 3 work groups: Incoming Order Handlers, Main Production, and Product Delivery.

Incoming Order Handlers = each person works 140 hours per month net of sick and vacation time, there’s 2 of them, and each takes 1 hour to process 1 unit = (140 x 2) / 1 = 280 units / month capacity. Note: you’re about to find out this area has way more capacity than you can use; more about that later.

Main Production = work 140 hours per month net, there’s 3 of them, and it takes each one 7 hours to produce 1 unit = (140 x 3) / 7 = 60 units / month.

Product Delivery = work 110 hours / month net (110 hours because they have some other duties that take them away from full time product delivery), 2 of them, each takes 3 hours to deliver 1 unit = (110 x 2) / 3 = 73 units / month.

In the above example, your capacity is limited by Main Production, which is at 60 units / month. Solution A = Add another person to Main Production = (140 x 4) / 7 = 80 units / month. Option B = work on efficiency in the Main Production unit, and reduce production time from 7 hours to 6. (140 x 3 people) / 6 hours / unit = 70 potential units / month. Pretty close to what Product Delivery can keep up with. If you do both, Option C = do both, Main Production jumps to (140 x 4) / 6 = 93 units / month and Product Delivery @ 73 units becomes the limiter.

As you work on this model, you notice that Incoming Order Handlers is consistently overstaffed at 2 people, but you need two to have back up when one is out sick. So your goal is to increase sales to the capacity of 280 units, while growing the size of the Main Production and Product Delivery units, so you can fully utilize the potential in Incoming Orders. In the meantime cross train Incoming Order Handlers so they can do other things when they’re not busy.

BOOK RECOMMENDATION:

Looking for a good book? “The Resource Management and Capacity Planning Handbook: A Guide to Maximizing the Value of Your Limited People Resources” by Jerry Manas.

 

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