Long-range manufacturing capacity planning: Are you planning to fail?

  • November 01, 2022
Dart arrow hitting in the target center of dartboard

“Failing to plan is planning to fail.” So goes the famous adage, emphasizing the essential nature of timely preparation. Long-range manufacturing capacity planning aligns capacity and workforce with demand over a years-long timeframe. Using the supply chain design (SCD) tools you have on hand makes capacity planning a straightforward decision.

Failing to plan isn’t an option

Long-range manufacturing capacity planning, or capacity planning for short, aligns manufacturing and workforce capacity with forecast demand across a multi-year timeframe, sometimes even up to a decade. It helps you make critical decisions on scaling production capacity on a long enough time horizon that enables decision-making that matters.

Capacity planning brings together a view of expected demand and manufacturing capacity. This combination allows you to measure the planned use of your manufacturing capacity. Usually, this view is created across a business segment (often called a “platform”), one that shares production capacity within your manufacturing facility.

The following chart denotes Capacity Planning output for a manufacturing plant adding a new line and its effect on capacity for 2025 through 2028. You may note that the new line won’t reach maximum output until 2026.

Forecast manufacturing capacity for “New Line” with total  plant utilization ranging from 84% to 94% in 2025 through 2028, respectively.

Forecast manufacturing capacity for “New Line” with total plant usage ranging from 84% to 94% in 2025 through 2028, respectively.

If you look closely, the chart shows a “target max utilization %.” It sets a yearly target for maximum platform use. Manufacturing established the 90% target as a reliable and realistic operational target. This level allows supply and demand variability peaks that may push usage beyond 90% for brief periods.

You may also notice that expected annual usage for 2024 is 99%. This percent is well over the targeted max usage. Additionally, the expectation is for forecast demand to continue increasing every year through 2028. As a result, manufacturing plans to add a new production line in 2025. The additional line will add nearly 40 million pounds of capacity by the time of its full implementation in 2026. Capacity from the new line will help lower forecast capacity use to 84% in 2025 and 2026, which is below the plant’s usage target.

Are you still wondering why capacity planning matters?

The decisions capacity planning makes possible help you allocate critical manufacturing resources so you can meet future business goals. Chances are, your business goals are reasonably typical — reducing lost sales, higher profit margins, faster growth and building the capacity (there’s that word again) to scale your business effectively based on forecast demand.

You know the stakes are high. Usually, the capital outlay involved in implementing capacity planning is substantial. And, as you might expect, implementation timelines are long. Capacity planning processes for a large corporation analyze multi-million-dollar investments with timelines spanning several years. And capital is always, to some extent, limited. As a result, you must prioritize capital investments after examining multiple options.

With no substantial upfront technology costs, incorporating capacity planning should be a simple decision. However, as advantageous as long-range manufacturing capacity planning can be, most industries sorely underutilize it. Some organizational myopia is surely involved in this, with quarterly results the ultimate prevailing performance measurement. But like actual short-sightedness, metaphorical corrective lenses may help refocus how we view capacity planning.

Making the most of your capacity planning investment

Capacity planning best practices align analytics with decision-making challenges. We’ve determined, for example, that using supply chain network modeling software adds meaningful value to the capacity planning process and the quality of its decision-making support. Don’t fail to plan. Find out how NTT DATA can help you make long-term manufacturing capacity planning the cornerstone of your success.

— By Dan Sobbott and Aravind Krishna

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