You’ve designed your network plan for next month and are not expecting very high demand for a specific product. However, customers surprise you and ask for more products than your plants can make in that time. What are you going to do about the excess demand?   

Production capacity planning answers that question, plus many more concerning the volume and timing of your production. This article from Optilogic explores the intricacies of production capacity planning and why your organization should implement this strategy in your supply chain design.  

What is Production Capacity Planning and Why Does it Matter?

Production capacity planning is an essential part of supply chain optimization. It enables organizations to maximize their production efficiency while ensuring a smooth workflow to serve customer demand. It also helps to identify bottlenecks, optimize resources, reduce costs, prevent product shortages, and plan for any changes in demand. 

High-level, production capacity planning answers where and how to get materials and products for your consumer.  

Foundationally, production capacity planning is a process within your supply chain design. It empowers organizations to make optimal decisions regarding the production of items and the supply chain, considering all your capacity limitations.  

Production capacity planning is vital for companies competing in today’s market. Many organizations are unable to meet the demand for certain products because it exceeds the production capacity of a supply chain network. Modeling your strategic and tactical production planning in advance allows you to proactively prepare for demand variations, ensuring you can deliver products on time.  

As part of your production capacity planning, it’s critical to put strategies in place for the following:   

• What products to make   
• When to make them   
• What production lines to use to make them   
• Where to produce the products geographically   

 This means you need strategic network design to determine facility locations and capacity requirements to avoid capacity shortage and underutilization. Tactical, shorter-term planning is also essential to maximize your production capacity and determine how you will utilize any excess inventory that doesn’t fit in your warehouses.    

Optilogic’s Cosmic Frog platform can give you more confidence in your production strategy by creating more effective production planning models. Simply enter data regarding your facilities, production lines, and production processes into Cosmic Frog to establish your baseline, then generate a variety of what-if scenarios. For example, strategically, when and where you should build new facilities and production lines or tactically optimize existing production capacity and utilize outsourced or variable capacity for peak demand.

It’s essential to build your network not only for the capacity of today but consider how your network evolves. Cosmic Frog provides a risk rating with every scenario run, so you can understand your current production capacity needs while simultaneously forecasting future requirements and risk factors.   

Products to Make vs. Products to Buy

Companies must identify the total volume of raw materials and finished goods needed to satisfy customers’ demands. For this total volume, they must determine what portion can be built or produced within their supply chain and what part can and should be outsourced.  

The following considerations will help you answer the questions above:

1. Cost

There is always a production cost. What will it cost your organization to bring products to the consumer? Cost is an essential consideration, but it’s not the only one, as we’ll see below.  

 2. Capacity

Your facility’s capacity will guide which or how much of your products you choose to make versus buy. Existing facilities in your supply chain might have capacity limitations that affect in-house production. Understanding facility capacity helps you plan for outsourcing needs.  

 3. Risk

Risk mitigation is an essential yet often overlooked aspect of production. When all products are sourced from the same place or produced in a single internal facility, there are significant risks for disruptions that could have devastating effects. Production capacity planning helps organizations determine production solutions that increase resiliency across the supply chain.  

Timelines for Product Manufacturing

Organizations can plan for production timelines, but various factors can alter your forecasts and force you to change your timelines to meet demand or respond to supply chain disruptions. This is especially true when considering capacity constraints. Most of the time, your capacity isn’t consistent. Understanding capacity fluctuations helps you plan for production timelines.  

For example, equipment or facility maintenance can disrupt capacity. Sometimes demand is stronger or weaker than your overall capacity. The holiday season, for instance, brings high demand. However, you likely don’t want to keep your production capacity levels at the highest possible rate because of high labor costs, inventory management, etc.  

In these instances, timelines are essential to keep up with demand without wasting resources or overproducing.  

At the heart of production capacity planning is the tradeoff between when to produce to keep up with demand, such as a just-in-time production approach, versus prebuilding your inventory. If you understand and identify the optimal production times, you can avoid outsourcing and the additional associated costs.  

Choosing Work Centers to Support Production Capacity Planning

The work centers you choose to support your supply chain goals depend heavily on whether you buy or produce an item yourself. Your production capacity and costs are intertwined and are significantly affected by location.  

For example, a single production facility can include several work centers or lines.  

If you start buying a portion of your component and finish the product internally to make something, how do you make it inside the facility? Production capacity planning helps answer that question.  

Much of the time, work centers are at capacity with time and production volumes. Adding another product to your lines would impose another constraint on your supply chain and production capacity.  

Considering potential work centers and production lines, you must balance cost, time, and risk. If your work centers are at capacity, you likely won’t have the flexibility to choose the cheapest option to reduce costs. You must also consider cycle time and change-over time. Both consume your available hours for production. And lastly, organizations must work risk mitigation into their production line choices. Balancing all three factors is essential for sustainable, profitable production that delivers the right product of the right quality at the right time.  

How to Choose Production Locations

Location is a huge factor in your production planning. While offshore production has historically been initially low-investment and low-cost for organizations, the supply chain nightmare wrought by COVID-19 has proven that your location decisions must be balanced against multiple factors, not just cost.  

Location analysis, tied to the capacity planning decision, allows you to determine which locations are ideal for production. Some locations may be cheaper but prove to be a poorer business investment. Greenfield analysis empowers you to make location decisions that result in sustainable, resilient production.  

Integrating Production Capacity Considerations with Other Supply Chain Constraints

Production limitations aren’t the only constraints affecting your organization and production capacity planning. Supply chain design considers more than merely your product requirements; it also finds logistics, transportation, sourcing considerations, etc. Although all these factors are critical, you must align them with your other network considerations: sourcing costs and capacity, inventory costs and capacity, and more. These variables create a complete picture of your supply chain network that empowers you to build a supply chain that helps you reach your goals.  

Optimize Production Capacity Planning with Optilogic

Production capacity planning is a critical component of any successful supply chain strategy. Understanding demand, business limitations, sourcing, and capacity and balancing those factors against cost, service, and risk allows you to create processes and flows that work for your business and your customers.  

Optilogic’s Cosmic Frog provides the hyper scalability required to execute and implement robust production capacity planning. Our cloud-native systems deliver the horsepower and functionality you need for your supply chain planning.  

Optimizing your production capacity planning starts now. Create your free Cosmic Frog account to take advantage of our industry-revolutionizing tools today.