Gain insight into your own capacity

 When developing a capacity plan, it's best to start by answering these questions. This will give you insight into the current situation:

• How variable is the demand? When demand fluctuates, adjustments are relatively easy to make. However, demand often tends to be highly variable. The more variable the demand, the more capacity and inventory you need to handle peak periods.
• What determines your capacity? It's important to know which resources determine your capacity in your process. Are they your employees or the machines? Or is it a combination of both? Your capacity can also consist of materials to be used, fleet, or spaces.
• How expensive is it to maintain capacity? It's important to understand how much time it takes to maintain and retain your current capacity. How much effort do you put into maintaining your resources, for example by offering courses to your employees? Or maintenance checks for your machines.
• How long is the customer willing to wait? When demand increases, it's good to know if you can shift or distribute the demand over a longer period. Get to know your customers and set good expectations regarding delivery times. In both the consumer and B2B markets, delivery times and wait times are getting shorter. But is fast delivery necessary for all your customers? Determine the priority well; some customers are always open to longer delivery times. Try to find a balance here. Use this knowledge to prioritize your planning.
• How long does it take to expand or build new capacity? If you need to hire staff or purchase additional machines and/or equipment, expanding capacity can take a long time. Careful planning is required. Consider whether a purchase is necessary, because are you utilizing the current capacity optimally?

Matching supply and demand

Choosing a suitable capacity level is difficult if you're not sure what the demand will be. If demand occasionally exceeds your capacity, your customers will have to wait longer. If this is a persistent problem, your customers may eventually leave you. This will result in reduced revenue and profit.

If you're concerned about dissatisfied customers, you can increase capacity to the level of peak demand by default. This way, you'll always be able to serve every customer. The downside is that this often leads to underutilization of your resources for many periods and thus unnecessary costs.

Many companies choose to set capacity slightly above average demand, as shown in the graph below. The orange line represents the amount of customer demand. In a period of underutilization (A), you can increase production to meet demand during peak times (B). This way, you don't need to hire extra capacity during peak demand.

Of course, this varies in every industry, but the fact remains that every company can manage capacity and demand. Sometimes, saying 'no' to a customer is necessary to avoid costs in the long run.

Using capacity steps

 If demand exceeds a company's current capacity, the company must increase capacity by hiring additional employees or purchasing more machines. By hiring an employee or machine, you often increase a chunk of capacity at once, also known as a capacity step.

The employee or machine has the capacity to perform a fixed amount of work, which of course increases the total capacity of the company.

In an electronics company, for example, the smallest machines produce several thousand parts per year. You can't buy a machine that only produces a few hundred.

For services, you can't simply hire a mechanic or designer for less than half. This means that when you increase capacity, you do so immediately with a chunk of at least 80 hours per month.

An example is shown in the graph below. Internal capacity is increased in chunks, while demand steadily increases. At some moments, you have overcapacity, but by attracting new capacity, you'll experience underutilization. Take into account, for example, the training period for employees or machine optimization. New resources are not always optimally deployable at the beginning.

How can vPlan help you?

By adding your resources (with a roster) in vPlan, your available capacity is visualized. Any holidays or machine maintenance directly impact capacity. You can easily and quickly enter this into vPlan. The same applies to additional hiring of (temporary) staff or the purchase of machines; do you adjust something or add something? It will immediately affect your capacity.

Capacity is visualized per department, per resource, or total, using a bar. By planning activities, the available capacity is utilized. Clear signaling shows whether capacity is underutilized or overutilized in a period (day, week, or month). With vPlan, you can quickly address bottlenecks by either increasing capacity or prioritizing activities. It may well be that an assignment can be postponed for a day because the customer does not immediately need the product or service.

In vPlan, it's possible for your resources to write hours. This way, you also know exactly whether the planned time was realistic compared to the written time. With the analyses in vPlan, you have a clear picture of your capacity utilization. The analysis provides insight into the future, but by looking back, you learn from achieved results. Use those results to better estimate your capacity for the future and optimally utilize your resources.

Watch our YouTube video on capacity here.