Realizable Capacity - How to get the most out of what you already have.
Original Author: Dick Kallage Originally posted in Digital FABRICATOR, January 2015
In his informative article The Capacity dilemma – Why today’s churning markets require a new viewpoint about capacity Mr. Kallage outlines an effective strategy to overcome capacity issues in the slow growth, churning market we are currently experiencing. We will bring you up to speed on the main points of the article, deliver Mr. Kallage’s solution and conclude with why we believe that MultiCam CNC machines naturally support the practical lean methodologies recommended in this article.
To begin Mr. Kallage discusses the characteristics of a churning market, which he defines as ‘one in which customers are restless, demanding more on service and pricing to offset the lack of revenue growth, and are willing to churn the supply base – change suppliers – to get what they want.’ This is an important concept to keep in mind, especially when considering capacity planning decisions.
When performing capacity planning it is critical to take into consideration the state of the market. Depending on whether we are in a slow growth churning market or one with steady growth, our capacity planning decisions can have very different consequences. Generally there will be some degree of error in any forecast, so we must decide if we want to set up our capacity so that it will be slightly greater than or less than what will be required to meet actual demand.
If we choose to play it safe and plan to have excess capacity then this will detract from our profits. On the other hand if we opt for having slightly less capacity than may be required, then the time it takes to meet customer orders will increase and our customers may become upset with the longer lead times.
Mr. Kallage says that in normal times with standard growth, businesses tend to gravitate towards having too little capacity. They can pocket the up-front savings from the lower amount invested in capacity and as long as the market isn’t in that slow growth churning state then customers will generally accept the longer lead times. However, given that we are in a churning market, it is very risky to assume customers will be content with this level of service.
Mr. Kallage also emphasizes that if customers do leave to seek suppliers with shorter lead times then it will likely be the major, large order customers, as they are the ones with the most power to obtain improved levels of service. He therefore concludes that in a slow growth churning market it is simply too risky not to choose the excess capacity route, also described as having a capacity buffer.
This brings us to the crux of the capacity dilemma. Do we risk losing key customers due to longer wait times because we opted for too little capacity? Or do we choose to go with excess capacity which could impede profits but would ensure customer satisfaction. Mr. Kallage says the solution can be found in the difference between realizable and absolute capacity and the utilization of practical lean methodologies to reduce this difference.
Now there could be a myriad of factors for why a company is operating at a level considerably beneath their absolute capacity potential, but listed below are the key culprits Mr. Kallage identified in the article.
In order to combat these factors and improve efficiency Mr. Kallage recommends employing lean practices such as; ‘machine uptime monitoring, 5S and the visual workplace and any other practices that increase machine uptime, scheduling discipline, cross-training and information standardization’
If a company can adopt strategies to improve the utilization of the capacity they already have (thus decreasing the deficit between realizable and absolute capacity) then they can avoid having to settle for either of the tradeoffs we discussed above. By improving realizable capacity they can achieve the required capacity buffer (critical to reduce risk in the slow growth, churning market) without having to sacrifice profit margins investing in more capacity.
We believe that MultiCam’s products synergise extremely well with the strategy of adopting lean practices. The end goal of these practices is to improve realizable capacity by eliminating activities that result in unnecessary down time. MultiCam CNC Cutting Solutions inherently facilitate these improvements given the flexible and custom nature of their design. Every one of the MultiCam machines is built to order based on each customer’s unique manufacturing requirements.
One of the key culprits listed above is higher than expected machine or people downtime. Unlike some companies that simply assemble machines after outsourcing parts, MultiCam’s In-House Manufacturing ensures quality control through the manufacturing cycle. MultiCam also has more than 70 Local Technology Centers worldwide so our team of experts are set up to be in close proximity if a customer does require parts, maintenance or even programming assistance.
Another listed key culprit that could contribute to unnecessary downtime was employees’ variation in skills performance or attendance. MultiCam’s EZ Control system is the elegant solution to this common, yet serious productivity concern. Incorporating state-of-the-art CNC technology, it features an incredibly easy-to-use human-machine interface that allows companies to utilize their existing workforce. The controls hand-held interface eliminates the need for operators to be G-code literate; meaning any shop employee with a few minutes of training can operate a MultiCam machine. Flexibility is essential and not only is EZ Control a common part on all MultiCam machines; many of our standard parts are interchangeable.