The Benefits of Smart Capacity Planning, and the Tools to Get You There!

The Benefits of Smart Capacity Planning, and the Tools to Get You There!

Did you ever read the Ukrainian folktale about the boy who drops his knitted mitten in the snowy woods? One creature after another climbs into it for warmth; a mole, an owl, a bear and a mouse; stretching the seams until finally it bursts, leaving the animals exposed in the snow.

It’s easy for an organization to get to a similar place of swelling and bursting. An accounting firm that never turns down new clients leads to a taxed and overburdened workforce. A restaurant that seats too many patrons offers mediocre service while running the waitstaff into the ground.

Many start a business with a hopeful vision to set their own hours and fashion a life they love. But if they let go of the reins, its workflows and systems may well run wild, leading to burnout and overwhelm for everyone involved.

Yet we’ve all seen those calm, orderly businesses that have time for development and innovation, and free time to boot. What’s their secret?

The answer in large part has to do with capacity planning. For any business managing resources and a workforce, capacity planning lies at the cornerstone to success. Let’s take a dive into capacity planning, and look at some of the best tools to manage capacity for your organization.

Definition & Examples of Capacity Planning

Nearly every resource used in an organization, from labor to equipment to materials, has a capacity or limitation. One person, ideally, works 40 hours or fewer each week, and cannot perform two different tasks simultaneously. Materials usually are available in limited supply or only at certain times of year. Plus, they’re often constrained by shipping delays. Equipment, too, has all sorts of limitations on the amount of work it can process in a given time.

Resources even extend into areas relating to facilities, such as office space. An organization that depends heavily on a contingent workforce needs to have the office capacity to employ them. And every project and organization is constrained by cost.

Capacity, then, refers to the scarcity of resources. And capacity management and planning is about strategizing and executing within these constraints.

Although it may seem counterintuitive, the objective of capacity management isn’t getting an organization to a place where everyone works at 100% all of the time. Smart capacity management, rather, utilizes the theory of constraints. This means identifying the slower processes in a workflow, those places that tend to create bottlenecks, and building a system around these.

Capacity planning doesn’t just apply to manufacturing. It’s necessary whenever an organization utilizes scarce resources. As labor, clearly, falls under this umbrella, capacity planning is also necessary in service organizations.

Capacity planning entails understanding an organization’s entire system, identifying choke points, then strategically allocating resources to get the job done.

In order to effectively plan resources and allow a system to run smoothly, capacity is broken down into three distinct categories.

1. Productive Capacity refers to all of the resources required to manufacture a product or deliver a service. It includes labor, materials, equipment and facilities.

2. Protective Capacity is excess capacity an organization deliberately invests in as a precautionary measure. For example, a restaurant may intentionally purchase food that exceeds the anticipated demand, in order to be ready for an unexpected flood of customers.

Protective capacity particularly focuses on bottlenecks. It adds an extra layer of resources at common chokepoints, in order to ensure that workflows run smoothly.

3. Idle Capacity refers to equipment, labor or materials that go unused during a process or workflow. Oftentimes, manufacturing processes are cyclical or seasonal, and so much of the capacity stands idle for portions of the process or year. For example, an accountant may work long hours during tax season, but when demand dries up come summer and fall, she may twiddle her thumbs during large parts of the afternoon.

Although for much of the time, a workflow can run without idle capacity, it’s necessary to have on hand during spikes.

Capacity management is about aligning operations in such a way that all resources work at their given capacity. However, as organizations become increasingly complex, analyzing all the systems within an organization presents a real challenge. Capacity management tools break down this complexity and provide a means to solve real problems.

A Simple Example of Capacity Management in a Service Business

Let’s look at a simple example to demonstrate how a capacity manager plans processes and strategizes the distribution of resources.

Take a service organization that provides legal, financial, or therapeutic advice to clients. A fundamental component to its operations is knowing the number of clients it can serve at a given time.

Suppose the capacity manager calculates that each client requires 15 hours of work each month. An individual with ten clients, then, takes on about 150 hours of client work each month. Next, the manager calculates all of the non-client work required of each individual, such as meetings and training sessions. This additional work comes to 20 hours each month. The total capacity of an individual in the organization is about 40 hours each week, or roughly 160 hours each month.

With all of this data, a simple calculation determines how many clients each employee can have at one time. Subtracting non-client hours from total work hours results in 140, the total client hours one person can take on each month. As each client requires 15 hours of work each month, and 15 into 140 is nine, then one employee can have around nine clients each month.

If the organization takes on more than nine clients per employee, then it has gone over capacity. At this point, it needs to either hire more employees or force its current employees to work overtime.

Capacity management extrapolates the process demonstrated in this simple example into all of the systems and processes within an organization. Using the data from these analyses, it develops quotas and guidelines around resources in order to meet capacity.

Now let’s discuss some strategies for using capacity within an organization.

The Objectives of Data Analysis and Capacity Management

The overall objective of any organization is to generate profit while delivering value. In large part, this requires the smart application of resources.

This is a teeter-totter tension, however, as you cannot add and subtract capacity on a weekly basis. Setting capacity above its limits (hiring additional people, purchasing additional materials) creates waste. Setting capacity under its limits, however, creates bottlenecks in workflows. Finding a proper solution is a central component to a capacity management plan.

Arriving at the right balance between these tensions requires data. And so capacity management is a data driven discipline that first collects data, then analyzes it, then creates procedures and systems based on this analysis. The data allows an organization to make a wealth of insights, which can be grouped into four central categories:

1. Descriptive. This analysis essentially looks at what is happening within the organization right now. It answers questions like: How much product is being manufactured, and at what speed? How long does a sale take from beginning to end? This data is largely used for reference, not solving problems.
2. Diagnostic. This form of analysis looks at historical data to determine why something happened. Maybe an order was shipped two weeks late, for example. Diagnostic data identifies the step in the workflow that caused this delay, then it aims to fix the process.
3. Prescriptive. This analysis looks at what is happening, and identifies areas for improvement. As discussed, bottlenecks are key areas to identify. Generally, they’re fixed by adding more resources.
4. Predicative. A predictive analysis looks at what would happen, given a change in the current processes. For example, it examines the implication of automating a process, or doubling production.

The objective of capacity management and data analysis, ultimately, is to arrive at predictive and prescriptive solutions (not simply diagnostic and descriptive). Although they require skills and insight, these analyses benefit the organization and its operations.

The Benefits of Capacity Planning

Whether or not it has a position designated specifically to capacity management, every successful organization has spent countless hours planning capacity. Here are the central benefits it provides to an organization.

Reduces Risk

Capacity planning enables organizations to identify the root causes of issues and then to solve them. For example, if staff has to work overtime during certain times of the month, a data analysis identifies the causes for it.

It also allows organizations to adopt new technology with sufficient supervision and control, as well as introduce innovation and react to external changes.

Increases Efficiency

Capacity management is all about using resources wisely and effectively. It reduces waste, and decreases cost by identifying when and where to use just-in-time inventory.

Improves Agility

When an organization has gathered data on all of its processes and understands its systems, it has the agility to scale and act on new opportunities.

Capacity planning is essential to the streamlined operations of any organization. Now, let’s look at how to idenitfy the right capacity management tool.

Features of an Effective Capacity Planning Tool

A capacity planning tool provides data that helps an organization analyze its systems. The tool examines how things currently run, and identifies improvements in the current system. It also projects what will happen within the organization.

In order to complete this analysis, it must evaluate the workflow or system in its entirety. Generally, this sort of analysis is too complicated to perform manually, and so an automated solution is necessary. When selecting and evaluating capacity management tools, here are some key features to look out for.

Comprehensive

Ideally, you want to find one tool that can do it all, and evaluate capacity across all the company’s resources and systems.

Scalable

An ideal tool can adopt as the organization innovates and expands, and takes on increasing layers of complexity.

Rankable

The right tool should not only filter and analyze data to identify problem areas, but it should distinguish those that need immediate attention, and those to put on the back burner.

Predictive

As discussed, predictive analysis is the objective of capacity planning. This allows a company to innovate and expand. And so a capacity tool needs to provide what-if analysis and scenario-based planning. For example, a manager may want to understand the impact of doubling sales within a year, or increasing clients by 15%.

Easy-to-Use

Finally, a good planning tool must be intuitive and user-friendly. It’s unlikely that users will be experts in all the areas they’re analyzing. And so it needs to simplify data and processes to make the data palatable to anyone.

With these characteristics in mind, let’s look at some recommended capacity management tools.

6 Recommended Capacity Planning Tools

Capacity planning tools aren’t one-size-fits-all, and so selecting the right one requires some preliminary research. Some are more suited to manufacturing organizations, while others tailor to one-off projects or service companies.

In order to select the right tool for your organization, it’s helpful to first create a guiding document that lists the products the organization supplies, the historical sales, and other key details. The objective is to thoroughly understand your current systems and identify the problems you hope to solve with the capacity planning tools.

Let’s go over some of the best capacity planning tools, and the benefits and features they provide.

1. Wolters Kluwer

Wolters Kluwer is a Dutch Information Services company that started in 1968. It caters to manufacturing organizations and promises that its clients will “gain full control of your manufacturing processes.”

The company’s data tools analyze workflows, identify bottlenecks and assist with procurement and product design. Wolters Kluwer also features what-if tools that allow organizations to analyze hypothetical scenarios, such as the impact of a new product on the budget, or the impact of a new software on production processes.

2. Fishbowl

Fishbowl is an inventory management software that was founded in 2001 and operates out of Utah. It promises to streamline systems and provide businesses with the agility to scale and grow.

Fishbowl also assists with diagnostic analysis by creating capacity planning reports. It offers inventory management solutions by providing cycle counts and assigning locations for inventory storage.

Fishbowl also operates Boxroom, which is a cloud-based inventory management solution.

3. Excel Spreadsheets

For simple organizations that only offer a few products or services, Excel spreadsheets are sufficient for capacity planning. Spreadsheets offer all the necessary functionality without the complexity of sophisticated softwares intended for large organizations.

These spreadsheets have the capacity to analyze all the data necessary for descriptive and diagnostic analysis, and can assist with predictive analysis as well. Linking data between spreadsheets, for example, allows a company to estimate breakeven points and forecast yearly earnings.

4. JobBOSS

JobBOSS is a capacity planning tool designed for medium to mid-size manufacturers. It offers customizable tools for a variety of manufacturing shops, and its services assist with materials, inventory, shipping and cost analysis. JobBOSS allows users to perform what-if scenarios to its current processes, and compiles data to spot challenges and identify solutions in current systems and processes.

5. Kantata

Kantata is a project-based capacity management tool that developed out of a recent merger between Mavenlink and Kimble.

Users find Kantata’s precision and granular analysis reduces overall risk and sharpens its resource estimates. Kantata also boasts of accurate forecasting tools that allow organizations to launch new campaigns and anticipate future growth.

Its in-depth data analysis streamlines workflows and manages integrations.

6. Striven

Striven is a capacity planning tool based out of New Jersey. It serves both manufacturing and service organizations. It’s the go-to tool for organizations aspiring to scale and expand. Striven’s inventory management services cater to large and small manufacturing organizations, and it provides low stock alerts and precise stock location.

Striven’s tools effectively track employees to generate reports for diagnostic solutions.

These sophisticated capacity planning tools have the capability to crunch the tech stack of increasingly complex organizations. Incorporating these tools into an organization allows it to accurately forecast and strategize, to diagnose current production problems, and to know when it needs to hire more employees.