Today, companies in the manufacturing industry often feel pressured to produce as much as possible at any given time to meet the needs of their customers while still keeping a healthy buffer of extra inventory to combat potential demand surges.
Supply chain managers must be able to scale up their production capacity quickly and efficiently when demand surges. Manufacturers can effectively manage their inventory by using computer software, analytics, and human oversight while meeting customer demands.
Proper analytics gives operations managers more time to focus on new products or services, and avoid investing too much money into extra equipment they don’t need. The key is accurately predicting what will happen with future demand.
A Quick Snapshot
- How manufacturers can maximize production capacity
- Short-term remedies for order fulfillment
- Permanent solutions to fulfilling orders on time
- How to minimize delays and backorders
- Various ways to handle surge capacity
Predicting Demand Surges With Production Forecasting
Most manufacturers don’t anticipate demand surges because they use outdated forecasting methods. Manufacturers must implement modern production and delivery processes to meet growing consumer demands through accurate production forecasting.
In turn, the employed techniques should be capable of responding quickly and efficiently to consumer trends.
Why Is Demand Forecasting Important?
Predictive analytics programs can help manufacturers forecast what products consumers want, when they want them, where they will sell them, and what price. Utilizing advanced forecasting technology allows manufacturers greater precision in managing demand surges.
It determines how much inventory you should order from suppliers based on anticipated customer orders and sales. Without demand forecasting, companies can lose funds and resources due to overproduction and underproduction.
The Key to Accurate Demand Forecasting
- Look at your historical sales data. If you want to make accurate forecasts, you must understand your typical or average demand levels for each product and how often those demands fluctuate from period to period.
- Assess your supplier’s ability to fulfill orders. Ensure they can keep up with sudden demand spikes and quality-control measures. Be flexible about delivery times if you can. If possible, spread out your purchases over several suppliers so that you aren’t overly reliant on any one company.
- Make a note of any seasonal changes in your product. For example, if you sell swimsuits and notice that sales are highest in the summer, you should plan for increased production. It also makes sense to reduce the rate of output when approaching fall.
Overall, production demand forecasting helps ensure that businesses stay profitable by avoiding costly errors associated. By keeping track of these trends over time, you can make better predictions about future production needs.
What Is Production Capacity
Production capacity is an essential factor in manufacturing. It refers to how much a manufacturer can produce and deliver in a given period. For example, if you own a bakery, your production capacity might be measured by how many cakes you can make per day.
The more cakes you can make per hour or day, the higher your production capacity is. Suppose the demand for your product suddenly increases (say, because there’s been a major advertising campaign). In that case, you need to have enough surge capacity available to not fall behind on orders.
How Is Production Capacity Calculated
Companies need to know their production capacity because it helps them plan for future demand surges. We’ve outlined methods for calculating production capacity in common scenarios when trying to increase your manufacturing output. They include:
Machine-Hour Capacity
Machine-hour capacity refers to the number of hours a machine runs and is available for production. To determine your total machine-hour capacity, multiply your number of machines by their hourly capacity.
Tracking your machine hours can help determine when to make machinery repairs or how much additional production you can expect after adding new machines to your factory floor.
Production Capacity of One Product
Make a list of all processes and materials involved in producing one unit of your product, and then add up all of these production times for each process. Add up all of these times together, and you’ll estimate how long it takes to produce one unit of your product at total capacity.
Production Capacity of Multiple Products
Your company might produce a wide variety of products. You’ll need to calculate your factory average efficiency for each product type. Assess the necessary time and capacity to create one product and add that up over all of your products.
Short-Term Ways To Increase Production Capacity
There are several reasons why a company might need to increase its production capacity, including unforeseen demand rapidly, an unexpected drop in supply, or simply a desire to be more competitive. The following short-term strategies can help companies deal with these issues quickly and get their businesses back on track.
Outsource Part of Your Production Process
Hiring outside help may be an option for companies that need short-term production boosts. Production outsourcing involves strategically selecting parts of the production process for a third party who will handle it for you.
A company might choose to outsource its shipping department. It could also involve more complex tasks like hiring a call center to care for your customer service needs.
For example, consider outsourcing product labeling services to a print shop or design firm if you run a food manufacturing company. You can use these services to label canned products with your branding.
Your team should always handle your core competency. The best practice is to outsource what you don’t need in-house to maintain control over your business. It’s also essential to think about whether or not outsourcing a particular part of your business is worth it and what it would do for your return on investment (ROI).
Find a company that offers production services that fit what you need but does so at a price you can afford. It’s essential that you work with a reputable provider who will deliver high-quality work and abide by your company’s standards and deadlines.
By thinking strategically about where you want to grow your business, you can make decisions that work towards achieving your goals. If you cannot produce enough goods and services yourself, finding a partner who can help fill those gaps is essential.
Create Extra Shifts or Offer Overtime
It’s easy to get caught off guard when you have an unexpected burst of orders or a sudden increase in sales. However, it’s much easier to handle these situations if you already have staff on hand and can add extra shifts to your production schedule.
Create more shifts by offering overtime hours to existing employees. Just be sure that you don’t overwork your employees. You want them to be able to stay productive during demand surges while also maintaining a healthy work-life balance.
Discuss how many hours they are comfortable working each week and stick to those limits with your team members. Come up with a plan for adding shifts as needed. Proper planning will help avoid burnout, which results in decreased productivity.
The key here is flexibility. If you have several different products or services, look at each one individually and decide how to manage increased demand without sacrificing quality. Ensure that everyone is aware of how they will be compensated for overtime so that there are no misunderstandings about their compensation package.
Long-Term Options To Increase Production Capacity
Factory owners looking to boost their production capacity can outsource and offer extra working hours. However, these options come with various shortcomings and are often not ideal for long-term growth.
Luckily, there are several long-term options that you can implement today to help your business prepare for growth in the future.
Optimize Current Production Process
The first way to increase production capacity is by improving productivity. Supply chain managers can evaluate their current production process and identify areas where the company can improve efficiency.
Assess the current personnel to ensure that they are adequately trained and have all the tools necessary to complete their tasks promptly.
It may also be helpful to assess specific processes and identify areas where management can improve efficiency. They may find they have a lot of unnecessary or repetitive tasks that could be reduced or eliminated.
For example, instead of manually entering data into spreadsheets or databases at different points throughout your business processes, automate it with software designed specifically for those purposes, such as customer relationship management (CRM) software. These tools are often free or inexpensive and will save you time while increasing accuracy and reducing human error.
Prioritize planned maintenance and repairs to ensure equipment functions at peak performance levels. Additionally, consider implementing suggestions from employees or customers on how to improve your existing production process.
Eliminating these inefficiencies frees up resources for more productive work, ultimately increasing output. You could potentially boost your company’s production without adding new physical capital to production. You can maximize production by optimizing what you already have without spending additional capital.
Upgrade Facilities and Equipment
Upgrading facilities and equipment can be expensive, but it is often one of your best options for increasing production capacity. By upgrading equipment, you significantly increase reliability and efficiency, reducing operating costs in other areas such as maintenance.
The added productivity from new or upgraded equipment also allows for better utilization of existing resources, including staff and space. Modern equipment also enhances safety by reducing physical hazards and dangerous situations.
In addition to increasing production capacity, improving facilities and equipment increases overall business value by providing a return on investment when you decide to sell your company or property.
Many different types of upgrades could increase production capacity, including:
- Updating machinery or technology
- Upgrading or adding new warehouses
- Improving transportation infrastructure
- Purchasing new equipment such as forklifts or trucks
For example, an older building may have limited expansion potential due to its age. However, modernizing it with new HVAC systems could dramatically improve energy efficiency and reduce utility bills.
That’s good for your bottom line, but it also makes a great selling point if you decide to move locations. Ultimately, investing in newer technology and infrastructure will always pay off. Either directly through increased production capacity or indirectly through higher resale value.
Expand With New Facilities and Equipment
Manufacturing capacity expansion can help companies invest for future growth by increasing production space and purchasing new equipment. The ability to add production lines, increase shipping lanes or buy additional equipment allows a company to increase its efficiency to meet demand better.
Expansion is also a meaningful way to keep up with changing technology that could render older facilities obsolete. Business owners should consider expansion when they are confident that the business will continue growing at a similar rate and have access to sufficient capital reserves for expansion expenses.
It’s also essential that management has experience in successfully executing previous expansions. They need enough experience to know what challenges might arise during construction and how best to overcome them.
Businesses must also consider whether it makes more sense to lease or buy their equipment. Leasing can be less expensive and ties up cash flow while purchasing equipment requires upfront costs. However, one drawback is that a lease agreement might require a contract.
A long commitment means that if business conditions change, you may not be able to adjust your production capacity as quickly as you would like. Either way, you may need to upgrade your employee training and safety programs to use new equipment safely.
Also worth considering is having adequate insurance coverage in case of damage during expansion. Businesses need enough coverage so they aren’t left without crucial assets while rebuilding due to natural disasters such as floods or fires.
Aim for Sustainable Growth
Manufacturing companies should have a growth plan to increase capacity in advance. Tailor your growth strategy for each plant and production type so that you can be ready when you add another product line or demand increases.
By preparing your business for these changes and managing demand surges, you will be able to manage demand surges without sacrificing quality or putting your company at risk of failure.
