Are capacity problems holding your business back?

You are not alone in the capacity struggle. We are seeing it in our health sector, logistics sector, horticultural sector, building sector, and even in the accounting sector (it is common to experience seasonal workflow fluctuations driven by the tax calendar).

Capacity limits the revenue that a business can make but when managed effectively, it boosts profits by accurately matching supply with demand, improves customer service by reducing bottlenecks and missed deadlines, enhances your competitive edge through better agility and reduces business costs and risks such as under or over stocking. 

Capacity is the amount of work that can be sustainably delivered; it is not the same as capability or productivity. Capability is your skills, knowledge, processes, systems and tools that enable you to produce a given output. Productivity is how fast or effectively an input can be turned into an output. Capacity, on the other hand, is focused on volume – how much you can produce; in some industries it might be referred to as ‘headroom’.

While each business is unique, you can measure and understand capacity by looking at the resources that go into your business and its outputs by way of products or services. The key is to come up with a quantifiable measure for each of these e.g. inputs for a building business might include the number of total hours builders can work in a given month. Outputs for a building business might include the potential billable hours in each month. For a manufacturer, inputs might include the total volume of components or raw materials you can order each month. The output measurement would be the potential number of finished products produced each month. With an allowance for wastage (spillages, sick days, travel time etc) this gives you a base measure of current capacity – what you can potentially produce with given inputs.

You can also get a good sense of whether you are operating below, at or above capacity by talking to your frontline customer services or sales team members. They will be first to hear about unhappy customers, missed sales opportunities or recurring production errors.  

If you are experiencing a capacity shortage, then you can either growth capacity or influence demand (particularly applicable for seasonal capacity issues). Growing capacity can be done by altering technology (efficiency) capability (skills, knowledge), processes and/or head count. Influencing demand can be done by changing your price (increase to reduce demand, decrease to drive demand), altering sales channels (spread load from one sales channel to multiple channels), altering products or introducing new products (product bundling, self-service), promotions (friend-get-friend, bounceback offers), communications (to bring demand forward or delay it).

Whatever your challenge, it is good business practice to understand your current capacity, forecast future demand and have a plan in place to respond. For more help, check out our scenario planning tool or give us a call on 09 430 4888.