Clients are struggling to keep up with customer’s changing requests. Order backlogs remain relatively high (depending on the industry), but customers are pushing orders out at the last minute, pulling orders in without notice, adding future potential orders, and changing requirements on the fly. Production is scrambling to keep up.

80%+ of manufacturers simply do not have enough skilled production and support resources to keep up with the volumes, let alone with the volatility of the order backlog and changing forecasts. Not surprisingly, executives do not want to hire more resources than absolutely necessary as they are concerned about rising input costs and the uncertainty of their order backlog. To add fuel to the fire, the supply chain has been volatile as well with global unrest, strikes, and other disruptions as well as supply chains on the move. Read our recent article on how supply chains are changing. The production resources cannot keep up with changing conditions, and triage must occur.

Our best consulting clients are engaging in proactive business processes to get ahead of changing customer conditions and sales forecasts and the impact on capacity, production and replenishment plans as well as the reallocation of critical resources. SIOP (Sales Inventory Operations Planning) is a key process and toolset for successfully navigating this volatility while maximizing output and production capacity to support revenue growth.

An Industrial Manufacturer Case Study

An industrial manufacturer struggled to meet customer requirements. Order deliveries were lagging, capacity wasn’t allocated evenly across its ten production facilities and production at a critical site had almost 1000 hours of change overs per month for nine months in a row to try to keep up with urgent customer requirements. Several large customer jobs pushed out and others pulled in, keeping Operations scrambling.

We rolled out a SIOP process, starting by getting a handle on the sales orders and potential sales orders. A weekly meeting with Sales and Project Management helped to solidify the priorities of the demand plan (sales forecast). Although customers continued to request push outs and pull-in’s, when the requests were proactively worked with the team and the ERP system was maintained, better clarity emerged.

The demand was run through a capacity model, showing available capacity vs. operational requirements by production facility. The operational requirements were bucketed in categories of firmed sales orders, sales orders waiting on Engineering release, sales quotes that were better defined, and sales quotes. By evaluating near-term capacity, priorities could be established with Engineering, short-term capacity actions could be taken (overtime, supplementing production at additional sites, etc.), and proactive customer communications could take place.

More importantly, by evaluating medium and long-term capacity, the appropriate strategic decisions came to light. For example, the critical site showed as overloaded months in advance so that Operations could reallocate customer orders among production facilities within the same region to mitigate impacts on freight cost. The model could be evaluated with multiple what if scenarios so that Sales and Operations could address the bottlenecks proactively. Guidelines were set to reprioritize and set pricing for key customers, capacity could be reallocated, additional capacity could be planned, and capacity offload options explored.

The key is the connection between Sales, Project Management, and Operations and Engineering. As customer requirements change, capacity scenarios need to be reevaluated and impacts reviewed. Proactive communication and collaboration is a critical piece of SIOP to keep demand and supply aligned and optimized.

SIOP Maximized Production Output & Capacity

By seeing the demand and capacity picture in advance with SIOP, the executive team could maximize production output and capacity. They could do this by proactively addressing bottlenecks to level load the plants so that the scheduling teams could optimize the production schedules to increase efficiencies and reduce waste. By running like items, sizes, and material types together, changeovers are minimized. And by seeing the final assembly schedule requirements, labor and resource plans could be optimized.

Also by reviewing the full capacity requirements across all North America sites, capacity could be reallocated to maximize output, thereby minimizing the need for offload capacity. Each plant’s strength could be maximized and planned in advance while minimizing transfers between plants, freight to customers, and material price differences.

By addressing these supply plans proactively, materials contracts could be addressed in advance ensuring material availability which positively impacts manufacturing planning and output. It also typically provides opportunities for more favorable contracts and pricing. In addition to maximizing production and capacity output, SIOP improved the customer delivery performance, resulting in happier customers and additional revenue possibilities.

SIOP: A Look Forward

In our book, “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth“, we discuss how SIOP can support these types of improved results. As companies navigate the exaggerated volatility of the global environment and try to keep up with changing customer needs, SIOP becomes an essential tool in the toolkit to survive, let alone thrive. Our best clients are utilizing SIOP as a way to take control of their future and manage their options instead of letting their situation manage them. In fact, they are taking SIOP to the next level with advanced technologies and by connecting SIOP to their customers and suppliers to gain an end-to-end supply chain view.

Did you like this article?  Continue reading on this topic:
Optimizing Business Decision Tradeoffs with SIOP

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The White House has launched a cabinet-level supply chain council as the criticality of the topic rises to the top. Although they emphasized the minimization of supply chain disruptions as it relates to inflation, our perspective is that the supply chain is much bigger than that. From national security to securing supply chains of the future, there is tremendous work that industry must take on at a dramatically accelerated pace for companies that want to thrive 5 to 10 years from now.

Why Supply chain Resilience Matters

China is the largest manufacturer of the world and there are many risks rising to the top. For example, China is quietly working on several fronts:

• Supporting Russia and Iran behind-the-scenes (buying up oil etc.)
• Threatening Taiwan (which produces 90% of the advanced computer chips in the world)
• Threatening goods movement in the South China Seas (risking shipments to/from Asia)
• Buying up and/or taking control of farmland, critical minerals, ports/ terminals (including control of the Panama Canal), and other infrastructure around the world
• While the US has decreased carbon emissions by 20% since the peak, China is expected to be at an all-time high in 2023. They permitted 2 coal plants per week in 2022.

There are other risks throughout the world. Look no further than the Russia-Ukraine war, the Israel-Hamas war, etc. Each of these events impact the supply chain. In addition, there are the many disruptions carrying on since the pandemic caused by a variety of factors including lack of resources (labor, materials), weather, strikes, etc. The baby boomers are retiring at a quick pace, creating a shortage of resources we haven’t seen in our memories.

Thus, supply chain resilience has become of paramount importance.

Supply Chain Resilience Path Forward

Unfortunately, there is no 5-step plan to check off to create a resilient supply chain. The bottom line is that it requires confronting reality, uncommon common sense, execution of process disciplines, innovation, and a willingness to take smart risks and invest wisely.

Our proactive clients are jumping on creating a resilient supply chain. In no special order, they are following several of the following strategies:

• Rapid assessment: It helps to know where you are starting (strengths, weaknesses, risks, priorities) so that you can focus efforts rapidly. Learn more about LMA’s complimentary supply chain assessment. 
• Reshoring: Getting manufacturing under better control
• Nearshoring/ Friend shoring: Bringing manufacturing closer to consumers/ customers to minimize disruptions and lengthy transit times.
• Backup sources of supply: Pursuing multiple backup sources of supply to cover for unexpected issues.
• Securing funding to support resiliency and growth: Investments are required (technology, people, infrastructure) to create supply chain resiliency.
• Implementing technology to support resiliency: Smart executives are upgrading ERP and related technologies (IoT, AI, CRM, customer/supplier portals, business intelligence, etc.) to increase visibility, automate mundane tasks, and upgrade the customer experience.
• Cross-training internal & external: In addition to cross-training resources to backfill key roles, smart executives are supplementing resources with consultants, collaborating with supply chain partners, and finding creative solutions to ensure customer service and profitable growth during volatile times.
• Moving from vendors to partners: Vendors will not be there when you need them. Vendors implies price. Upgrading to suppliers is a step in the right direction; however, during the risk laden times, partners are needed.
• SIOP (Sales Inventory Operations Planning): Upgrade your demand and supply planning to get in front of what’s needed to create a resilient supply chain with a SIOP process. Learn about SIOP, also known as S&OP, and read our recent article on moving manufacturing forward instead of backwards with SIOP.

The Bottom Line

There are many more strategies you should pursue to ensure supply chain resiliency. Start with a rapid assessment while jumping on at least one strategy that supports your company objectives. Don’t just add a program and assign your already limited resources to another priority. Instead, do the hard work to determine what will make a difference and focus your resources.

If you are interested in reading more on this topic:
A Resilient Supply Chain Built for Competitive Advantage

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Manufacturing appears to be turning the corner. According to the ISM, the Purchasing Managers Index (PMI) recorded a contraction but at the slowest pace of the recent cycle. In fact, this is the third straight month of improvement. The expansion of the PMI is indicating a recovery on the horizon for manufacturing.

S&P Global also surveys the economy, and their statistic shows that manufacturing is near stabilization. Their Purchasing Managers’ Index came in at 49.8 with production increasing at a marginal pace. Thus, the most respected surveys align and are trending positive for manufacturing.

Manufacturing Expansion Beyond the Statistics

Beyond the economy’s signals, manufacturing has the potential to surge. Whether reading surveys, talking with clients or collaborating with colleagues, it is clear that smart executives are expanding manufacturing footprints, reshoring from Asia, and finding regional partners to increase manufacturing. According to a poll conducted by Forbes, Xometry, and John Zogby Strategies, 82% of CEOs have already implemented — or are actively pursuing — reshoring strategies.

These expansion and reshoring activities will accelerate the manufacturing resurgence. The bottom line is that manufacturers are realizing that the risks associated with China, manufacturing long distances from key customers, and other geopolitical conflicts and wars such as the Russia-Ukraine war are simply too high. Forward-thinking executives are taking control of their ability to serve customers. To read more on this topic, read our article “Take Control of Manufacturing to Wrestle Volatility to the Ground.”

Where Should Manufacturers Focus?

There will be more opportunities than ever before as prepared, innovative, and resilient manufacturers will have the opportunity to take market share as they can service customers with ever increasing expectations in a scalable, profitable manner. Unfortunately, the rest that rest on their laurels, reacting as events unfold will not be able to keep up with key customer needs and gain traction quick enough to succeed in today’s volatile environment where customers expect customized products, personalized service, with rapid execution and innovative solutions.

Thus, during manufacturing month, we should be thinking five steps ahead of the competition. Don’t just bring manufacturing back; instead, think about expanding manufacturing in a new way. Automate where it makes sense (starting with repetitive tasks), digitize so that there is supply chain visibility and resiliency, utilize 3D printing and additive manufacturing to slash product development lead times and produce custom products on demand, analyze what if scenarios with digital twins, leap forward with AI and predictive analytics, and ensure your foundational processes, ERP system and related technologies are on solid footing.

Become passionate about talent and leadership. Our most successful clients retain top talent. There are no exceptions. Without your #1 asset, there will be no business. With the rate of retirement and the future of the workforce, there is a large gap to sustain business, let alone thrive in the next decade. Fundamental topics are arising at clients at a quick pace. Inventory accuracy, order fulfillment, and other bedrock topics can be much more challenging than they appear.

Only those who invest in proactive processes such as SIOP (Sales Inventory Operations Planning), dedicate the time to training, education, and development, and prioritize proactive organizational development and supply chain partner relationship building efforts will succeed. Yet this is still not enough. Innovation and resilience will be required to succeed during these turbulent times.

The Bottom Line

A manufacturing resurgence is underway. The only question is whether you will jump in and take control of your destiny or observe from the sidelines.

If you are interested in reading more on this topic:
Taking Control: Reshoring, Nearshoring, Friendly Shoring & Manufacturing Expansion

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Manufacturing is making a resurgence in the U.S. and other countries around the world. According to the U.S. Bureau of Labor Statistics, there is a shortage of 550,000 stable manufacturing jobs to be filled in manufacturing businesses nationwide. There is no doubt the Skills Gap is in full force if you observe manufacturers offloading, prioritizing customers, and struggling to fulfill demand because of a lack of people. In union industries, employees are threatening strikes and across the board, wages are increasing which leads to intense inflationary pressures. It is a tricky time to navigate yet the best will figure out how to scale successfully.

The Resurgence Will Continue

The manufacturing resurgence will continue as businesses address extreme supply chain risk, unpredictable costs, the need to meet changing customer needs, and U.S. incentives ramp up. For example, Joseph P. Quinlan, head of CIO Market Strategy at Merrill and Bank of America Private Bank has described the current environment in the U.S. in a June 2023 market outlook report, as “the early stages of a manufacturing supercycle pivoting around renewable energy, electrical vehicles and batteries/charging stations, and semiconductors, in addition to rising spending in more traditional areas like ports, highways, grids, airports and the like.” As of April, spending on manufacturing construction — new factories was tracking at a $189 billion annual rate, triple the average rate in the 2010s ($63 billion).

In consulting with manufacturers how to leverage SIOP (Sales Inventory Operations Planning), supply chain management, and ERP to scale successfully, it is clear that there is plenty of scrutiny on make vs buy decisions (reshoring, nearshoring, offloading, expanding capabilities), customer and product profitability analyses, and strategies to scale successfully to meet customers’ requests and expansion plans. The resurgence will continue yet talent remains scarce.

Fulfilling the the Need for Expansion & Scale

There are several strategies smart manufacturers are pursuing to fulfill the need for expansion and scale as it relates to talent. The most successful include the following:

• Training & development: There is a renewed interest in training and developing employees to expand their skills and learn about new and advanced methods to perform their roles.
• Mentoring: One of the best ways to accelerate the learning process is to find a mentor. Mentors bring experience to the table and provide insights that cannot be found in a book. Exemplars can show the way forward. If you can entice experienced employees and retired employees to provide guidance, progress will be robust.
• Apprenticeship programs: Manufacturing thrives on apprenticeship type programs with on-the-job training with immediate feedback and corrective information.
• Automation, robotics & digitization of the supply chain: Only the successful will look for ways to automate whatever is repetitive, use robots for those tasks that can run through the night without interaction, and digitize the end-to-end supply chain to bring efficiency and to more quickly meet customer needs.
• 3D printing / additive manufacturing: Why produce what you can print upon demand? If an aerospace engine and a miniature house can be printed, what’s holding you back?
• ERP & related technologies: Every client can better use their ERP system to achieve results and automate mundane tasks. Prioritize utilizing this already-existing asset and expand the use with related technologies such as artificial intelligence (AI), IoT (internet of things), digital twins, AV/VR (audio visual/ virtual reality), and much more.
• Retention: Often, the most successful clients are simply those that retain key talent. It sounds easy, but it requires effective leadership, flexibility, investment into employees (training, cross-training, experiences, etc.), and competitive compensation. People follow people. People do not follow companies.
• Supplement your employees: We are not the typical supply chain consultants as we will jump into the details with a client and partner with key resources to bring results to fruition. More and more clients are pursuing this type of strategy to supplement their workforce by providing support to key talent while advancing their capabilities and ensuring results. To learn how to select a supply chain consultant, read our article.

As the manufacturing resurgence accelerates, the need for talent will increase. Employ key strategies to fulfill this demand for talent and address the Skills Gap. Please contact us with your success stories and your questions for how to succeed during these volatile times. And, please keep us in the loop of your situation and how we can help your organization get in a position to thrive for years to come. Learn more about these topics in our blog and download your complimentary copy of our recently released special report: The Road Ahead: Business, Supply Chain & The World Order

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The State of Affairs in Manufacturing & Distribution

Manufacturing is on a downward trend after eight months of PMI (purchasing manager’s index) below 50. It dropped to 46 in June. China’s manufacturing also shrank for a third month in a row to a PMI of 49. Yet manufacturers backlogs remain relatively robust in many industries, leading executives perplexed on what to do about capacity shortfalls.

Logistics is in largely the same shape as the Logistics Manager’s Index (LMI) hit a new all-time low of 47.3 for May, down 3.6 points from April and operating in contraction territory for the first time. Thus, not surprisingly, the Freightos Baltic Index, which measures freight volumes and prices globally, shows average daily spot rates from China/East Asia to the U.S. West Coast at $1,324 per 40-foot container, down from more than $14,000 a year ago. Yet, products aren’t easy to find and get delivered on the rapid expectations consumers expect.

On the other hand, supply chains are on the move. Smart companies are reshoring, nearshoring/ friend-shoring, expanding manufacturing capacity and getting ready to scale up rapidly to meet customer expectations. As manufacturers struggle with rising interest rates and consumers focus on services, weak ones will get absorbed or go out of business, leaving an opportunity for those ready to take on the volumes. The same is true on the logistics front. As the West Coast ports struggle to finalize labor negotiations, container ships are on the move to the east coast, leaving distribution and transportation suppliers ready to support the volume with aggressive growth. It is a time where the winners and losers will separate, leaving vast opportunities for forward-thinking executives.

What are the Implications for Capacity Planning?

Companies need to expand capacity yet remain resilient and flexible so that they can also maximize profitability and accelerate cash flow. In order to do that, it is vital to get on top of your capacity capabilities. The majority of clients do not have clarity of their capacity (upcoming requirements as compared with available capacity). Thus, they struggle to know if they can take on customer orders and deliver it with the appropriate level of customer service (meeting the customers’ expected lead time and delivery performance with high OTIF (on-time-in-full)). When opportunities arise, poor service will kill the opportunity quickly. Also, if you don’t understand your capacity, you will not allocate it optimally and maximize your capacity; thus, losing profit opportunities.

Capacity planning is a key element of the SIOP (Sales Inventory Operations Planning) process: it takes your demand and translates it into your capacity requirements (manufacturing, equipment, storage, transportation, talent, etc.). By evaluating capacity, executives can get in front of changing business conditions and determine how to optimize their capacity to scale up or down quickly to meet key customer needs while maintaining margins.

Client Example: Using Manufacturing Capacity to Scale Up to Meet Sales Forecasts

In a storage manufacturer, a key to success is to have the capacity capabilities where needed when customers need it. As logistics changes occur (such as the transition from the west coast to the east coast), storage systems will adjust in concert. Since storage systems are bulky and freight costs of inbound and outbound freight is expensive, it is important to have capacity available where its needed at the “right” time.

It is not for the faint of heart to get a directional view of manufacturing capacity for a storage solutions manufacturer. The good news is that shop floor employees can move between machines and equipment to produce what’s needed; however, the bad news is that this makes understanding capacity availability challenging because not all products require the same number of people or skills to produce. By using a SIOP and demand planning process, customer orders, likely customer orders and quotes are available. Assuming engineering is on target in completing product designs, using a capacity planning process, this demand plan can be translated into directionally correct requirements (weight and hours) by plant and customer.

However, required machinery, equipment and labor requirements doesn’t provide valuable information if you can’t compare to available capacity. It sounds much easier than it is in reality due to the complexities. Typically in these types of operations, there are many different work centers (work areas) that are not alike in terms of capabilities and labor requirements. Similarly, products are not created equal; each product can require different numbers of people, different skills and it will go through multiple work centers before completion (fabrication, weld/ final assembly, paint). Storage requirements are also not created equal. Thus, a simple available capacity calculation across a work center or group of work centers is not feasible. However, using the forecast as well as historical run rates and weights by product, summarized by work center and production area can provide a directional view of available capacity.

Reviewing capacity requirements vs. available capacity by plant and production area will give Operations leaders their marching directions. For example, in one facility they had plenty of fabrication operators are had excess inventory of these parts yet customer service was suffering. The bottleneck was in weld operations, and so work in process (WIP) was stuck waiting for weld. As they trained weld operators and expanded the capabilities of a few fabrication operators, they were able to catch up and improve their OTIF (on-time-in-full) metrics.

As they gained a view into upcoming capacity, they could see potential bottlenecks in advance so that they could proactively handle them. For example, the plant could see that they had more requirements than capacity two months into the future; however, they could absorb it (level load) in advance if they could get engineering to complete the designs. Thus, a priority list was developed and managed with engineering. Additionally, they could evaluate whether they could fulfill a key customer project that another plant couldn’t handle on time and transfer the project to a nearby site so that it could be delivered on time without negatively impacting margin. On the other hand, if a critical project came up that required advanced manufacturing capabilities, they could see the impacts of transferring the volume to another facility with these capabilities and incorporate the cost impacts of the additional freight. They also had the opportunity to potentially transfer the volume to their Mexico facility which would add freight yet mitigate the labor costs. The bottom line is that capacity visibility supports revenue growth with minimal impact to profitability.

Client Example: Expanding to Storage, Freight , & Engineering Capacity

Although the focus has been on manufacturing capability, the next priorities are storage, freight and engineering capacity analyses. As the plants have the capability to see into the future and want to level load operations in a way that maximizes operational performance (running in the optimum sequence to minimize inefficiencies and waste), engineering capacity becomes the bottleneck. Seeing which orders / projects should be prioritized across sites will give a priority list to Engineering. If you add available engineering capacity into the picture, it might lead to hiring additional engineers or supplementing with short-term resources.

The same holds true for storage and freight capacity. Since the product is bulky and can only be stored outside for certain periods before fading, storage capacity should be managed. If you have significant customer orders coming down the pike, you could decide to produce ahead to keep customer service intact without adding unnecessary long-term manufacturing capacity. In this case, you could calculate storage capacity by region (to minimize freight costs). This goes hand-in-hand with transportation and freight capacity.

Final Thought

Capacity planning is cornerstone for any manufacturer or distributor as you must serve customers, maximize operational efficiencies, reduce waste, coordinate resources, right-size inventory levels, and execute plans.

Refer to our blog for many articles on capacity planning, production planning and related concepts. Also, read more about these types of strategies in our eBooks including SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth and The Road Ahead: Business, Supply Chain & the World Order. If you are interested in talking about implementing out best practices for production scheduling to drive cost reduction and inventory reduction while maximizing your customer experience, contact us.

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Production Planning Best Practices to Recover Capacity

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Lisa Anderson facilitated a panel discussion at the New England Supply Chain Conference and Exposition on managing capacity in complex and volatile environments with Shari Ruelas General Manager of Commercial Products Chevron, Alejandro Bustamante Senior Advisor to CEO & Board of Directors of Poly/HP, and Dan Raatjes SVP & COO King’s Hawaiian Holding Co.

To learn more about NESCON click here.

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Managing capacity during these turbulent times in a complex, volatile, long-lead time environment has proven quite the challenge. During the pandemic, sales volumes either dropped like a rock or skyrocketed with no middle ground. Most manufacturers have not been able to keep up with demand in the last year or two and extended, prolonged lead-times have become the norm. How can you thrive during this time of volatility, uncertainty, complexity, and ambiguity (VUCA)?

Expert Panel’s Challenges & Opportunities

Not only is this an area that frequently arises in client projects since we work with several engineer-to-order (ETO), configure-to-order (CTO), and other complex manufacturing companies such as high-volume CPG (consumer products) companies, but I led an expert panel for NESCON (New England Supply Chain Conference & Exposition) on just this topic. We had experts from several diverse angles of the global supply chain:

• Chevron: Shari Ruelas, General Manager Americas Commercial Products
• Poly: Alex Bustamante, Sr Advisor to CEO & Board; Former Executive VP Global Ops
• King’s Hawaiian: Dan Raatjes, SVP & Chief Operations Officer

A few of the challenges that arose during the conversation:

• People, people, people
• Managing capacity when your product is selling at negative numbers 
• Figuring out how to navigate extended port delays
• Keeping up with dramatic increases in volume

Trending Strategies for Success

A few of the common themes that arose during the discussion include the following:

• Nearshoring: Companies realize they need more control over their supply chain and should locate manufacturing closer to the customer.
• Supply Chain Optimization (Quick insource/ outsource/ offload/ change supplier decisions): During the pandemic, the successful companies quickly pivoted on their make vs. buy decisions. In fact, the successful companies insourced and outsourced simultaneously if needed to meet customer demand. For example, Poly did all of the above in addition to pivoting away from the Long Beach port and moved to a Mexican port and saved a month in lead-time.
• Productivity & efficiency: The proactive responded to changing conditions and figured out how to gain productivity and efficiencies rapidly. Chevron did what had never been done before and made significant productivity improvements.
• Scale rapidly: With proprietary intellectual property, scaling quickly is the key to success. King’s Hawaiian is building multiple facilities simultaneously.
• People, people, people: As is typical with every expert panel I’ve led over the years, it was unanimous that the key to success is considering your people as your #1 asset. 
• Technology advancement: Technology, innovation, automation, digitization

Check out our article on the best practices in capacity planning covering rough cut capacity planning, manufacturing capacity, supplier capacity, and logistics capacity. Unfortunately, the situation is quite simple. If you don’t plan ahead and have the capacity to support your customers, your competition will.

Please keep us in the loop of your situation and how we can help your organization thrive during these times of volatility and disruption. There will be more winners created than at any other time than since emerging from the Great Depression. To gain additional ideas and insights on how to best navigate these volatile times and thrive, read our new eBook Thriving in 2022. Learning from Supply Chain Chaos. Download your complimentary copy.

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Sales Growth: Can Operations & Supply Chain Keep Up?

Almost every client has the opportunity to grow substantially. The question is whether their operations and supply chain can keep up. Unfortunately, across the board, planners are wringing their hands to expedite orders, prioritize customers, schedule additional production, understand the impact on inventory across their facilities, and increase capacity.

If that wasn’t enough, customer orders are changing on a daily basis (due to shortages from other suppliers, changing market conditions, etc.), forecasts are in a constant state of flux, manufacturing capabilities are constrained (due to lack of people, flexibility, trials and/or difficulties in running with substitute materials, etc.), and the extended supply chain (material purchases, warehousing/ distribution, transportation) is in chaos. Thus, how should we answer the question on whether operations and the supply chain can keep up?

Rough Cut Capacity Planning

From a best practice point-of-view, in order to answer the question on whether you are prepared to grow, you need to focus on rough cut capacity planning. Ideally, you have a SIOP/ S&OP process (sales, inventory & operations planning) process with a clear picture of demand. However, in 80% of the situations, this is not the case. Thus, start with demand although don’t get too wrapped up in creating the perfect demand plan that you lose sight of your capacity plans.

At a minimum, review last year’s sales and current customer orders, incorporate key trends and mix changes, and start there. For more details on developing a demand plan, read about creating predictable revenue with demand planning best practices. The bottom line is that you’ll need a place to start with what to produce, purchase, replenish, and/or store.

Start your capacity planning process with whatever data you have. Ideally, you have a long-term production plan, purchase plan, and/or replenishment/ distribution plan. From a systems perspective, these can be referred to as a master production schedule (MPS), material requirements plan (MRP), and distribution requirements plan (DRP) although they also can be all rolled into an ERP/MRP system. Don’t worry about the debate of MRP vs. Lean as both are valuable for different purposes. For capacity planning, you’ll need a longer-term view of requirements, and it doesn’t matter if you use MRP or Kanbans.

From a technology perspective, you might not have an ERP system that supports these functions. Don’t despair as you can start by converting your sales forecast into a directionally correct production, materials, and/or replenishment plan.

Manufacturing Capacity

Let’s start with a long-range view of a production plan in units or hours. Break your production into product groupings ideally by work center groups or production cells if possible. If not, break into whatever groups make sense from a manufacturing point-of-view that you can do quickly. You can always evolve over time. From a rough-cut perspective, there is no need to worry about days and weeks. Think in terms of months or quarters, depending on the needs of your business. There is also no reason to worry about items. Stick to larger product groupings when dealing with rough cut capacity. This is a pitfall several clients fall into. They get bogged down in item details and never get a directional view of required capacity.

The tricky part is that you’ll need to put your requirements into a base unit of measure. For example, you cannot add boxes, pieces and ounces together and make sense of capacity figures. This is a constant challenge even with sophisticated clients. For example, we worked with a life sciences manufacturer, and we thought it would be an easy exercise to convert milligrams and grams, into milligrams. Although that issue was solved with a simple calculation, there were also custom products with different units of measure. Unfortunately, 1 unit could be 1 microgram or 1 unit could be 1 milligram, but they both said 1 unit. Thus, we had to design a directionally correct way to convert custom products into the base unit of measure so that the data would make sense for capacity analysis.

You’ll then convert production requirements into a base unit of measure that makes sense across all products. Compare these requirements by product grouping to your available capacity for that product grouping. It will give you a place to start. Advanced clients review requirements as compared with various staffing configurations, overtime, full capacity, transferring capacity among sites, and additional scenarios to find the optimal approach to meet customer needs while maximizing operational performance and meeting inventory targets. They also review improvement opportunities to increase output and capacity. In addition to staffing, review machinery, equipment, tooling, and other support functions vs. requirements. The key decision becomes how to adjust capacity in alignment with requirements in the optimal manner. It is rarely ever a straight line in manufacturing. For example, if you need 1 crew, 5 days a week on average, you are likely to need 1.5 crews during peak season and .75 crews during low season or you need 6 days a day on average throughout the year, making it difficult to run overtime continuously yet not requiring a 7 day schedule.

Supplier Capacity

Similarly, to manufacturing, once they have a long-range view of requirements in a base unit of measure by commodity groupings, they convert the base unit of measure into purchase plans. The most successful clients provide material and commodity level forecasts to suppliers so that they can plan for capacity. They also incorporate into contracts and pricing within ranges or they partner with suppliers to build Kanban systems with stockpiles of strategic materials. Frequently, there is significant opportunity for improvement in service, reduction in lead times and shared cost savings with collaborative planning so that suppliers can proactively plan capacity as well.

Logistics Capacity

Similarly, to manufacturing, once they have a long-term view of requirements in a base unit of measure, they convert the base unit of measure into space requirements to evaluate storage and material handling equipment needs. There are various storage strategies and associated equipment needs with tradeoffs depending on volumes, frequency, storage size, and several other factors. For example, you might evaluate storage needs in pallets, bins, cubic feet, and other alternatives. Order frequency, handling requirements, and picking needs are also relevant factors. After collecting your requirements by groups of products or customers (as there can be different requirements by customer), you’ll compare with available capacity. Similarly, to manufacturing, you can choose to increase capacity in several ways and you can build flexible options into your strategy.

Transportation capacity is also a key topic so that you can plan for the appropriate number of trucks, container loads, or packages and can optimize the mode of transportation, service levels and rates. For example, if you will need an average of 3 trucks per week to go across the country, you might plan ahead and send intermodal to save money. Or you might decide to put together a milk run with a consistent route that your transportation partner builds into a consistent plan. You might decide to build a multiple-stop truckload for certain routes if you don’t have enough product for one customer to fit on a truck. There are several options to evaluate; however, in order to ensure you have sufficient capacity to deliver your customer orders on time and to support your transportation needs, forecasting your transportation requirements ahead of time will not only ensure higher service levels, but it will also provide opportunities for cost savings.

Incorporate Capacity Planning into a Monthly Review Cadence

Review your capacity plans as a part of your monthly SIOP/ S&OP process. Gather inputs from appropriate parties, compile and synthesize data, and design a monthly review of required capacity vs. available capacity for your critical areas. Start with your key machines, overloaded people/ positions, and your most bottlenecked resources. This will quickly highlight strategic decisions and/or bottlenecks that require attention to meet your customer needs.

Refer to our blog for many articles on planning, capacity and related systems. Also, read more about these types of strategies in our eBooks such as The Road Ahead: Business, Supply Chain & the World Order. If you are interested in talking about what it would take to purse the capacity planning and SIOP journey in your business, contact us.

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Recovering Capacity with Production Planning Best Practices

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According to a recent National Association of Manufacturers (NAM) survey, the vast majority (88%) expect sales, production and prices to increase next year despite the supply challenges. In working with clients across multiple industries such as biotech, building and construction products, and food and beverage, there is no doubt that sales continue to rise (with a few fits and starts due to the extended supply chain disruption) and the focus and concern is on how to expand capacity and scale up successfully to serve customers while not losing control of EBITDA performance.

In addition, there is VAST concern about the risks exposed during the pandemic. This has been further heightened with the changing political landscape. There will be a rush to reshore, nearshore and reconfigure the end-to-end supply chain. Additionally, I expect there to be a transformation with the strongest thriving and growing and the weakest transitioning out. Are you ready for a resurgence?

What Should We Consider and/or What Impacts Could Arise?

• Think 3 steps ahead: How are you positioned to take advantage of this opportunity? Start thinking as if you were playing chess and think 3 steps ahead.
• Reconfigure your supply chain: Plan for what you need to leverage the opportunities successfully.
• Shore up your down-the-line weaknesses: As this transformation takes place, where will your weaknesses show up? Start overcoming them immediately and ignore what won’t become a bottleneck.
• Implement SIOP (Sales, Inventory, & Operations Planning): You must have a process in place to improve the predictability of your revenue plan and integrate the core processes within your business to scale and achieve financial results. See a client video on the impact of SIOP.
• Hoard talent: The most successful clients are hoarding talent. There is a severe shortage of talent. People have choices. Is your company compelling people to work for you?
• Digitize the supply chain: To thrive in the new world with the resurgence of manufacturing, you must digitize your supply chain. Start immediately. Ramp up even faster. Yet maintain a common sense view.

Please keep us in the loop of your situation and how we can help your organization successfully navigate the current volatility and emerge above and beyond. Several of these types of topics are included in our eBooks such as The Road Ahead: Business, Supply Chain & the World Order.

The post Are You Ready for a Resurgence in Manufacturing? appeared first on LMA-Consulting Group, a supply chain consulting firm.

According to Reuters, manufacturing gained significantly during the pandemic and remains strong.

1. Factory orders BEAT expectations and rose 1.5% in June after increasing 2.3% in May.
2. Orders soared 18.4% on a year-over-year basis.
3. Manufacturing is likely to continue to expand because although it has been slowing, unfilled orders at factories climbed by 1%.
4. Business spending on equipment climbed. Orders for non-defense capital goods, excluding aircraft, rose .7%.

No matter the statistics, manufacturing is also on an upswing due to reshoring and the reevaluation of sourcing/ supply chains to better serve customers, reduce risk and create resilience. Are you prepared?

The post The Surge in Manufacturing appeared first on LMA-Consulting Group, a supply chain consulting firm.