If you can’t buy (or hire) capacity then you’re just going to have to make it. But how?
Maybe all the capacity you need is already there?
COVID has exacerbated an issue that exists in every business – capacity constraints. Since early 2020, the effects of COVID shutdowns and the subsequent effects of the COVID response has highlighted capacity constraints throughout everyone’s supply chain. It’s significant enough today that we are seeing constraint issues with people, equipment, space, material, and money.
The constraints are moving quickly, feeding on themselves and injecting costs, sometimes opportunity costs into organizations across the globe. Leadership teams everywhere are scrambling to align initiatives to alleviate the challenges.
Interestingly, improvement initiatives championed by leadership teams overwhelmingly favor technology or other capital spends. Old systems are clunky and require maintenance, “but the new one will save time.” The existing process is broken, “but the new equipment will fix it.” Our warehouse is packed, “but a new one (and a state-of-the-art WMS) will alleviate the constraint.” We can’t get enough done around here so, “we need to hire some resources to get there.” We are short on cash, “so we need to look at our financing arrangements.”
While it is wrong to assume that all capital requests, or requests for “more” are misguided, it is true that most processes underutilize equipment, space, material, people, and money.
Generally, we see the following:
- People utilization settles at 50-60%
- Equipment uptime runs at 10-60%
- Space utilization clutters to 30-50%
- Material utilization shrinks to 90-98%
- Accounts receivable routinely delays 5 or more days sales than it should
- Inventories sit days and weeks longer than they should
With all that opportunity right in front of us, why do we tend to favor capital projects over the improvement of existing resources? Simply put, because it’s hard to fix the existing. It’s not just hard to execute, it is even harder to see that the opportunity exists. If it is hard to see, then it’s hard to get “buy-in.”
We are wired to see opportunities in other areas, which is why it’s easy to point fingers. Ask anyone what is wrong with someone else’s function and you’re flooded with ideas. Ask that same person what is wrong in their own area? Crickets. To find opportunity in our own areas requires humility and objectivity, two traits that many of us struggle with.
At Carpedia we strive to deliver an objective look at any problem. We shy away from capital expenditure, preferring instead to look where opportunity often hides – right at the point of execution. Whether constrained resources are people, material, equipment, space, or money we seek to improve planning, processes, and management to unlock capacity that’s latent in an organization.
A shortage of cash extended payables which in turn increased lead times for critical parts. Lack of critical parts caused an increase in work in process and a further strain on cash. Additional human resources were employed to maintain revenue streams. Ultimately suppliers held back shipments and the business had nowhere to turn for results.
The cycle of decay that was occurring created significant imbalances to the supply chain. Carpedia helped realign their inventories through enhanced supply chain planning and restriking the master production schedule. Work in process was minimized while deliveries kept pace, freeing 20 days cash within 10 weeks and putting them on a path to predictably produce into the future.
A building supply company had a cumbersome client journey with data accuracy issues that were significant enough to have a department that managed data and information errors. Through significant process change, design and error-proofing tools, our client was able to eliminate the errors that were occurring, eliminate the department and use the human resource in other areas of the business that customers would choose to pay for.
A pet food manufacturer using wild, often hand-caught ingredients suffered chronic downtime at its factory due to unpredictable material receipts. Traditional thinking accepted the situation given the uniqueness of the raw material, however a robust sales and operations planning process uncovered many customers, supplier and product patterns that fundamentally changed the planning parameters of the business. A strong planning process significantly reduced product substitution, product changeovers and downtime. Carpedia’s client was able to produce more than 10% throughput while improving order fulfillment, inventory accuracy and yields.
A telecommunications provider for small and medium sized businesses had seen the cycle time to respond to customer tickets grow longer than their service level agreements (SLA’s) allowed, leading to customer service levels and employee engagement suffering. The Carpedia team worked alongside the client to establish KPI’s, streamlined processes and improved lines of communication. As a result, there was a 22% decrease in cycle time and a 47% increase in productivity ultimately improving the customer experience and reducing the cost of labour per ticket.
A large canning facility operated seven lines. On its major line, can speeds suggested an optimal output of nearly 1,500 cans per minute, however labeled output languished at approximately 1,000. The business required a 20% increase in throughput. The line had 60 consequential pieces of equipment and covered the distance of a football field. Changes to the ordering parameters reduced time in changeover while concurrently reducing inventories. Changes to the process improved uptime at the constraint, and improvements to leadership reduced downtime caused by poor management. With these integrated changes, Carpedia was able to help boost consistent production to 1,225 cans per minute, negating the need to acquire additional equipment.
One of America’s leading heart procedure institutes was facing rising supply costs from new product introductions and a rising case backlog due to limited Cath Lab room availability. There were questions around the need to build additional capacity. By improving communication between physicians and operations team, creating visibility to on time start performance in order to measure what was actually being completed in comparison to their goal.
It’s not a question of whether we have constraints, it just how we attack them. Carpedia helps its client become more objective and humble, so that they first look to solve their own problems before they look to acquire more in the long term.