Production capacity planning template excel spreadsheet is helpful for businesses to choose and implement the best strategy as a response to a surge in product demand.
Also, allow supply chain managers to efficiently implement the supply chain management strategy of a business.
In this article, the basics of production capacity planning, its importance, types, and use will be presented.
Related Article: Resource Capacity Planning Template Excel | Capacity Planner
What is the Production Capacity Planning Template?
Capacity planning for production is relevant to the product demand/supply concept.
So, the supply chain managers focus on effective capacity planning in the production process of supply chain management.
The purpose of production capacity planning tools is to assist the sales team to ensure the company’s ability to fulfill customer demand.
However, a company may produce products that have seasonal or regular demand patterns.
Further, the supply chain management strategy helps to calculate the demand forecast of the product.
So, the free production capacity planning template in excel spreadsheet helps to analyze the production capacity of production for the coming season.
Further, the production plan is created to avoid any loopholes and unseen production costs.
Related Article: Supply Chain Management (SCM)
Importance of Capacity Planning in Production Management
The production capacity of a product focuses on all the limitations and capabilities of the business to fulfill the demand forecast.
So, it involves all the capacity of all the resources such as machinery, management, human skills, technology, suppliers, and logistics.
Further, the capacity of the supply chain system is also important to take into consideration for effective production capacity planning.
Thus, it includes material requirement planning, manufacturing resource planning, demand forecasting, production planning, and product distribution capacity.
The continuous enhancement in the production capacity of a product has several advantages and proves beneficial for business proficiency.
Thus, production capacity planning template excel is useful for monitoring and capacity management.
So, it enhances the production department’s overall equipment effectiveness, run rate, availability, utilization, and efficiency of the production resources.
Further, the key outcome of using a production capacity template excel spreadsheet is to keep the product inventory to a minimum level even fulfilling the customer demands.
So, good capacity planning for production results in a positive response to the fluctuation in product demand in different seasons over the product lifecycle.
Related Article: Business Feasibility Study Analysis
Benefits of Production Capacity Planning Template Excel
There are a lot of benefits of using the production capacity planning template in excel spreadsheet.
It positively contributes the business profitability. Also, support the supply chain management system.
The following are some of the obvious benefits of implementing a production capacity planning system.
- Lower Production Costs
- Fast and On-Time Delivery
- Improved Throughput of the System
- Optimized Resource Utilization
- Less WIP & Lead Times
Types of Business Production Strategies
There are main types of product production strategies. It may depend on the type of product but mostly on the structure of a company.
So, many multinational companies follow one of the following strategies to produce their iconic products.
Further, these strategies have many names such as manufacturing strategies, promotional strategies, marketing strategies, and production systems.
Push Strategy or Make to Stock
The push production system follows the concept to make all to the full production capacity and stock it in the warehouse.
This marketing system starts from the making of the product while the order is placement comes at the last stage.
So, the company produces a product without having order in hand. Then, push the product in the market for sale.
In this way, the company utilizes its full capacity and provide maximum to fulfill the customer requirement. However, the major disadvantage of this strategy is very high inventory costs.
As the company capital hangs in the form of inventory unless the product gets sold. However, it results in the shortest lead time of the product.
So, the best example of push promotional strategy is garments and the FMCG sector. Where the products are produced and then put on the display for sale.
While the company keeps on producing new goods even a lot of stock present in the market.
Further, the push strategy works at the stake of the following cons:
- Production Approximation
- Large Lots
- High Inventory Costs
- More Waste
- Poor Communication
- Management by Firefighting
However, the company gets the benefit of lower production costs as per the concept of economies of scale.
Related Article: Best Free Production Schedule Template Excel | Production Scheduling
Pull Strategy or Make to Order
The pull production system follows the concept to make what is needed when it is needed to fulfill the customer requirement.
This marketing system starts from the order placement by the customer. While the production phase comes after order confirmation.
So, the company produces the products for which the order is in hand. Then, deliver the product directly to the customer instead of a warehouse.
In this way, the company saves a lot of effort and achieve the benefit of lowest inventory costs. Also, provide the best customizable product experience to the customer.
As the company capital does not hang in the form of inventory. Although, the lead time for product delivery is the largest for this strategy.
So, the best example of a pull promotional strategy is customized products and large machinery industry.
Where the products are produced after the placement of order and confirmation of technical specifications from the customer.
Further, the push strategy has the following advantages over the pull system:
- Production Precision
- Actual Consumption
- Small Lots
- Low Inventory Cost
- Less Waste
- Better Communication
- Management by Sight
However, the company does not get the benefit of lower production costs as per the concept of economies of scale.
Strategies of Production Capacity Planning
The supply chain management team uses several strategies to efficiently manage the production capacity planning process of a business. However, all the strategies have certain advantages and disadvantages.
These strategies define the response of a business towards the fluctuation in product demand.
So, the success of a business depends greatly on how it responds to the fluctuation in the production demand of a product.
There are three main strategies for production capacity planning for a business.
The leading strategy allows the business to anticipate the upcoming surge in the demand for certain products for a specific season.
So, the company plans its production capacity to fulfill the demand forecast. Either by stocking the product or by enhancing product capacity.
Thus, the leading strategy of production capacity planning helps to fulfill the demand surge when competitors are facing a shortage of product.
However, if an unexpected decline in the demand for a product happens.
The company suffers a huge cost of capacity enhancement or inventory due to the aggressive nature of this strategy.
Some businesses do not like to take risks. So, they focus on following the strategy that allows waiting for the actual surge in product demand.
Thus, the company does not overstock the products and keep the production capacity as it is to lower inventory and other costs.
Although, it helps to lower the inventory cost and save major capital investment.
However, the company may face a shortage of products during the perk season.
Thus, it will allow the competitors to enter the market and cut down the business actual sales.
Some companies like to take a calculated risk. So, they follow the tracking strategy in response to the demand surge forecast of a product.
A tracking strategy is a balanced approach to capacity planning and inventory management.
So, it forces the business to increase production capacity but keep the product stocks to a minimum level.
Thus, the company produces the capacity to fulfill the surge in production demand.
However, this approach proves difficult in keeping balance in inventory level and production capacity enhancement.
So, the company stakes at the risk of losing some business and allow the director competitors to take advantage.
Related Article: Free Project Schedule Template | Plans, Gantt Chart and Timeline Templates
Possible Improvements from Production Capacity Planning
The choice of the right capacity planning strategy helps manufacturing firms in multiple ways. There are few proven benefits of rightly implementing production planning and control strategies.
However, the benefits may vary from industry to industry depending on the current capacity and future planning of the company.
The following are the possible improvements from the capacity planning;
- On-Time Delivery
- Resource Utilization
- Lead Times
- Production Cost
On-Time Delivery and Lead Times
The forecast for the surge in product demand attracts the business to start the process of capacity planning. The right implementation of capacity planning will help the company to ensure on-time deliveries to its customers.
New production capacity will have the flexibility to deal with sudden surges and deliver orders on time.
Lead time is the total time company takes to produce and deliver the product to the customer right from the time of order placement.
If a company has less production capacity, then even a small surge in the product demand will increase the lead time.
So, capacity planning helps in multiple ways to improve the lead time of the product. It decreases the production time of the product.
Also, pre-order and arrangement of raw material helps to ensure the earliest start of order production.
Resource Utilization and Firefighting
The capacity planning process includes a step to calculate the existing production capacity of the business. This step considers every resource of the company to calculate the company production capacity.
Also, the increase in production capacity is planned to keep in view the optimized utilization of company resources.
Firefighting is the situation in which the company isn’t ready to deal with the sudden significant surge in product demand.
In such a situation, the company goes into the firefighting situation as the company wouldn’t fulfill the required demand. So, rescheduling of production planning and extra burden on production staff puts the system into firefighting.
This often leads the company to bear very high operations costs, service issues, and ultimately the custom dissatisfaction. Capacity planning helps to forecast a surge in demand.
Thus, the company gets fully prepared for an increase in demand and delivers the customers on-time with shorter lead times.
Production Cost and Throughput
Firefighting situation and sudden plan of increasing production capacity often incur higher costs from every aspect.
Thus, the company that properly works on capacity planning beforehand often gets the advantage of timely expansion and lower production costs.
As the rate/cost of raw material and every support function increases when there is a sudden surge in the demand for the product.
Throughput is a simple concept in production. It is a rate of production. When a company expands its capacity, the company produces more units in a given amount of time. Thus, the throughput of products in the market increases.
Steps to Implement Production Capacity Planning Strategy
There are three main strategies to respond to the forecast of a surge in production demand.
So, many businesses follow all of these strategies for their different products in different seasons as per the business’s financial position.
Thus, business experts recommend following the below guidelines to choose the best strategy.
- Analyze the Business Financial Position
- Evaluate the Current Production Capacity
- Research why to enhance the Production Capacity
- Forecast the Product Demand
- Find an alternative to Fulfill the Demand
- Evaluate each alternative based on Risk Profit Analysis
- Implement the Strategy keeping in view Risk Profit Analysis Results
Further, the process flow of implementing selected strategy follows the following steps:
- Calculate Require Capacity to Fulfill Surge in Demand
- Perform Gap Analysis to evaluate current capacity
- Look for the ways to increase production capacity
- Find alternatives to meet the requirement
- Make feasibility study of the alternatives
- Select the way to Fulfill Demand Requirement
- Implement the System
- Monitor and Track the Performance for Improvements.
Thus, the production capacity planning template in excel spreadsheet design in a pattern to follow the above steps.
Also, many professional production capacity planning software is provided the features to easily implement capacity planning strategy.
So, the business can positively respond to the surge in product demand and keep competitors out of the market.
Finally, it was all about the “Capacity Planning for Production”. Please do share your feedback in the comments section and SUBSCRIBE us to learn more about Supply Chain Management.
Graphic Resources Credit: Designed by Freepik