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Production Capacity

A Guide to Increasing Production Capacity

Date : 22/10/2014

Author Information

Adeel

Uploaded by : Adeel
Uploaded on : 22/10/2014
Subject : Business Skills

Introduction Production capacity is actually defined as the maximum number of output of a production process in a facility in a limited interval of time under standard operating conditions (Slack et al., 2011). The whole production process is actually divided into different steps. Some steps of the process operate at their "capacity ceiling" while others operate below the capacity. This is where "capacity management" comes in. It is the measures that an organisation takes to coordinate the the capacity of the production facility and the demand placed on it (Basu and Wright, 2008). It helps in reducing the effect of changes in demands on overall production operations, as demand has no limit but capacity does. Operations managers use different strategies to increase the capacity for short term as well as long term to meet with the demand at a certain time. In this paper, short term and long term strategies to increase the capacity and it's merits and demerits are presented in such a way that it helps in understanding each of them completely

Outsourcing

It is one of the most common strategy used to increase capacity for short-term as well as long-term. Outsourcing basically means paying an external supplier to produce the goods or services for a certain organisation (Rolstadås et al., 2012). Companies can either outsource the whole manufacturing process or can split up some tasks of the operation and outsource it to an external supplier. (Kakabadse and Kakabadse, 2000). Outsourcing the manufacturing operations to other developed and developing countries such as china and india can help save huge amount of money as the operations cost and the labor cost is substantially lower in those countries (Choi and Choi, 2013). A company can outsource it's production for short term ass well as long term depending on the demand. Outsourcing operations has a lot of direct and indirect benefits. Organisations can give more attention to other core processes that help in growth other than manufacturing. An organisation can't be perfect in every field, outsourcing the operations in which company lacks the expertise not only helps in saving money but also increases productivity and efficiency of the work. It also helps in reducing the costs related to human resources significantly as the company doesn't have to recruit and train new employees (Abraham and Taylor, 1993). Though there are some demerits of outsourcing as well, which includes giving access to the crucial data. The goals of the organisation and the outsourced vendor are not the same which sometimes result in things like decrease in product quality and customer dissatisfaction. Communication costs also increase when the vendor is from a different country and culture.

Buying/Leasing More Machinery

Capacity can also be increased by simply buying more production equipment. The merits of this are that the company gets the ownership of the equipment and keeps control on all the production processes instead of another vendor like in outsourcing which helps in maintaining the quality and fulfilling demand. Although, it also increases the company's fixed costs. Initial investments quite a lot which means not every company can afford to take this step, and there is always a risk of the investment not paying off if the demand decreases due to any reason. An organisation can also choose to lease new machinery instead of buying it straight away. In this way, they can acquire the production equipment instantly with paying minimal cost in the beginning.

Lean Management

Lean management is all about removing wastes (Villa and Taurino, 2013) i.e. the steps that does not add any value. Companies can not increase the capacity of their production facility but also add flexibility to the process. Flexibility is a company's capacity to realise change from one situation to another as quickly as it can (Toni and Tonchia, 1998). By eliminating all the steps that actually don't add any value to it, the lead times are reduced dramatically, which helps in increasing the overall production capacity. (The machine that changed the world). That is why, Lean production technique is considered as the "gold standard" in modern supply chain management (Guinipero et al., 2005).

Minimising Bottlenecks

Every production process has bottlenecks in it and the total capacity of the process depends on the bottlenecks (G. Plenert, 1990). It is impossible to eliminate bottlenecks but they can be minimised by using certain strategies. The simplest way is to increase the capacity of the bottleneck process by adding more machinery or labour if it's not that costly. Another way to minimise the bottleneck is running the bottleneck process more than the other processes. Reducing the setup/changeover times of a bottleneck machine by proper planning and scheduling can also help in minimising it. Bottleneck management is a continuous process, minimising one bottleneck gives birth to another one which then becomes the centre of attention of the operation manager. That is why, effective planning and management is required all the time to minimise the bottlenecks in the manufacturing processes.

More Labour Shifts

Adding more labour shifts can also help in increasing the production capacity of a facility (Ackere et al., 2013). Instead of running the production facility for 8 hours in a day, managers can add another or two shifts depending on their need. In this way, companies can address short or long term boom in demand easily without making huge capital investments of buying new machinery. The company has to pay a little higher wage for overtimes or extra shifts to their workers though. Repairs and routine maintenance costs of the machinery may increase for using them more continuously.

Conclusion & Recommendations

This paper's main goal was to present the strategies and their strengths and weaknesses that a production facility can use to increase their production capacity. It is very important for a company to utilise it's maximum capacity before making any huge investments to increase the capacity. A better planning process can help a lot in this matter because poor planning seriously affects an organisation. Our recommendation to the would be to use lean manufacturing processes to eliminate wastes and to minimise the bottlenecks. In this way, they'll be using their maximum capacity. It will also help them to reduce the scrap, rework and downtime percentages which will increase their production capacity.

This resource was uploaded by: Adeel