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Manufacturing businesses are always looking to maximize their available resources to increase productivity and minimize production costs. Manufacturers in today’s competitive environment are increasingly investing their resources into accurate production planning and scheduling to get a handle on lead times.
Calculating production capacity is one of the basic steps manufacturers can take to understand the maximum output of their facilities.
Furthermore, manufacturers rely on production capacity figures to make sound financial plans and accurately project business growth. As such, businesses need to properly calculate production capacity to inform their business decisions over time.
This guide details production capacity, extending past the basics to effective, implementable strategies to improve a manufacturing operation’s productivity and efficiency. Read on to find out more.
What is production capacity?
Production capacity is the maximum product output a company can produce using its available resources over a specified amount of time. This metric is important because it informs a manufacturer’s critical business decisions in both the near and long-term.
For instance, if a manufacturing business wants to fulfill a higher quantity of larger orders, the decision-makers need to know if the operation can sufficiently meet the increase in demand. Additionally, manufacturers use production capacity to inform labor utilization as well as capex decisions including their machines, equipment, and facilities.
Therefore, it’s important for manufacturers to know their operation’s production capacity because it informs both administrative and in-facility decisions, enabling businesses to maximize their production efficiency.
How to calculate production capacity
As earlier discussed, production capacity provides key management personnel and business executives with vital information to make wide-ranging decisions regarding their operations.
Determining a manufacturing business’ production capacity varies depending on the kind of operation at hand. For instance, calculating production capacity for a high-mix, low volume operation will be quite different than a high-volume, mass production-type business.
The first hurdle to getting your production capacity is determining machine hour capacity. This refers to the potential number of hours that a machine can be used to create products.
Machine hour capacity = number of usable machines X number of working hours
With this in hand, you can calculate production capacity for an operation that produces one type of product by factoring in the time it takes to make just one item.
Therefore, the production capacity formula:
Single item production capacity = machine hour capacity ÷ time taken to produce an item
Let’s take an example of a textile company making graphic t-shirts. Employees work 8 hours a day using 20 design-to-garment (DTG) printers to make t-shirts. It takes workers 15 minutes to complete one t-shirt.
Machine hour capacity = 8 X 20 = 160 machine hours
Time to make one shirt = 0.25 hours
Production capacity = 160 ÷ 0.25 = 640 t-shirts per day
How to increase production capacity
For businesses looking to scale up their operations, there are a couple of different options they can explore to increase production capacity. A few examples include:
Add more work shifts: A manufacturing business can increase production capacity by lengthening the amount of time available for production. Manufacturers can do this by instituting overtime pay to encourage employees to work extra hours.
Alternatively, manufacturers can adopt a shift-based operation. Different groups of employees ensure that the machines run longer, increasing production capacity significantly.
Outsource production: Sometimes, your machinery might be working at its peak, but not enough to meet consumer demand. Manufacturing businesses can increase production capacity by outsourcing the work to a contract manufacturer to help meet demand in the short-term.
Adopt lean manufacturing practices: Lean manufacturing practices ensure that production operations run as efficiently as possible, eliminating different forms of waste that can take place in a manufacturing facility.
As a result, all inputs go towards ensuring that machines and employees are working towards delivering more products.
Improve equipment effectiveness: Adopting proactive machine maintenance ensures that the equipment is always in good working condition. Consequently, there’s less machine downtime to interrupt the production operation.
By maximizing overall equipment effectiveness (OEE), businesses are able to marginally increase production capacity.
Invest in new machinery: If your budget allows, you can obtain new machinery to increase output. This is more feasible when the existing equipment is already working at full capacity but still doesn’t meet your capacity requirements. These types of capex purchases are important to consider for businesses looking to grow over longer time horizons, whereas outsourcing may be a better option for businesses looking for a short-term fix to supply constraints as a result of seasonality, for example.
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Leveraging digital solutions to increase production capacity
One of the best ways to effectively calculate and maximize production capacity is to leverage digital tools and systems to collect and aggregate production data across your operations.
For example, businesses use apps built with Tulip to connect the equipment and machines running across their operations, collecting real-time data to inform capacity projections. Additionally, Tulip can be used to digitize work instructions and maintenance procedures, reducing any inefficiencies that can come from manual, human input.
If you’re interested in learning how Tulip can help you maximize production capacity and productivity, reach out to a member of our team today!
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