Manufacturers are obsessed with productivity, and rightly so. But optimizing productivity requires insights across the operations and up and down the supply and demand chains. You need to know what you can produce, what customers want, and how you will deliver. Only through operational visibility and a clear understanding of your manufacturing capabilities can you create an efficient plan that keeps customers happy and manufacturers profitable.

Manufacturers refer to this complex coordination as capacity planning. Creating a successful capacity planning strategy is crucial for fulfilling customer orders on time to minimize costs and maximize profits. It’s also increasingly difficult as supply chain problems and staffing shortages add to the complexity. Today’s most effective manufacturers rely on modern capacity planning solutions that offer drag-and-drop speed and simplicity for greater agility to meet changing customer expectations.

Choosing the right manufacturing capacity planning strategy depends on understanding your customer demand and manufacturing capabilities deeply, even as those components are in constant flux. Clearly, relying on Post-it Notes, spreadsheets, and emails will only put you further behind your faster, more agile, more responsive competitors. A modern, connected solution is table stakes for real-time manufacturing capacity planning.

To maximize your operational effectiveness, you can select from several strategies for attacking this manufacturing capacity planning challenge. Of course, you also need the right capacity planning solution in place to help you implement your chosen strategy.

What is Capacity Planning in Manufacturing?

Capacity planning in manufacturing describes the process of determining the resources manufacturers need to meet the demand for their products. Capacity planning is necessary for successful supply chain management, production scheduling, and inventory management.

Different from the timing, procurement, and capacity of external vendors handled typically by material requirements planning (MRP), capacity planning deals with your own capacity. Capacity planning generally includes three main elements: equipment, labor, and products. Many factors must be accounted for in a capacity plan, such as the types of products being produced, equipment utilization, employee availability, and the number of machines available. These factors are calculated to ensure manufacturers have the capacity to meet forecasted demand.

Without an effective capacity planning strategy, manufacturers are impacted directly on the bottom line. You’ll either:

  • Not produce enough resulting in late or short shipments,
  • Produce too much and be forced to sit on inventory that you are paying for, or
  • Produce the wrong products that result in waste or rework.


>> Download the eBook: How to Choose the Best Capacity Planning Strategy

Capacity Planning Strategies Explained

There are several capacity planning strategies that manufacturers use to ensure that they can effectively meet demand. Each strategy has benefits and drawbacks that must be considered before implementation.

Driver-based Capacity Planning Strategies

A driver-based capacity planning strategy relies on always having access to the products, workers, and/or equipment necessary to deliver products in a way that meets customer expectations. It requires manufacturers to have:

  • Robust connections with suppliers so that when a new order arrives, the necessary raw materials and components never delay customer deliveries.
  • Flexible workforces with a wide range of skills, so workers can easily shift across production lines or production can be scaled up or down as needed.
  • Access to equipment, storage, and logistics resources needed to manufacture and deliver whatever products are currently in demand.

Benefits of a driver-based capacity planning strategy include inventory optimization and better responsiveness to demand shifts. Drawbacks include the potential for idle machinery and workforces, as well as the investments necessary to shift production as required.

Time-based Capacity Planning Strategies

A time-based capacity planning strategy allows you to plan capacity around today’s needs or tomorrow’s expectations. Your capacity plan then either lags, leads, or matches real-time demand.

  • A lag capacity planning strategy stretches existing capacity to its current limit, then expands capacity as demand increases. Manufacturers then delay capacity expansions (and investments!) until they have demand.
  • A lead capacity planning strategy increases capacity based on forecasts and before demand increases. This capacity planning strategy involves a significant upfront investment in resources to prepare for a future increase in demand.
  • A match capacity planning strategy is the middle ground between lead strategy and lag strategy and adds capacity incrementally based on current demand.

Benefits of these time-based capacity planning strategies come from the flexibility to schedule investments alongside broader financial or corporate goals. Drawbacks include being unable to meet customer expectations, tying up resources in large capital expenditures, or trying to optimize capacity planning investments to match fast-changing markets or fickle customers.

Agile Capacity Planning Strategies

An agile capacity planning strategy shifts capacity to match demand, market, and sales data. It strives to eliminate manual guesswork, instead adding capacity just before it is required based on real-time demand and sales forecasts. The success or failure of agile capacity planning relies on the quality of the predictions from your forecasts. For very complex environments that deal with historical trends, seasonality, and even promotions the sales team may conduct, a more sophisticated supply and demand planning solution such as ketteQ can provide even greater nimbleness to an already agile strategy.

Think of agile capacity planning as a middle ground between every other strategy but customized to align with your unique manufacturing and business goals, constraints, and capabilities. You’re making data-driven decisions so may also use a combination of capacity planning strategies across customers, markets, or production lines. Of course, you need accurate, timely data to make the best data-driven decisions.

Benefits of an agile capacity planning strategy include better matching of investments with expected demand, connecting investments with profitability so manufacturers can make more effective decisions, and better guidance for sales and marketing teams to target more lucrative markets. As indicated above, drawbacks include the need for more data from more areas of the manufacturing business and to have more confidence in that data.

Tips for Choosing the Right Capacity Planning Strategy

Each capacity planning strategy can be effective if it’s matched to your manufacturing goals and capabilities. But, as the economic future remains in constant flux, any strategy you choose will have to consider your ability to deal with continued uncertainty. Events of the past few years have contributed to huge volatility in supply chains, forcing manufacturers to shift capacity plans quickly based on material availability. Your capacity planning strategy must be able to maintain pace.

To be effective with any capacity planning strategy, manufacturers must have a modern capacity planning solution that integrates data from supply to sales, provides deep and comprehensive insights, and then produces accurate demand forecasts.  A cloud-based ERP system centralizes data, including production, sales, field service, inventory, and finances, onto one platform that’s accessible from anywhere.

Regarding capacity planning, manufacturers should choose a strategy that enables flexibility and speed. For manufacturing organizations in fast-changing markets, manufacturers must become more agile and respond to changes in capacity, demand, or market landscape quickly. Dynamic capacity planning tools like Rootstock Cloud ERP put your relevant internal and external data on one platform, helping operations teams generate insights to create an effective capacity plan and meet your growth objectives.

Improve Strategic Capacity Planning with Rootstock Cloud ERP

Rootstock ERP is an all-in-one Cloud ERP system built on the Salesforce Platform with intuitive production and capacity planning features. Rootstock Cloud ERP provides drag-and-drop scheduling and capacity planning, helping teams immediately identify and fix shortages and overloads with a click and other features to help automate production management. Stay on top of demand, respond to changing market trends quickly, and save resources with Rootstock Cloud ERP.

Learn more about capacity planning solution capabilities and watch an 8-minute Demo of Rootstock Production ERP.