Production capacity refers to the maximum volume of products a manufacturing operation can produce. A company increases production capacity to meet an actual increase in demand, or an anticipated one. To achieve an immediate increase in capacity, a company uses existing equipment for a greater time period by adding shifts, by asking employees to work overtime, or by outsourcing. In contrast, a company realizes a future capacity increase by using existing equipment more effectively or by acquiring additional equipment.
In most cases, companies don’t use factory equipment to its full capacity. Instead, manufacturers maintain a capacity cushion, which is the reserve capacity a company maintains to handle increases in demand or temporary losses in production. The size of the capacity cushion varies. Before you take steps to outsource a manufacturing operation or add shifts, consider operating your existing equipment at its full capacity or scheduling the equipment to run for greater periods of time.
Your company can outsource support functions or close-to-core processes, including maintenance and quality control, as well as core manufacturing operations. According to Tim Lawrence, a manufacturing consultant with PA Consulting, outsourcing provides an opportunity to increase your company’s production capacity, as well as increase the variety of products your company markets, manage the complexity of manufacturing processes, reduce costs, gain access to the innovative processes and technology of suppliers, and pool investments and risks.
You can increase your company’s production capacity by using your existing equipment more effectively. A primary way to accomplish this objective is to eliminate bottlenecks -- operations that have the lowest effective capacity of any operations -- to increase your system’s outputs.
Investing in new technologies often leads to increased production capacity that can support existing sales and forecasts. As the volume of orders increase, your company can add to its production capacity gradually. Because production requirements vary, use conservative estimates for production requirements.
