Capacity Planning

Business is growing. Current processes and systems seem inadequate to meet the rising demand. We need more capacity. But, how much?

Developing the capacity requirements is not only the first step. It will be the primary driver of the project cost. It deserves more than a cursory statement; “Let’s plan for sufficient capacity to meet our peak in 2009.” 

There are the traditional questions.  What is the projected rate of growth?  How does demand on the elements of capacity change during the year, the month - or the day?

Growth

Are we projecting growth because the entire market is growing?  Because we have a new product plan?  Just because we need to demonstrate growth to the shareholders?  Probably, some of each, but not all at the same rate.

Forecasting them separately facilitates discussions of the probability of hitting the targets.  It is amazing how, when compounded over several years, a small change in growth rate impacts the life of a given capacity.

But, having a rational way to discuss the future still leaves many capacity questions unanswered.

Three Elements of Capacity

Warehouse capacity requirements fall into three distinct categories;

• inventory holding,
• throughput and
• SKU count.

We are often fooled by optimism regarding improved control of inventory and SKU growth. But marketplace realities often foil the plans. It’s best to look at our real track record over the past 3-5 years and accept it as the best indication of our ability to manage them.

Can we easily add capacity?

Ideally, capacity would be infinitely variable, and added just as we need it. Up to a point, for manual processes, throughput capacity can be linear with growth by gradually adding staff, until we reach a point of congestion. For more mechanized processes, there may be a possibility of adding capacity in phases, working toward a long-range master plan.

Storage of inventory, on the other hand, will require more space, assuming that we have already done the best we can with storage density and slot utilization. Pre-planning building expansion by defining an expansion wall and properly arranging functions inside will minimize rearrangement when the time comes. Doing some grade preparation outside during initial construction makes the addition of space much faster and easier.

Adding pick faces for a growing product offering usually means stealing space from storage. Alternatively, slow moving product may be compressed into a higher density, but perhaps less efficient storage mode to make room for the fast movers.

For each operation, there are logical capacity increments. It’s also good practice to plan the transition from simple picking processes to more complex batch processes as the volume projections grow.

How should we handle peaks?

Sometimes, peak requirements are extreme; as in back-to-school, special promotion and Christmas related businesses. Because these peaks are often at the heart of our business, we cannot fail to meet them. But, installing sufficient capacity for an extreme peak 5-10 years away leaves us with a system that is significantly underutilized 90% of the time.

Close analysis of the way business changes at peak may provide an opportunity to create a temporary parallel process. For example, we may duplicate the pick face for the fastest movers.

It is exciting when we have the opportunity to look forward to a bright future.  But planning design requirements for capacity is much more than plucking a forecast from marketing. It has a complex interaction with process planning and facility design, too.

ABOUT THE AUTHOR

James M. Apple, Jr. is a Director in The Progress Group. Prior to co-founding The Progress Group in 1991, he was a Partner with Coopers & Lybrand's SysteCon division. During 1992-1995 he served as a Senior Systems Advisor with Vanderlande Industries, a major conveyor and systems provider in Europe.

Jim is an internationally recognized thought leader in the area of facility design and integrated distribution systems. His contributions to the improvement of distribution practices have been recognized by his receipt of the prestigious Reed-Apple Award, which is given for lifetime contributions to the advancement of the material handling profession. Jim has also received the Institute of Industrial Engineers' Facilities Planning and Design Award. He has written numerous articles and handbook chapters on warehousing and logistics operations and is a popular speaker on logistics seminar and conference programs.

Prior to SysteCon, Jim worked as an Industrial Engineer with IBM, was Supervisor of Facilities Planning for the Oldsmobile Division of General Motors and was Executive Vice President for an automotive aftermarket parts supplier. He holds B.S. and M.S. degrees in Industrial and Systems Engineering from the Georgia Institute of Technology.