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The Reality of Capacity Constraints

Learn what capacity constraints mean for your business, and what you can do to manage them strategically as a business.

Warehouse boxes

When it comes to managing the supply chain, capacity constraints are a key factor. By keeping in touch with what constraints are at play, businesses will be able to set realistic expectations for both consumers and retailers. Let’s explore the ins and outs of capacity constraints and how they impact input, output and return on investments.

Defining Capacity Constraint

When it comes to operations management and capacity planning, it’s important to first understand the definition of capacity constraints before managing them. To put it simply, capacity constraints are any capital, raw materials, designs, throughput and resources that prevent a business from completing more output, whether it is manufactured goods or raw material transformation. Everything from a minor bottleneck to major supply crises can have an impact and create capacity constraints and sometimes even excess capacity.

Breaking down the definition even more, a comparison can be made between capacity leveling and capacity constraining.

Capacity Leveling

This is a two-step strategy to manage supply and demand capacity. In an ideal situation, it uses unconstrained resources, which allows for any load amount of product to be manufactured, when possible. A well-managed supply chain will allow for leveling to happen in areas where overproduction and underproduction are likely to occur. However, when excess capacity occurs, the excess products are moved to other areas where they are needed (hence the term leveling).  

Capacity Constraining

The difference between capacity leveling and capacity constraining is that constraining stops the overproduction before it happens. It looks at the demand for the product and reacts accordingly, ideally producing the correct amount of inventory for the consumer or the next step in the supply chain.

Capacity constraints are important because, if correctly understood, costly mistakes or a bottleneck can be avoided and efficiency can skyrocket. When capacity constraining is applied and managed well by every stakeholder, it can be an advantageous solution in response to a change in demand. As your business grows and demand changes, capacity constraints will play a big part in how it rises to the occasion.

Constraint Management

Most businesses deal with bottlenecks, whether in their employees’ workflows or in the supply chain. Successful companies understand the importance of managing the factors that restrict efficiency and maximum ROI. So why do bottlenecks happen, and what can be done to prevent them?

Most of the time, restrictions happen when workloads of any kind arrive too quickly at one step in the supply chain for the production to continue at the same rate. When this happens, costs can increase and delays in production can have a negative domino effect. Remember; bottlenecks lead to capacity constraints and an increased operating expense and loss of profit.

Obstructions and capacity constraints are nearly unavoidable, so it’s important to have a plan in place to deal with them effectively. The theory of constraints can help point you in the right direction. Here are some of the most common ways to fix capacity constraints:

  • Identify the constraint: Before anything happens, you need to know what is causing the constraint. Is it one of your manufacturers or suppliers? Is it your vehicle capacity?
  • Exploit the constraint: Take a moment to consider how you will use the constraint in a beneficial way, to provide leverage for the company. For example, if significant effort is required to increase the capacity of a resource, there is an opportunity to control it with a positive yield.
  • Synchronize the constraint: Ensure that all sectors of the supply chain are on the same page and that the flow is structured correctly.
  • Strive for elevated performance: This step is where adjustments are made like hiring more employees or communicating inventory supply to retailers.
  • Repeat: Even the best-laid plans can go awry, so repeating the constraint management process can be necessary.

Examples of Capacity Constraints

One of the most important components of managing capacity constraints is correctly identifying them. Here are some of the most common examples of capacity constraints:

Equipment or Vehicle

Equipment and machinery are a massive part of most supply chains and there are several parts that can cause bottlenecks. If the processing time of a piece of equipment is slower than the rest of the production line, or if delivery vehicles can not keep up with demand, pile-ups happen. A simple solution is to make sure that your business has the right kind of equipment and the correct amount.

Space

Whether it is storage space or transportation space, this is an extremely important capacity constraint component. If there is not enough room in the warehouses, on the shop floor or on the shop floor to keep the product, the product is likely to go to waste. To save this from happening, businesses may rent out more space at the last second, but that often comes with an upcharge that could have been easily avoided had the storage capacity been properly maintained.

Human Resources

Even with automated intelligence and equipment, human labor and resources are extremely valuable. These are the people whose manual labor is often the backbone of every establishment. From delivery truck drivers to warehouse managers, being short-staffed can cause massive issues and become a serious capacity constraint. Having the correct amount of human resources in response to market demand data and adjusting accordingly can make a huge difference in an operation.

Capacity Constraints in the Real World

Managing capacity constraints is a must for those who strive to push their company to maximum efficiency and continuous improvement. From highly digitized technology companies to direct-to-consumer brands, firms and shippers play a big role. Juggling all those plates can take a lot of time and energy (which can be a capacity constraint within itself) so it may be smart to outsource some of the control.

Green Mountain Technology manages contracts with localized and tailored delivery companies to eliminate bottlenecks in the supply chain and assist with capacity planning. When it comes to logistic management, there is no better partner. Reach out today to get started down the path of efficiency and productivity.  

Warehouse boxes

 Written by Cam Elliott


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