Perhaps the most powerful resolution management can make would be to fully understand capacity this year. Not seeing it? Think about the following:
- Lean companies – successful companies – understand that lean frees up capacity, and they know how to sell that capacity. Old school managers have no idea so they use lean as a cost cutting mechanism and leave most of the profit potential from lean on the table.
- Standard costs, pricing based on those standard costs, thinking product margin is a meaningful number – all ignore the fact that those numbers ignore capacity and, as a result, inherently mislead. Whether making and selling one more will exceed available capacity and drive the company to significantly increase the coats structure, or whether making and selling one more will cost little more than the material needed to do so is pretty important information.
- If you take a hard look at your ERP system you will find that it has the capability of providing lots of valuable information about capacity – and odds are you are among the 99%+ that is not using that information in any meaningful way. By meaningful I mean that sales, accounting and the folks doing pricing aren’t using it at all, which means the above two points apply to you.
- The Theory of Constraints is powerful, and provides perhaps the most important insight to the economics of your company and, odds are, you are barely using it if at all. On a related note, OEE is the critical metric at the constraint. Betcha your senior folks are all over headcount metrics, but don’t know what OEE stands for.
- It’s not very hard to operate on a kanban/demand pull basis and keep inventories under control and delivery performance very high, and to do so while level loading factory flow even in the face of high seasonal swings in the level of customer demand on your capacity …. Unless you are trying to do it through some ERP system. Then it seems impossible.
Yep. If you decide that 2015 is the year you are going to have management’s heads completely wrapped around capacity, and have the above issues fully understood in your company, 2015 will be a very good year indeed.