Saphran Inc. This Month's Best-Practice Analytic: Capacity Utilization Forecast Analytics

What's in the way of knowing your capacity utilization, and not wasting capital

One of the chief determinants of whether or not a manufacturer in any supply chain makes money is how well it leverages its manufacturing assets. High capacity utilization typically means you're making money.

Capacity Utilization Forecast Analytics

Outlaying capital for additional future assets is a high-stakes game. It is difficult to undo fixed investments in capacity, and lack of utilization is expensive. So it is critical to forecast your intermediate-to-long-term utilization.

Capacity Decision Window - Decisions around adding capacity and spending additional capital tend to focus far into the future. In industries with long-lead product cycles, manufacturers are bidding on business today that won't kick off production for 2-3 more years. Today's commercial decisions are loading up 2020 capacity. Translation: To make good decisions, you need a view into tomorrow's capacity utilization right now!

The Challenge - It's not easy. Your ERP system, which tracks your current Production business, does not provide much of the answer around your medium-to-long-term capacity utilization. Your current Production business only makes up half or less of the business occupying your capacity in a couple of years. Per the typical book-of-business graphic (below), you have to construct a ready view of your asset utilization that also maps to your yet-be-launched Awarded business, and high-likelihood pending Quoted business.

Where's the Data? - The primary reason that suppliers struggle to see future capacity utilization is that combining the future book-of-business data assigned to each manufacturing asset is hard. Going back to our book-of-business outlook, consider where the data resides to build an asset utilization forecast:

Asset Utilization Forecast

Closed-Loop Commercial System Makes Capacity Utilization Analytics Sustainable - It turns out that the path to creating rolling capacity utilization forecasts is aligning two primary commercial processes: sales opportunity forecasting and costing/quoting your business. A serious deterrent is costing/quoting your future business in individual Excel files because it prevents harnessing all of the BOM routings, machine assignments and cycle times that you input through the new business quote process. That valuable information often goes away to decay in a SharePoint folder with thousands of other Excel-based quotes.
A closed-loop commercial system gives manufacturers the ability to initiate sales opportunities, create forecasts and extend the workflow to accomplish cost/quote activities. These activities occur as a continuous commercial workflow and result in the data residing within a live relational database. This way forecasts can join with not only pricing and volume, but also with manufacturing cost/routing information and material cost both from your current Production business (from ERP) and your Awarded and Quoted business.
Example with Analytics - Both charts below show forecasted utilization by type of manufacturing assets for a supplier. This manufacturer includes in the forecast its current Production business, Awarded business, plus high-probability Quoted business. It also knows for each piece of forecasted business the required operations, the anticipated customer volumes, the asset(s) it will run on, and the associated cycle time(s).
This first analytic shows two critical manufacturing asset types for this supplier. This supplier's 800T group of assets is running at high utilization, even 4 years from now. On the other hand, The EX Series assets are falling below 50% utilization by 2020.

Capacity Utilization By Asset Type

The second analytic (below) is a commercial view of the 800T assets shown above. This supplier also examines how much of its assets are consumed by its OEMs/Customers.  Looking closely at the 800T assets for this supplier, there is a growing reliance on a single customer.

Capacity Utilization of 800T Assets By Customer

Impact and Actions - This supplier should carefully evaluate its next commercial pursuits for business requiring 800T assets. The next big commercial win will likely require capital expenditure for an additional 800T cell. Also, while the 800T assets are highly-utilized, it might be a good idea for this supplier to diversify the customer base that leverages this capacity in the future. Conversely, this supplier's commercial team should get busy targeting business that requires the underutilized EX Series assets. More than half the capacity of the EX Series assets is available for additional current commercial pursuits.  Without some commercial wins requiring EX Series assets soon, this supplier may want to create a strategy to wind-down and dispense these assets.