Capacity Management: The Ultimate Guide

Once a business goes past a few employees, it inevitably hits a point where making the most of all assets (staff, equipment, etc.) becomes a major challenge. For companies with hundreds or thousands of employees, it used to be more of an unattainable ideal to work toward, but thanks to progress in technology, maximizing your output consistently is possible.

That’s what modern capacity management is all about: leveraging smart technological solutions to get the most output possible out of every staff member, vehicle, and machine.

Of course, it’s not as easy as just deciding that you’re going to “optimize” your business, choosing some software, and patting yourself on the back. Even with smarter solutions, it’s still a challenging but rewarding process to get right.

In this article, we’ll explain exactly what capacity management is, its different types (and use cases), its benefits, and how to implement the process in your own company.

What is capacity management?

Capacity management is the process of trying to make the most of your production potential and maximizing your output with the resources you already have available.

Illustration of capacity management

It may sound similar to process management or process optimization — the difference is that it focuses specifically on optimizing capacity and not generic workflows throughout the company.

As an example, fleet operators aim to minimize empty space in a trailer. However, poor capacity management can lead to trucks hitting the road with a fraction of their typical loads.

While you can’t expect to fill a truck to capacity every time, continuously carrying partial loads just isn’t sustainable. These operational inefficiencies mean you’re not getting the most value out of your assets. In this case, picking up additional cargo from other suppliers can help maximize capacity utilization and increase profitability.

Of course, there aren’t always such obvious problems and solutions. But the example above exemplifies the essence of capacity management.

What are the types of capacity management?

Capacity management is often segmented by use case and department: operations management, supply chain, and IT.

Breakdown of different types of capacity management

Here’s a look at each type:

  • Supply chain: Capacity management in the supply chain is almost self-explanatory. You obviously need to streamline the supply of raw materials if you want to keep producing the finished product consistently. Potential optimizations include negotiating faster deliveries with vendors, improving supply chain visibility, and increasing warehousing capacity to avoid running out of materials.
  • Operations management: Within operations management, capacity management typically revolves around balancing your production output to perfectly match customer demand (or get as close as you can get). To do capacity planning right, you need to go through years of sales data and accurately assess the trends for the near future.
  • IT/Software development: Within IT and software development, capacity management again deals with the same objective — ensuring that you have enough resources to handle your workloads. In some cases, this may mean adding new servers to a data center or leveraging new technological (or software-based) solutions.

While the goal of capacity management remains the same across companies and use cases, a few key characteristics separate them from each other.

Why you should invest in capacity management

The modern workplace is anything but efficient. And the problem doesn’t stem from “lazy workers.” Most of the time, poor management practices are at fault — it trickles down from the very top. 84% of American workers say poorly trained managers lead to extra work and stress.

Illustration of a bad manager and a tired employee

And it’s obvious why — a bad manager won’t know what to focus on or where to direct their employees’ attention. They will often focus on non-issues that don’t contribute to production. The more of your employees’ time they take up with meetings and menial tasks, the less time they have for producing and delivering goods.

A capacity management initiative can help fleet operators and supply chain managers establish reliable processes that maximize output. By making sure your team has the right instructions, training, and priorities, you can get more out of your employees while keeping them happy.

What are the components of capacity management?

There are many moving parts within capacity management, from tracking your output to managing your assets and monitoring their utilization.

Components of capacity management

Let’s take a closer look at each.

Asset management

If your equipment isn’t in working condition (or not in the right place at the right time), how can you expect your business to function at its peak output?

Asset management is one of the keys to increasing your capacity (or even producing the right amount for the market demand at any given time). It involves tracking and finding ways to improve asset utilization. Implementing a resource utilization program is one of the most effective ways to achieve this.

Driver management

There’s no getting away from the human element — at least not yet. While you can use data and AI-powered tools to help you gain insight, ultimately, your team needs a reliable leader that’s good at planning and assigning tasks.

Fleet operators and supply chain managers must effectively manage their drivers to streamline operations. This involves setting delivery schedules, evaluating driving performance, and ensuring compliance with all regulations. Managers can use solutions like the CalAmp Application to manage their drivers, streamline compliance, and bolster safety programs.

Trailer visibility

Trailer visibility is key to ensuring that you’re making the most out of your resources. After all, trucks that have empty cargo space are only harming your profits.

Fleet operators can monitor capacity utilization with trailer cargo sensors that provide a real-time view of what’s happening inside and outside. If a trailer is underloaded, managers can instruct the driver to pick up additional cargo along the way. And if a truck is carrying excess loads, a manager can send another truck over to redistribute the goods.

Cargo visibility

Real-time cargo visibility allows supply chain managers to receive constant updates about a shipment’s location. Smart sensors placed inside shipments can monitor and relay information like temperature, shock, and humidity levels.

This kind of visibility ensures that deliveries maintain temperature requirements, which helps managers reduce waste. For example, if a shipment exceeds certain temperatures, a manager can contact the driver to address the issue or have it redirected to a nearby facility to avoid waste.

Real-time monitoring

Knowing is half the battle — but the only way you can know how your business is truly performing is by measuring the outputs in real-time. For fleet operations, that can mean using Internet of Things (IoT) technology to measure different aspects of your operations in real-time.

Maintenance

Proactive maintenance is the key to a healthy business — there’s a reason we call effective teams “a well-oiled machine.” Keeping all your assets and machines in top operational performance is key to a consistently high output.

The other side of the coin is scheduling this maintenance in the most efficient manner, for example, doing machine maintenance outside of the main working hours of your factory staff.

What are the most common capacity management strategies?

Your strategy for planning and managing capacity will affect everything else you do to improve the outcome, from the software you invest in to how you delegate work to your team.

Let’s look at some of the most common capacity planning strategies and what they entail.

Lead strategy

The lead strategy is one of the most common (and the simplest) strategies for planning production capacity — you try to expect the demand based on historical data and trends and get ahead of that demand by increasing (or decreasing) capacity in advance.

Capacity lead graph vs. lag strategy graph

While doing this strategy well requires a lot of data and accurate analysis, it’s not complicated to start implementing. The upside is that you have some wiggle room in times when demand exceeds expectation; the bad news is that you risk producing too much (and paying too much payroll) for extended periods.

An example of lead strategy is when a fleet operator temporarily hires more drivers to meet increased demand during certain months — a strategy that UPS relies on every year to prepare for the holiday rush.

Lag strategy

Then there’s the lag strategy — the complete opposite of the lead strategy — where you wait to adjust your capacity until after the demand has already increased or decreased. So if your retailers contact you and order a higher number of units, that’s the first time you’ll do anything to increase your strategy, whether that’s expanding your fleet or hiring more drivers.

Match strategy

The match strategy tries to marry the best sides of both lead and lag by planning and reevaluating more often to ensure your production closely follows demand. Plus, you’re also typically going to be producing extra capacity as you go, not in one big push ahead of time.

Dynamic strategy

Dynamic capacity planning is a newer approach that relies on big data sets and machine learning to function. The whole point is that you’re not manually responding to or predicting anything — the software does it instead and typically does so more accurately than you.

How to boost your capacity by implementing IoT solutions

When we covered the different moving parts of boosting capacity, we covered asset management and maintenance as some of the keys to the puzzle. And they’re both crucial, especially if you can even wrap in real-time monitoring to boot.

Taking advantage of IoT technology is the easiest way to do this at scale. For example, using environmental sensor monitoring can help you ensure that your equipment is working correctly and that processes are going as they should.

For example, a brewer lost $60,000 in potential revenue when their chilling system failed one weekend (and nobody noticed). Eager to avoid suffering through similar accidents again, the founder used a CalAmp telematics device and temperature sensors to set up a reliable glycol monitoring system to ensure that this never happened again.

And this is only one example of how environmental monitoring can help you build fail-safes into your process to avoid unexpected failures and loss of production capacity and inventory.

The power of IoT goes way beyond simple temperature monitoring, though. You can also track anything from location to movement to working conditions.

Conclusion

Capacity management isn’t just some vague corporate talk that doesn’t mean anything. It’s all about taking concrete steps to regain control over a production machine that (in many cases) has gotten large and hard to manage.

And sure, you can make some headway just by improving your management practices and choosing a capacity management strategy, but the biggest improvements lie on the other side of modern technology.

By doing things like monitoring the temperature or state of equipment or goods, you can avoid catastrophic failures and maintain a high level of reliable output at all times. You can also use software and data to assess demand proactively and automatically order particular raw materials when stock gets low, etc.

If you’re looking to implement these solutions to get more value out of your resources and increase visibility into your operations, reach out to CalAmp today.

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