Author: Eric Uresti
Capacity Planning is not just about cutting costs but also driving growth and ensuring supply chain resiliency.
According to a recent Gartner, Inc. survey (1), 73% of companies have added or removed production locations from their supply chain networks over the past two years. These shifts highlight the growing emphasis on building resilience, agility, and flexibility into supply chains—moving away from traditional low-cost strategies.
This new reality presents a significant challenge for supply chain leaders. Capacity planning is no longer just about meeting customer demand at the lowest possible cost or evaluating investment options. Today, it’s also about embedding resiliency into capacity planning decisions to create robust supply chain networks that can sustain corporate growth.
Leveraging River Logic’s deep experience working with global manufacturing leaders, we’ve identified three critical strategies for supply chain leaders to go beyond cost reduction and drive growth through optimal capacity planning:
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Develop Feasible and Optimal Plans Aligned with Corporate Goals
Traditional capacity planning focuses on key decisions like shifts, sourcing, and inventory planning, but these alone are no longer sufficient. Supply chain leaders need to think outside the box by considering trade-offs and constraints unique to their business to build an optimal capacity plan. These include asset capacity, throughputs, finished or near-finished goods inventories, supplier contracts, and OPEX/ CAPEX investments, among others.
The next step is to align the capacity plan with broader corporate goals, such as profit, margin improvement, growth, and sustainability. The most successful plans not only meet operational targets but also contribute to long-term strategic objectives.
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Balance Supply and Demand to Enhance Profitability
One of the most complex challenges in capacity planning is balancing supply and demand to maximize profitability, not just to minimize the cost of goods sold (COGS). This requires a shift in focus from merely meeting demand at the lowest possible cost to meeting the right demand that maximizes overall profit. Achieving this requires advanced analysis that includes:
- Redefining How Costs Are Treated: Consider the full financial impact of production decisions, not just average costs.
- Evaluating Demand Profitability: Understand how fulfilling different demand scenarios affects your bottom line.
- Analyzing Product Profitability: Prioritize high-margin products in capacity plans.
- Managing Service Level Shortages: Strike a balance between demand fulfillment and profitability.
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Integrate Capacity Planning into Broader Business Processes for Maximum Impact
When done right, capacity planning directly impacts gross profit and provides a unique perspective on contribution margin. It plays a critical role in helping companies meet corporate objectives such as growth, return on assets, sustainability, and risk management.
However, traditional tools like network design software or Excel spreadsheets are inadequate for supporting the kind of comprehensive analysis needed today. Companies must adopt an end-to-end approach to supply chain modeling to achieve true value and profit improvements. This involves integrating all value chain elements—from supplier contracts to production to distribution—into one cohesive model. Such an approach allows businesses to identify bottlenecks, inefficiencies, and opportunities for improvement across the entire value chain, while also incorporating sustainability and financial impacts.
Conclusion: Take the Next Step in Capacity Planning
Capacity planning is a powerful strategy that helps businesses align resources, maximize profitability, and achieve resilience in their supply chains. It’s no longer just about cutting costs but driving growth and ensuring supply chain resiliency.
To learn how to turn your capacity plans into powerful, profit-boosting tools, download our latest guide: A Step-by-Step Guide to Driving Business Impact with Capacity Planning. This guide provides actionable insights to help you incorporate resilience into your capacity planning decisions and build a supply chain network capable of sustaining growth.
