Defining capacity planning
Businesses can’t afford to guess when it comes to new services and opportunities. Mistakes can be costly, which is one reason why capacity planning is crucial in considering their input requirements, conversion process, and output.
For service organizations, capacity has a measurable impact. It’s the number of services they are able to perform, or people they are able to provide. While capacity planning is commonly used in manufacturing, it offers huge advantages to business service companies.
Businesses need to know, based on their current projects and time frames, how much of a service or how many people they can offer over a specific period of time. The service industry must strategize to match supply (long-term) with predicted levels of their demand (long-term) because services can’t be inventoried. For firms, this might mean aligning prices or rates that they charge for their services so they don’t over- or under-charge their clients and customers.
Service organizations must address the following:
- Allocating resources for specific activities.
- Pricing service contracts correctly.
- Acquiring, training, and terminating staff.
- Accurately forecasting demand to produce services.
Meet your budget
When service organizations use capacity planning, the goal is to meet demand with the least amount of waste, or increase their utilization rates. Often, organizations assume or “guess” they can meet demand instead of having a real plan in place based on their projected sales or demand forecast. This stresses the need for capacity planning.
Capacity planning includes categories that help businesses based on the timelines they have established:
- Short-term capacity: This is typically used for daily or weekly time frames. It can include quarterly time frames. Short-term capacity doesn’t look at trends and cycles, but customer demand and seasonal variations.
- Medium-term capacity: Represents a one to three year timeframe.
- Long-term capacity: This is the maximum time frame, which varies depending on the type of service industry. Long-term capacity requires forecasting; the forecasts are converted into established capacity requirements.
How service organizations benefit from capacity planning
Capacity planning helps businesses with budgeting and scaling so they can identify their optimal levels of operations:
- Budgeting benefits: Capacity planning helps determine how services are offered, and the appropriate time frames and staff required to meet current demand and cover all operational costs. This is an important consideration when establishing yearly budgets to effectively allocate money for expenses. The use of demand planning software and demand forecasting software helps with developing financial projections.
- Scaling benefits: If a business is considering taking on more staff to help meet anticipated demand based on their capacity plans, they might find that aside from increasing employees by 10%, they need specific skills or a larger location for their staff and any new equipment they may need.
Factors that affect capacity planning
Capacity planning can accelerate an organization’s innovation while decreasing risk. To help organizations meet demand, they must look at the different service demand factors that can affect capacity, including:
- Process: Skills, quantity, and/or quality capabilities
- Staffing: Job descriptions, total labor, training, compensation, and turnover rates
- External factors: Unions, governmental policies, and budget cycles
When considering demand, service organizations benefit from the use of demand planning software. Its features help match the needs of the business and offer “what-if” scenarios. Demand forecasts help service organizations with their financial plans and capacity to drive procurement that’s used to deliver their services.
Capacity planning that uses demand forecasts helps with pricing and contract terms that assist with times, locations, and timeliness of their services. When these are aligned, the service organization can better determine the future profitability of service contracts.
Ultimately, service organizations have several areas to consider as they grow and scale. Whether it’s adding additional staff or changing pricing, capacity planning helps determine how much capital is required. As capacity planning looks at data and operations to make future decisions, include demand planning software to run accurate “what-if” scenarios.
Capacity planning is an integral aspect to business that no service organization should be without. It helps structure growth to ensure the business maintains a competitive edge in a marketplace that’s changing constantly to meet demand.
About Vanguard Software
Vanguard Software introduced its first product for decision support analysis in 1995. Today, companies across every major industry and more than 60 countries rely on the Vanguard Predictive Planning platform. Vanguard Software is based in Cary, North Carolina.