As the economy recovers, do you understand the operation capacity of your business?

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As Scotland and the rest of the UK begins to return to normality following the roll out of the vaccine programme, it is predicted GDP will recover to pre-pandemic levels in Q2 2022 [1]. However, this recovery will not be felt evenly across all sectors. Given this, what can your organisation do to ensure they meet demand in a cost-effective manner?

You may be expecting a slow recovery in your industry, or worse, you might not think there will be a full recovery. With the furlough scheme scheduled to finish at the end of September, how will your organisation deal with excess operational capacity?

On the other hand, you may be in the midst of a rapid recovery and expecting an overall growth in demand compared to pre-pandemic levels. How will your organisation fulfil this demand in a cost effective and sustainable manner?

In this article, we talk through some ideas to help utilise your resources effectively for the demand your business is facing or expecting to face.

Before a business can make informed decisions regarding an excess or lack of operational capacity, it must first understand what the current capacity is. When calculating the capacity of your process, there are a few key points to think about to ensure capacity is accurately calculated:

How much waste is generated through the process? Waste is generated in most processes and can have a substantial impact on total achievable output. Despite this, it is not always understood or monitored. The cost of waste is more than just the lost materials but also includes the time spent generating the waste product. This “lost time” can often be more valuable than the physical waste, especially in service industries.
How much of the time is each stage of the process running? Very few processes run continuously. Most processes have stops, either intentionally or otherwise. These stops will impact the total achievable output but are often overlooked when calculating capacity. In a non-manufacturing industry running time is a more abstract concept that needs a good understanding of the value-add tasks in a process. For example, how much time does a highly trained individual spend on administrative tasks rather than core value-add work?

Once the capacity of each stage of the process is understood, you will know the bottleneck of your process and therefore the achievable output. Will that be sufficient for your forecast demand? If not, there are few steps you can take to increase capacity:

Minimise waste generated in and after the bottleneck. Waste generated upstream of the bottleneck will not impact the total achievable output if the bottleneck process can still run. Waste generated in or after the bottleneck is not just a waste of materials but is also time lost running the bottleneck.
Increase the time the bottleneck is running. Any downtime in the bottleneck directly impacts total achievable output. Often it is the small but frequent stops that go unnoticed, but they can add up to a lot of lost production.
Increase the speed of the bottleneck process. This will lead to a direct increase in total output. Often the speed of the bottleneck process has been set based on historical needs. Now the demands on the business have increased it might be time to investigate the speed of the bottleneck.

The above steps are a cost-effective way to achieve an increase in output in a relatively short timescale. It will ensure you are focussing your efforts on the critical steps in the process. It will also provide you with the data required to determine one way or another whether you will be able to meet forecast demand.

You may find that the operational capacity of the business is higher than your short-term demand, or worse, your long-term demand forecast. In this scenario, you may need to recalibrate your business for the reality of a post pandemic world. Below are some ideas to consider that could rebalance your business without having to go through a costly and disruptive restructuring:

Insource processes. Are there aspects of your operations that could be brought inhouse with some of the surplus capacity? This could include the direct production process or the postproduction processes such as warehousing, delivery, and installation.
Invest in new systems and processes. Resistance to large change projects is often focussed on “I’m too busy to change”. Now could be the ideal time to implement a significant change project to set the business up to perform better once demand has returned to pre-pandemic levels. If not now, then when?
Develop new products that can be made using your current resources. The world has changed since the pandemic started. Some markets have shrunk but others have grown. Could your equipment and skills be used to meet the changing needs of consumers?

By focussing on growth, rather than downsizing a business to meet a reduced demand, your business will be better place to succeed in the long term. Taking a growth approach will install a positive and adaptable mindset in your workforce which will help you compete in this ever-changing world.

About Where Now Consulting Ltd: Where Now Consulting is a management consulting company that focuses on helping its clients to grow and compete. The company offers a range of consulting services, including business turnaround and performance improvement, formulating market entry strategies, mergers and acquisitions, joint ventures and alliances, and sales and distribution strategy and management.

[1] https://www.ey.com/en_uk/growth/ey-item-club/why-the-uk-economy-looks-well-placed-for-a-post-pandemic-recover