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Logistics Management in manufacturing

Logistics management is all about measuring capacity. Capacity is defined as the capability of an object, whether that is a machine, work center or operator, to produce output for a specific time period. Many manufacturing businesses ignore the measurement of capacity, assuming that their facility has enough capacity, but that is often not the case. Increasingly manufacturing software programs like enterprise resource planning (ERP) and warehouse management systems (WMS) calculate throughput based using formulas that are dependant on capacity.

Manufacturers measure capacity in different ways using either the input, output or a combination of the two as the measure. Every type of business measures capacity based on what is specific to their product. Manufacturers use two measures of capacity, theoretical and rated. The theoretical capacity is defined as the maximum output capacity and does not allow for any downtime. Rated capacity is the output capacity that can be used for calculation purposes, as it is based on a long-term analysis of the actual capacity.

There are three basic capacity strategies used by different organizations when they consider increased demand; lead capacity strategy, lag capacity strategy and the match capacity strategy. Here is a brief overview of each-

  • Lead Capacity Strategy-The lead capacity strategy adds capacity before the demand actually occurs. Large scale manufacturers often use this capacity strategy, as it allows the business to ramp up production at a time, when the demands on the manufacturing plant is not so great. Keep in mind that if any issues occur during the ramp up process, these can be dealt with so that when the demand occurs, the manufacturing plant will be ready. Many manufacturing businesses like this approach since it minimizes risk. Another facet of this is that as customer satisfaction becomes an increasingly important, businesses do not want to fail to meet delivery dates due to lack of capacity. An advantage of the lead capacity strategy is that it gives businesses a competitive advantage. For example, if a holiday item manufacturer believes a certain product will be a popular seller for the Christmas period, it will increase capacity prior to the anticipated demand, so that it has product in stock, while other manufacturers would be playing "catch up". It is important to note that the lead capacity strategy does have some risk. If the demand does not materialize, then the business could quickly find themselves with unwanted inventory, as well as the expenditure of ramping up capacity unnecessarily.

  • Lag Capacity Strategy-This method is the opposite of the lead capacity strategy. When using the lag capacity strategy the manufacturer will ramp up capacity, only after the demand has occurred. It is important to keep in mind that although many manufacturers follow this strategy, success is not always guaranteed. There are some advantages of this method. Initially this strategy reduces a company's risk. By not investing at a time of lesser demand, and delaying any significant capital expenditure, the manufacturer will enjoy a more stable relationship with their bank and investors. Also, the business will continue to be more profitable than other manufacturers, who have made the investment with increased capacity. The downside to using this method is that the business would have a period where product was unavailable, until the capacity was finally increased.

  • Match Capacity Strategy-The match capacity strategy is one where a manufacturing company tries to increase capacity, in smaller increments, to coincide with the increases in volume. It is important to understand that while this method tries to minimize the over and under capacity, of the other two methods, businesses can get the worst of the two, were they can find themselves over capacity and under capacity, at different periods.

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