What is capacity planning? Types, strategies, use cases

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As a business owner, you understand the value of project management. You need to be able to organize your team, assign tasks to people with the right skill sets, and prioritize your projects and clients. However, knowing how to meet demand and increase the profitability of your business can seem overwhelming. In order to maximize the available capacity of your organization, you need capacity planning.

Effective capacity planning will help you eliminate bottlenecks and take advantage of all available resources in your company, which can help your business remain agile and increase customer satisfaction. This article will help you understand what capacity planning is and why this initiative is important for improving your bottom line and effectively managing your business.

What is capacity planning?

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Capacity planning is a project management process that helps you understand your workforce, tool, and production capacity to meet client demands for projects. It helps you make sure you know exactly what resources need to be available to meet demand effectively. 

Capacity planning is important in ensuring your business is running smoothly. Without proper capacity planning, you could be dealing with major inefficiencies that slow down your growth and upset your clients.

For example, consider a scenario where a new client is looking to work with you, and you accept before doing any capacity planning. Suddenly you learn that you don’t have enough team members to work with the new client, your tools can’t take on new projects, and you don’t have enough product to fill orders. Your new client, who was excited about working with you, will now have to deal with delays and hold-ups that can make them unhappy. If you had used capacity planning, you would have been able to give accurate timelines and improve your project planning.

Why is capacity planning so crucial for businesses?

Capacity planning isn’t just an option for businesses. If you want to be successful and make the most of your current capacity, you need to understand the value of capacity planning and resource utilization. There are many benefits of capacity planning that will help you improve your business and be a better manager for your team.

Answers important questions

Capacity planning helps you answer key questions that help you with project management deliverables and processes. It addresses questions like:

  • Do we have the bandwidth for new projects or clients?

  • What skill sets are most valuable to us?

  • How long will it take to meet customer demand?

  • What processes will help us improve efficiency?

  • Where are we experiencing slowdowns in our process?

Reduces costs

When projects go over budget or creep beyond the initial scope, it can add to your overhead costs. The same can happen when you need to buy more seats for your digital tools, have team members work overtime, and waste products through inefficient processes. When you have proper capacity planning strategies in place, you can reduce your costs and start improving your profitability.

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Improves supply chain management

In addition to being a part of project management, capacity planning is also part of your supply chain management. When you have a plan for capacity management, you can also get a better idea of how your resources are being used and when you need to reorder materials or products. This helps you avoid stock-outs and makes your customers happy when you can offer accurate deadlines and deliveries.

Identifies inefficiencies

Capacity planning gives you an overview of your business processes and a clear picture of where there might be inefficiencies in your existing processes. When you evaluate your capacity resources, you can see if there are any areas where resources aren’t being utilized correctly and where you can improve. These insights can drive real-time decision-making and improve your business management skills.

Leads to happier teams

No one likes to be overworked or stressed out on the job. When you have poor planning in your workplace, it leads to unhappy employees and higher turnover rates. With capacity planning, however, you can accurately track your team members’ time and availability. That helps you stop overloading your team members and can ensure that people with the right skill sets are being assigned to the right tasks and projects.

Breaking down the different types of capacity planning

You need to be aware of a few different types of capacity planning as you start to consider a strategy for your business. Depending on what type of business you are, like manufacturing or SaaS, your business might have different needs for different areas of capacity planning.

1) Workforce capacity planning

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The first type of capacity planning is workforce capacity planning. This type of planning involves your team members and their skills, roles, and availability. To reduce workplace burnout, you want to make sure that your teams have balanced work schedules and that you are operating efficiently.

During the course of workforce capacity planning, you will discover whether you need more staff, if people are in the right roles, and if there might be a need to rearrange teams or titles, or categorize employees as exempt or non-exempt to ensure that you're using your workforce in the best way. When you successfully accomplish this type of planning, you get happier teams and have staff members in the right place to do their jobs to the best of their abilities.

2) Tool capacity planning

Not every project requires the same types of tools. Tool capacity planning helps you allocate the tools you currently have available and understand what new tools you might need in order to fulfill customer demand when you have a new project or a client coming in the door.

Tools might refer to things like specialty machinery, vehicles and transportation equipment, materials, or digital platforms and online tools. No matter what kind of tools your business uses to complete work, you will need tool capacity planning to ensure that they are being used correctly and are worth the investment it took to secure them.

3) Product capacity planning

Product capacity planning is used in businesses that deal in products. If your business is in the service industry, then this type of capacity planning might not be relevant to your needs. Product capacity planning involves the management of raw materials and components needed to make products.

When you work in industries like retail, e-commerce, or manufacturing, knowing what materials and products you have available is essential to making sure that you can fulfill orders and deliver finished products to customers on time. Without planning, you could end up with endless delays and unhappy customers.

Capacity planning strategies

Capacity planning isn’t a one-shoe-fits-all solution. There are different approaches and tactics you can implement in order to get results and improve your processes. Here are the main capacity planning strategies and what industries and businesses they work best for:

Lag strategy

Lag strategy is a strategy that focuses on actual demand and current orders. Rather than trying to forecast and make deliverables ahead of time, this approach only allocates resources when the need arises. This works best if you have a small business that is just getting started or if you know you only need to have a few resources set aside for new projects.

Lead strategy

Lead strategy is the opposite of the lag strategy. Rather than waiting for a project to come in, lead strategy uses demand forecasting to predict what resources you'll need in the future and creates excess capacity in order to fulfill those resource requirements when needed. This works best for businesses that operate seasonally, like holiday-oriented businesses or ones that increase their sales during specific times of the year.

Match strategy

Match strategy is the best of both worlds between lag strategy and lead strategy. It focuses on strategic planning and carefully considers each project that comes up. You need to monitor your current demand, look at your upcoming projections, and constantly develop your strategy to shift when needed. It’s a flexible approach that works best for most businesses.

Capacity planning vs. resource planning: Main differences

Capacity planning and resource planning are two terms that are often used interchangeably. However, there are clear differences between the two that you should note as you work on planning for your business.

Capacity planning is a strategic approach that looks at the big picture. It focuses on your organization's overall processes and availability and how you can improve them. It’s a high-level strategy that is useful for planning on a large scale.

Resource planning, on the other hand, is much more tactical and specific. It looks at individual resources within your organization and applies them to each particular project or client that you have. This allows you to get granular with your planning and create a plan for each individual task and step in your process.

Capacity planning use case: Make to Stock (MTS)

Let’s take a look at a specific use case of capacity planning to help you picture it in action. Say, for example, that you run a specialty swimwear business. You know that it takes a certain number of team members and manufacturing equipment to create a single piece of swimwear, and you know how much time it takes to make one item.

In order to create a capacity planning strategy that works for your business, you implement a make-to-stock (MTS) model. This is a lead capacity planning approach where you plan out your production schedule based on your forecasted demand. Because you know that summer will lead to an uptick in your sales, you can plan ahead of time to start stocking up on products to meet the upcoming demand.

With this capacity planning model in place, you won’t be surprised by the rush of orders coming in during the early summer months. Then, you can prepare ahead of time to meet demand and ensure you have enough workers, products, and equipment to meet your capacity planning goals.

Master your capacity planning with Teamwork.com

Mastering capacity planning ensures that your team makes the best use of all available resources. It reduces waste, increases efficiency, and helps your team members avoid burnout and overwork. When you can control your resource management and capacity planning process, you can gain a full view of your availability to streamline your business. With capacity planning, you can give better timelines for deliverables and ensure customer satisfaction.

At Teamwork.com, we understand how important capacity planning is to you and your clients. That’s why we offer advanced capacity planning software and automation tools to help you with resource allocation, strategic planning, and forecasting for new projects.

See more of what Teamwork.com can do for your business now - get started now for free, view our comprehensive pricing plans, or book a demo today.

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