Waste in Over Capacity


    We seldom think of Unused Capacity as a Wasted Resource! In fact, it can be a wasted resource that can be fatal to the long term survival of your company and even your industry!

    The Wallstreet Journal ran this story last Saturday - More Car Plants at Risk. It talks about Overcapacity in Automobile Manufacturing for Light Vehicles. We all know the trouble the car makers are in because they ignored the small car segment in favor or gas guzzlers and the market for them suddenly collapsed in 2008.

    They used the following graphic from IHS Global Insight in the above article showing the difference between current and Projected Capacity and Projected Utlization!


    What is remarkable is the very strict management of Capacity and Production in the past and the future of Toyota Vs. the Big 3 American Automakers! Toyota is also making losses currently but they might recover sooner than the other ones, just looking at these projections.

    If you think about it, Over Capacity has a lot of costs associated with it – Idling Plants, Idling Huge Investments in these Plants for which some of these companies may be paying interest, Idling workers that are paid not to produce, Idling workers that are maintaining these plants even when they are on Ice with no actual workers around (Security, Preventive Maintenance people), etc.

    Over Capacity may prove to be a huge huge waste and could be sucking a lot of the profits of the company even when some of your plants at producing at full capacity and making enormous profits for you!

    Something to pay attention to, not just in Manufacturing but also in Services! Keeping the Capacity very close to Production in services, can be done easily with Multi-Skilling and good workforce optimization! There are lots of algorithms and software based on those, to account for seasonality of demand by hour of the day (Evenings and Nighttime for cusomer service on the phone, for example) and , day of the week (Mid week is peak for many business services), month of the year (Summer Travel Season or Thanksgiving for AAA services, for example) or season of the year (like Christmas!).

    Training people to perform multiple tasks at work could go a long way in balancing demand and supply for business processes and services, smoothing out the overcapacity problem at any time.

    Over Capacity could be one of the biggest wastes whether in manufacturing or in services or in business processes. Keeping capacity very close to demand adaptively with multi-skilling and good workforce optimization.

    Production is not the application of tools to materials, but logic to work – Peter F.Drucker