The importance of production capacity and strategic planning

Over the years I have been involved with many Site Master Planning (SMP) exercises across various process industry sectors, evaluating current operations, analysing gaps with future aspirations and formulating capital expenditure programmes to prepare sites for a defined future. This has included the customary tools for investment appraisal; Internal Rate of Return (IRR), Net Present Value (NPV), Discounted Cash Flow (DCF) and Return on Investment (ROI); but with the demand for more visibility and transparency behind project scope decisions. I now incorporate production planning tools within the evaluation and decision-making processes of this strategic planning workflow.

Ongoing development of manufacturing sites is essential to provide future-state readiness of a continually evolving business environment.  Site Master Planning is one common approach but is often misused.  Generally, too many Site Master Plans only output a development capital programme of related projects and initiatives that “will” ensure the target site can meet some kind of future manufacturing growth plan, consisting of only volume growth in existing products and new product introductions (NPIs).

Site readiness evaluations should be carried out regularly and assessed against foreseeable future changes within the business environment, underpinning a Site’s future competitiveness.  Consequently, SMP processes should consider growth aspirations and product portfolios that can be delivered competitively.  Failing to fully understand capacity drivers of existing operations will prevent Senior Leadership Teams from defining development programmes with optimal capital employed.  By optimal capital employed, I refer to allocating funding for asset improvement projects before first demonstrating that existing capacity utilisation has been fully optimised.  I believe it is important to be able to demonstrate answers to questions such as:

• How well will current manufacturing assets and supporting infrastructure cope with expected step changes?
• How much additional capacity can be generated from manufacturing and operational efficiency gains of existing manufacturing and operational assets?
• At what points in the future are the real demand and capacity trigger points for initiating new improvement projects?

High-level business planning spreadsheets are a great way of kicking off such longer-term development reviews, but I’ve often found that their general level of granularity is insufficient when trying to demonstrate how robust the underlying operational infrastructure and support systems are e.g. purified water, waste inactivation, energy usage; such systems are critical for supporting future manufacturing aspirations.  Without a reliable understanding of overall capacity, investment appraisal can be reduced to an argument for spend on subsidising inefficiency rather than genuinely providing growth based ROI -  the risk of investing in the right improvements at the right time is higher than it needs to be.  The resulting opportunity cost of conservative over-investment does not generally sit well with business owners or main shareholders.

Being able to adequately model such modern-day complexities becomes increasingly important for demonstrating the adequacy of existing systems, ensuring that the right improvements will be carried out at the right time and for the right reasons within an SMP exercise or review.

I’ve therefore found that using Access Orchestrate to represent high-level manufacturing plans over a 5-10 year period is a good visual way of demonstrating how strategic aspirations can be tested, more fully realising past investment in existing assets and identifying the trigger points for the optimised capital investment needed to deliver the plan.  The workflow associated with developing models is also an excellent way to bring people to a consensus on how operations are actually undertaken day to day.

These Access Orchestrate models should also not be resigned to the top shelf after completing an SMP exercise.  Site Master Plans should be reviewed regularly, at least annually, as part of business planning and future CapEx and cash flow forecasting.  The business environment changes, and will only change more rapidly in the future.  Site Master Plans play an important part in realising strategic plans for manufacturing based organisations.  During such SMP reviews the Access Orchestrate model should be consulted when assessing potential changes of direction in the SMP.

As such, the high-level model becomes the blueprint of the Site’s production and operational activities and should be controlled and maintained so that it is always current and representative of how things are done; just as one would maintain updated as-installed records of the capital assets within the site.

With an accurate model of operational capacity, all members of the management team including finance, operations, sales, logistics and production, can make better and more transparent decisions working from a common understanding of why an investment should be made, when and where.  I would like to think Shareholders and Executive Leadership Teams would expect those needing to invest in growth or to meet increased market demand to have already optimised existing capacity. Access Orchestrate provides a means to help demonstrate this.