Growing a business is exciting. There is that point where you realize that you are no longer caging an idea in your head but rather letting it literally grow. Unfortunately, at some point there is a shift, a moment when the excitement doesn’t go away, but rather struggles specific to growing businesses show up. However, the key is not to stop, but rather grow sustainably. In a previous posts we covered the challenges of growing fast, and the first step in growing sustainably, mapping your supply chain. The next step in growing your business sustainably is calculating and apply capacity and processing time to each stage in your supply chain.
Each stage in a supply chain has a capacity. This is how many units of a product can be produced or processed without buying or hiring anyone. The easiest place to measure capacity is in a warehouse. Each warehouse has a max capacity. You can only put so many bars of soap on shelves or only fold so many t-shirts on racks.
This is the number of products in a warehouse at a moment, however it also is the number of units a stage in your supply chain can process. For instance, a project manager can only take on so many projects in a day or week before they run out of time and simply can’t produce any more.
The only stage in the supply chain that does not have capacity is the last step, the customer. Customers don’t have capacity they have demand, and that number is something that we’ll cover in a later post, but for now just keep that measurement blank.
This can also be described as lead time and process time. If you are in ordering more raw material stage, how long does it take from initial order to using the product in production? If you are making a latte and in the grinding stage, how long does it take you to grind the espresso before putting it in the filter and tamping the shot? If you are making soap and in the curing stage, how long after pouring the liquid into the mold do you need to wait before its ready to come out?
The number we are looking for here can be hours, days, or weeks, but ultimately is how long it takes to move the product from one stage of the supply chain to the next. Time can be confusing so leave any question or email me if I can help.
Now that you have capacity and time defined, calculate each of these measures for the stages in your supply chain and note them on your supply chain map. Here is the wine bottle example broken down with the capacity and time added in.
- The Purchase by Consumer
- Capacity – This is the demand for the product – We’ll cover this later
- Time – Cases per day, cases per month, etc.
- Retail Shelf and Store Room
- Capacity – 4 cases
- Time – 7 days (the time it takes from initial order to delivered wine from distributor)
- The Cases of Wine Delivered from the Winery to the Distributor
- Capacity – 520 cases ( the capacity of the entire truck)
- Time – 1 day ( the time it takes to deliver the wine to the retailers)
- The Wine Bottled and Packaged at the Winery
- Capacity – 5,000 (size of the warehouse at the winery)
- Time – 7 days ( the time it takes to produce the wine on the bottling line when all the raw material is there)
- The Raw Material Ordered and Used for the Bottling Run
- Capacity – 400,000 cases ( the capacity of the vendors to produce all the raw material needed)
- Time – 35 days ( The time it takes from first raw material order to delivery of the raw material)
- The Wine Aged and Processed Before the Bottling Run
- Capacity – 100,000 gallons
- Time – 16 months ( Aged and processed from juice to a tasty Pino in bulk storage)
- The Grapes Delivered From the Vineyard and Crushed in the Grape Press
- Capacity – 15 tons of grapes
- Time – 1 day ( Time it takes to get the grapes delivered)
- The Grapes Harvested From the Vine
- Capacity – 200 tons of grapes ( size of the vineyard)
- Time – 5 years ( time from planting to harvest)
I know that calculating these numbers can be confusing, it is why people hire supply chain managers to begin with, so if you need help tackling this please reach out.
After we calculate these numbers we will then be able to start what I call a simulation. We can taking products through your supply chain and see what it would look like if you grew… when would we hit capacity and what would we need to change now to help grow in the future?
Stay tuned, and feel free to share with someone who has a growing business.