General Electric was one of the first big businesses to use the “matrix” organizational structure, which is probably still the most popular organizational structure today, in 1976. One major worry was how managers outside of the business units could successfully lead individuals and teams when not directly under their direct supervision. The majority of organizations today have a matrix structure in place, with roles like project managers, team leads, and product owners requesting more resources to complete their projects.
The majority of resource capacity and demand data is stored in enormous spreadsheets that look several quarters or years into the future. Typically, each project has a spreadsheet with a list of the people who have been assigned to work on it each month. The management can now see a summary of the project participants and their roles thanks to the combination of these spreadsheets into a master spreadsheet.
Top management should establish “the rule of transparency” as a solution. To put it another way, defining how far in advance people’s responsibilities should be planned and separating information about “people” and “roles” The rule of 18/6, which stands for “months ahead of role-based allocations” and “named people” allocations, could be used to describe it. Some industries might require more or less transparency (e. g. , in R
The “multiple roles per person” scenario must be avoided when analyzing resource capacity data. Some people may be bilingual in English and Spanish, but that is a skill rather than a role. Instead, each employee should be assigned a single role that is used for allocations. Some find this hard (e. g. when a developer can serve as both a project manager and a developer) But if you are hired as a developer, that is your position, and managing projects is just one of your many skills.
Every product owner or project manager with whom I have interacted is aware of their favorite team members. Because of this, it can be upsetting to learn that they must make requests at the role level and leave prioritization and person selection to the responsible resource manager. To prevent the numerous stakeholders who want a piece of each employee’s calendar from tearing them apart, this must be the golden rule. Asking for named individuals should not be the resource request itself because, in a large organization, the best person for the job might not be available.
When a resource manager asks the question, it has a different meaning than when a project manager does. Resource capacity is very challenging to explain inside an organization. In a forecasting scenario, we already know that a person hired to work 160 hours per month will take several weeks off each year. We also understand that there will be sick days and that we cannot count on working for eight hours every day. If we do, we will be delayed on day one.
However, more factors than capacity and roles are at play in order to feel the impact on the actual project performance. One important lesson comes from a company that had the guts to use Belbin personality types to evaluate every employee. Benchmarking project performance led to the realization that some of the most effective project managers led the most psychologically balanced teams.
I anticipate that implementing agile operating models in a matrix organization will become more complicated in the future. Resource allocation is made simple if the size of an agile team remains constant. However, if we don’t know the effectiveness of the team or how it stacks up against the most important tasks, we risk becoming even less flexible than when working in a conventional way.
Importance of demand capacity planning
For many businesses, demand capacity planning is a crucial idea because it enables them to make sure they’re utilizing their resources as efficiently as possible to meet customer demand. Some other benefits of this planning include:
What is demand capacity?
Demand capacity is a ratio that assesses how well a company can meet the demand for its products or services. Businesses engaged in manufacturing must monitor demand capacity to ensure that they are maintaining production levels that can satisfy customer demand. A company’s capacity is the amount of output it can produce over a specific period of time. A company may produce more inventory than necessary when demand for its product is lower than its capacity. If demand outpaces supply, there might be a resource shortage.
Many companies measure their demand capacity on a regular basis to help them increase production levels while still meeting demand. Companies can reduce the gap between capacity and demand using this demand capacity planning process. Additionally, it can assist businesses in ensuring that their capacity for production is in line with anticipated future demand.
How to measure demand capacity
The steps you can take to assess your organization’s capacity to meet demand are listed below:
1. Determine the maximum capacity
Understanding your company’s maximum capacity will help you determine the demand capacity. According to the slowest component of a company’s production process, such as a machine, this phrase describes the maximum output that can be produced. Because a company can only produce as much as its slowest operational process can handle, it is crucial to determine the maximum capacity. Find the slowest part of the production cycle and count how many items it can produce in an hour to determine the maximum capacity. Next, multiply that amount by the number of operating hours in a day. The formula looks like this:
Maximum capacity = items per hour x operational hours
The maximum capacity, for instance, is 250 products per day if the manufacturing facility’s slowest machine can produce 25 items in an hour and operates for 10 hours each day. This means that a company can only produce up to 250 products per day, regardless of how quickly its other processes move along. Heres the formula for this example:
25 x 10 = 250 maximum capacity
2. Forecast the demand
It is now time to forecast the future demand for a good or service after determining the maximum capacity. Utilizing statistical models to analyze historical data from a company and forecast future trends, predictive analysis is a type of data analysis that can be used to calculate demand forecasts. For instance, predictive analysis may demonstrate that, based on prior data, a business can anticipate that demand for its products will rise during the summer. You can use this information to decide when to increase production in order to satisfy anticipated future demand.
3. Decide on a strategy
You can choose a strategy for measuring demand capacity once you are aware of the maximum capacity and the anticipated demand. Based on the demand for a company’s goods or services, there are three common strategies you can employ to help manage its resources. These strategies are:
In the lead strategy, a company expands its capacity prior to an increase in demand. This can be a useful tactic to employ during slow times because it enables a company to increase output before an anticipated rise in demand. It can also assist a company in competing with rival businesses in the industry. To ensure they have enough product to meet demand, a company might, for instance, increase its capacity months before a busy season, while other businesses might experience inventory shortages.
After it is clear that there is a need for their goods or services, businesses that employ the lag strategy decide to expand their capacity. This tactic can assist a company in managing risks by ensuring that it only expands operations once the demand has materialized. The business knows exactly how much profit it can expect to make when it increases capacity. By maintaining low stock levels, the lag strategy can assist businesses in lowering operational costs and managing their inventory.
The lead and lag methods are combined in the match strategy. With this approach, a business manages capacity levels by gradually altering its production operations. Businesses typically employ this tactic when they anticipate market fluctuations. Businesses might employ the match strategy, for instance, if they anticipate delivery changes from one of their suppliers. Businesses may find the match strategy to be a useful tool for increasing capacity concurrently with demand.
4. Track inventory
In order to make sure your chosen strategy for estimating demand capacity is effective, you should keep track of the inventory you are producing. Tracking stock levels more frequently may be useful if you already count inventory regularly, such as every two weeks, in order to assess the effectiveness of the capacity strategy. Consider putting in place software that can track inventory levels in real-time to assist you in understanding current capacity and demand levels. Share those reports with everyone managing production processes to promote transparency regarding the strategy.
5. Monitor changes
It’s crucial to keep an eye on this ratio after you establish the demand capacity and put strategies in place to match your production with customer demand so you can adjust as necessary. Demand may change due to a variety of factors, including seasonal variations or heightened market competition. Likewise, capacity can alter over time, for instance when a machine needs maintenance. You can maintain this ratio’s optimization so that you can change your capacity to continue satisfying customer needs by keeping an eye on changes in demand and capacity.
Demand and Capacity Management
FAQ
How are demand and capacity be measured?
Demand capacity management is based on the principle that real and anticipated demand can and should be better matched with a given business’s throughput by using the appropriate resources in the appropriate manner at the appropriate time.
What is the difference between demand and capacity?
Analysis of the discrepancies between resource capacity and resource demand is used to measure capacity vs. demand. This discrepancy can be expressed in hours, FTEs, or person days. When the demand for resources exceeds the capacity or supply, there is a resource shortage.
What are the 4 types of capacity?
What is the difference between demand management and capacity management. The business and user aspects of providing a service are the primary focus of demand management, whereas resources and technology are the primary focus of capacity management.
