A great way to save money on consultation fees while ramping up the way your business functions.
Unless you are in manufacturing or production, you may have never heard of the term capacity. Here is a little insider information: consultants who are paid thousands of dollars, use capacity as a way to help identify problematic areas in business to offer solutions.
What is capacity?
Capacity is a measurement which takes into account the amount of output over a specified period of time. Additionally, it’s a great way to quantify production in many or all areas of business.
Capacity = Output / Time
What does capacity do?
Before we get into the areas of business that benefit from quantifying capacity, let’s highlight what capacity does. First, capacity is a great way to turn something that was once thought un-quantifiable into an easy to read percentage. This percentage can be used to compare a set of standard capacity percentages (created by you through analysis) giving valuable information to management on how to move forward.
For example, an associate has a set standard of 10 requirements for their job description. On a typical 8 hour day, they can either choose to use the full 8 hours to do their work or take more than 8 hours to do their work. Another option would be to choose to take less than 8 hours to do this work. In all situations, we are able to find just how well they are performing and if we are being profitable.
- If the capacity percentage is over 100%, there is an increase in room for error and loss of production quality. There is no room left over for innovation or problem solving.
- If the capacity percentage is less than 50%, there is significant waste in time resulting in lost money. Things are not performing at optimal standard and demands are not being met.
- If capacity percentage averages 55 – 60%, production is optimal and leaves room for quality standards to be met and that innovation and problem solving can occur.
Keep in mind that these figures are solely for the benefit of you understanding how capacity can work. Since every business is different, so are the standard percentages and what they mean. Be sure to do more research to fully understand how capacity is measured in your industry.
Where does capacity fit in my business?
Capacity stems from the manufacturing production system. At first, it was used to identify how products can be produced, in a set amount of time, in order to meet sales demands and market forecasts.
Now, capacity can be used in all facets of business. Capacity has no favorites and can be applied to sales, marketing, production, supply chain, time management, phone call wait time, line management at a retail store, money, etc. As long as you can properly identify both output and time, then you can apply capacity to that area of business.
What are the benefits of knowing your capacity?
Quality: One thing is for certain, one main focus of capacity is to ensure that quality does not suffer. Quality is the main ingredient when it comes to charging more for a good or service, as it only creates additional unwavering value for customers to see. If you feel as if the quality of work has gone down or that products are not holding to quality standards, then check the capacity levels.
Eliminate Waste: Secondly, the benefit of understanding and knowing what the capacity levels are in comparison to the optimal standard allows for waste to be eliminated. Waste is always a money hungry area which finds ways to creep into business. Sometimes, waste cannot be simply identified and the best way to help unravel this is to do a capacity check on a schedule. If you are looking for ways to increase margins, or increase value, first look for ways to eliminate waste.
Capacity is just one tool in business you can utilize and it won’t cost you much – primarily time. It is a fairly simple concept, which if done correctly, will help generate additional income. If your business is like the many that are out there and cannot control their marginal growth through price increases, because of the market standards, then use capacity as a way to find where the waste is and create a new way to increase your overall margins.
If you are already using capacity, let us know about your success! Comment below.