How to Effectively Capacity Plan for your Business

Have you ever looked around your business and found that you have way too much of an item that isn’t selling? Or maybe you spent hours preparing, creating, and filling the shelves only to overlook one key component at the last minute? These are challenges are often created by ineffective capacity planning.

Think of it this way, would you create a bunch of winter holiday wreaths and try to sell them during your May garden sale? No, because the demand for the May garden sale will be summer wreaths.

Additionally, you will want to make sure that you create just enough wreaths for customers to buy without having excess inventory taking up shelf space at a time you don’t want it to, like in November when you are selling your winter holiday wreaths again. Sometimes the supply and demand for a good or service will not be as obvious as winter vs. summer wreaths. It could be stocking up on sunscreen to sell when the weather forecast and UV index predictions are at an all time high. Or having bug spray on hand when the extra rain and standing water has caused an influx in the mosquito population.

Scenarios like this happen regularly because of inefficiencies in the business model and lack of capacity planning.

So you ask, what exactly is capacity planning and can you please define it in a way I can understand and apply to my small business?

Capacity planning is essentially predicting supply and demand levels in advance to minimize cost and maximize financial gain.

What this means for you:

  • Create a plan
  • Be an efficient owner/manager
  • Delegate
  • Set deadlines
  • Predict and prepare
  • (Don’t make the same mistake twice)

Planning effectively can be difficult for even the most experienced business owners. It sometimes takes a lot of time and effort, but as an owner you need to make sure everything is planned and accounted for to keep your business thriving.

For example, pretend you are a quaint restaurant in a beach town that experiences more traffic in the summer season. To accommodate this seasonal demand, you decide to add a new patio seating area. With more tables to serve, you’re going to need to hire more servers to keep up with the crowds. With a little capacity planning, this problem can turn into increased revenue. From calculations based on your indoor area, you need three servers for every ten tables during a four-hour shift. Since you are adding six tables to the patio area, the appropriate number of servers to hire would be approximately two. By planning ahead for this staffing you will prevent excess servers from standing around and increase your profits by anticipating the additional customers.

Capacity planning enables you to make sure all the behind the scenes work is done so you are always ahead in the supply and demand chain. The implications of capacity planning correctly can be far reaching and directly apply to your small business, no matter what it is.

This tool needs to be incorporated into your business model and monitored daily. However, capacity planning isn’t all about increasing output. Sometimes the most effective thing to do is to halt production in times where demand has decreased and focus on different areas of your business. If it is your current off-season for whatever business you are in, take this time to focus on the back of house. Use this time to regroup and strategize. Organize your books, take a look at the past year’s performance, determine your hits and misses and forge ahead with a newer and improved game-plan for the upcoming year. Budget allocated funds and make sure you have enough to last you through the year for operating costs, labor and supplies, advertising, and any unexpected scenarios that may arise.

One of the biggest mistakes that a business can make is becoming too comfortable and settled. There is always…

  • more money to be made
  • more clients to service
  • more locations to open

…you get the picture

The bottom line is you don’t want to miss the opportunity to increase revenue and you don’t want to put yourself in a situation where you are ill-prepared and lose revenue. You can save time and money by capacity planning, you can more effectively order and reduce the amount of time it takes to sell an item, all while keeping up with the demanding needs of customers.

As Warren Buffet once famously said, “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” As a small business owner in today’s mercurial landscape, capacity planning will give you the advantage you need to be one step ahead of the game.