With the global economy on track to grow at 3.1% in 2018, the World Bank’s mid-year report sends a strong message to manufacturing companies to keep moving ahead. However, this sunny forecast is not without headlines like NAFTA and trade wars that hover like cloudy skies over existing capacity plans in place.
In a good economy, the rationale is to stay the course and adjust capacity planning at the next scheduled session. The benefit of prescriptive analytics, however, gives companies a platform to reassess plans faster, leveraging favorable conditions now rather than waiting until the unknown what-ifs occur.
As we’ve seen this year, market shifts have accelerated, whether geopolitical, consumer preferences, or resource availability. The U.S. Oil and Gas industry, for example, which was forecasted to be a net exporter by 2040, has been able to achieve that today for the first time in 60 years. Another example is the consumer goods disruption underway. With more emphasis on digital distribution, the millennial demographic, and hyper-growth of small brands, manufacturers are reacting to entrants that cater to the individualized buyer instead of the masses. Then, there are the proposed tariffs on imports and exports that have the what-if questions in manufacturing looking like a three-cup shuffle game, e.g., what if imposed Mexican import tariffs shift up to 15% of automobile manufacturing domestically?
As production and timeframes in which businesses operate today continue to morph, capacity planning that occurs more frequently can reduce errors and exploit opportunities despite unpredictability. Companies with multiple operations domestic and abroad can also take advantage of prescriptive analytics that can answer the unknowns with actual impact on the business unit as well as the company as a whole.
Initiating a Retake on Capacity Planning
So how do companies, in good times, launch capacity planning off-cycle? It begins with the champions, whether an individual or groups, who are committed to the process — a path possibly met with natural resistance and questions such as:
- Why re-evaluate our capacity planning when we are getting the satisfactory results?
- Why not wait until changes are confirmed and focus on the plan in the works?
- Is capacity planning reassessment outside the regular planning cycle worthwhile on unknown what-ifs, especially with incomplete data?
In a changing marketplace, the questions above could be considered comparable to a talented athlete who waits six months before the Olympics to train, relying on natural ability and avoiding strength building and endurance. The good news is prescriptive analytics (optimization) doesn’t have to be an arduous exercise. Within days — given the right technological capabilities — companies can model a rough-cut plan to ensure that it is feasible and optimal, providing a baseline to expand modeling and improve forecasting accuracy.
Prescriptive analytics balances supply and demand for profit. When a truck driver shortage impacts production labor, capacity planning can be optimized to run thousands, if not millions, of decisions and present options that generally may not be considered. In one situation, a company found more profit by running production at a plant further away. This counterintuitive course of action, made possible by prescriptive analytics, tied integrated planning to strategic outcomes.
The maximized business value of prescriptive analytics embeds the capacity plan into the enterprise’s broader planning process. By starting small, with specific what-ifs to a business unit, companies build a foundational platform that scales and encompass the enterprise. This painless process, developed within a few short months, shows where companies can reduce costs, improve risk management, shorten cycle times, and increase profitability from good to excellent.
Champions who implement prescriptive analytics for capacity planning, even while current plans are working well, won’t be disappointed. When the market roils occur, they’ll have a platform that adjusts to the shakes and rattles and provides steady guidance to forecasting and profitability.