Capacity Optimization in Business

by | January 5, 2011

My experience with the operations side of business was fairly limited prior to business school, so I found my Operations 101 class to be eye-opening.  I specifically remember reading the book “The Goal” by Eliyahu M. Goldratt, where business operations are compared to a line of boy scouts moving through the woods. The analogy is unbelievably simple, yet it creates a very clear picture of how operations can be held up by a single resource.  

In working with and managing businesses, I personally find the operations component to be one of the more difficult – yet when you bring it back to Goldratt’s analogy, it’s really not so complex. Generally, optimal capacity exists when business operations are flowing smoothly and each member of the team is fully utilized in his or her job. 

The first step to understanding your business’ capacity is to know what skills the company needs.  To do so, you must be aware of what processes are performed in the company daily, weekly, monthly, quarterly, annually, and ad-hoc.  Documenting processes is a critical element of optimizing operations – if you don’t know what needs to be done, how can you be sure you are able to deliver efficiently and consistently?  Documented processes also drive efficiency.  When the team can see how goods or information flows through the organization, they will be better able to envision where they fit in and make suggestions to improve the overall process by recognizing and eliminating redundancies or bottlenecks.  A bonus to documenting processes is that it will make your customers happier.  Inconsistency in delivery will drive complaints and liability. 

Based on the processes documented, you can then understand what skills are needed.  This information is used to create job descriptions that target the right person for the job.   Clear job descriptions that are matched with their corresponding processes create an organization that smoothly operates.  When a disruption occurs in the business, it becomes simple to uncover the breakdown and determine if it’s systematic or an unusual circumstance.

Finally, optimization requires an understanding of the demand cycles of the business.  There are many demand cycles in a business and these demands should be analyzed both at the company level and within each process.  For example, a company may have a cyclical or seasonal sales cycle.  The company then can plan for up times and down times and utilize its resources based on this knowledge and experience.  Similarly, a particular employee or resource may have demands at certain times of the month or the year. 

A great example of a company with varied resource utilization is a CPA firm.  These companies know that their busiest times for tax professionals are February through April and September and October.  Their resources are completely maxed out.   In addition, this is when much of their revenue comes in the door.  At other times of the year, they are less busy and need to seek other ways to bring in revenue.  Alternatively, the company’s internal accounting team may have a completely different demand cycle.  They are busiest at month end for invoicing, quarter end for reporting, and year end for internal tax preparation.  These resources function on a different cycle than the tax professionals but are likely be impacted by the overall business cycles.  These considerations must be taken into account in resource planning.  Only an understanding of how the pieces fit together – process, people, and demand cycles — will enable the firm to efficiently operate at capacity year round.