OptimiZ Consulting - Avoid Needless Capital Expansion by Tapping into Hidden Capacity

How Many Times have Companies Spent Expansion Capital Needlessly?

Engineers have a tendency to “want bigger toys” or more capacity BEFORE the production capacity of the current infrastructure is fully explored. It is assumed that today’s performance is the “best we can do without spending capital”.

Millions of dollars are wasted or spent before they are really needed due to a lack of focus on unplanned delays (mostly from operations) and planned delays (from operations and maintenance). Production capacity is stolen when these delays are not properly managed and minimized. Even though the amount of capacity to be gained by effective delay management is process-specific, there is some hidden excess capacity in most every process.

At the very least, expansion capital could be avoided for a year or two and sometimes more than that by going after the free capacity first (i.e., the capacity already paid for). A better understanding of asset potential also gives insight into the capacity bottlenecks in the system, which can be different than the perceived bottlenecks created by the occurrence of unplanned delays or the poor management of planned delays.

How employees typically request capital expansion

Note the reference to Cost of Quality on the right. This Cost of Quality represents unplanned delays and poorly managed planned delays that are “stealing” on-line time. If the impact of these delays are reduced through better planning, better monitoring, and improved communications, additional production capacity will be revealed without the investment of expansion capital. It is important to recognize that not all unplanned delays can be eliminated which means that it is impossible to reach optimum on-line time. It may be possible to reduce these delays by 50%, however. If this were achieved, HOW MUCH CAPITAL COULD BE AVOIDED OR POSTPONED? HOW MUCH CASH COULD BE RESERVED FOR OTHER USES?

Value Stream Bottlenecks and Capital Avoidance

Your organization believes they understand where their major production bottlenecks are right now and how much excess capacity there really is in the system. The bottleneck should get expansion capital first – if not, then the capital spent was truly wasted.

However, perceived bottlenecks are not always the same as capacity bottlenecks. The value stream bottleneck from a capacity perspective may even be a different plant from the plant currently determined to be the bottleneck. This means that it is possible to spend expansion capital in the wrong place (i.e., that point in the process already has excess hidden capacity).

Production optimums can be used to determine where the value stream bottleneck is in the system so management knows which process step will first require expansion capital to elevate the bottleneck and free up untapped capacity in supplier-customer process steps or facilities.

The reference to global optimum at the left refers to the capacity optimum for the value stream. In this illustration, BEFORE refers to delays that interfere with tapping into more of the existing capacity. AFTER shows how optimums across the value stream can be raised when the opportunity to maximize the current capacity has been exhausted. ONLY THEN SHOULD EXPANSION CAPITAL BE APPROVED.

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Kay M. Sever, President
OptimiZ Consulting LLC
P. O. Box 337, Gilbert, AZ. USA 85299
Office: 480-545-9095, Cell: 480-223-2230

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