How to Leverage Lean DMAIC To Optimize And Manage Capacity
Eliminate waste, streamline processes, and deliver sustainable results by using Six Sigma’s DMAIC model.
Capacity Management, in an operations and/or business environment, is the process of determining the required capacity (FTE, Materials, Process Output, etc…) to supply the customer’s demand. The decision to add capacity in an industry or business is usually determined by the level of capacity utilization, which would typically average 85%-95% long term for a well-managed service industry (Utilization = Required Resources/Actual Resources). Lean principles can be used to identify underutilized resources that should be eliminated.
On the flip side, a business cannot allow overutilization to the detriment of meeting client expectations or employee satisfaction. Therefore, capacity planning forms part of the strategic planning function. As businesses strive to optimize this function, Lean DMAIC (which stands for Define, Measure, Analyze, Improve, and Control) provides a robust roadmap for successful capacity management.
The following explains how to leverage DMAI (Define, Measure, Analyze, and Improve) for capacity management optimization and C (Control) for ongoing capacity management maintenance:
1. Define: What is the Demand or Service-Level Agreement (SLA)?
Define the required performance/output by identifying the requirements and expectations of the different stakeholders, including the Voice of the Customer. This can be achieved through interviews, surveys, or similar methods.
2. Measure: What is the capacity of the current process?
The capacity of a process is its ability to meet demand and consistently deliver as expected. This step involves accessing the current performance of the process output per resource(s). Historical production volumes and service industry cycle times, along with employee overtime data, can be key inputs to this step.
3. Analyze: Where in the process are the causes of under/over utilization?
This step deals with identifying performance gaps between current and target situations, the areas of waste and the priority areas of improvement. It requires the comprehension of the relation between performance (Y) and the key variables of the process (the X) through analytical and statistical tools. Value Stream Mapping identifies the sequence of value-added actions that provide the product or service expected by the customer. Spaghetti Mapping identifies the waste, meaning non-value-added activities, included in an operational process. Together, these tools help derive the future-state vision.
4. Improve: What is the potential for the future-state process if key waste is eliminated?
Identify, select, test and implement solutions that work on priority areas of waste, therefore making the process more robust – “Is there opportunity to increase capacity with current resources or to maintain current capacity with fewer resources?” Ensure that the value flows steadily through the process without interruption, bottlenecks, or waiting.
- Eliminate resources used by non-value-added services
- Eliminate resources that do not add value to services
- Share resources and regulate demand
- Review nominal size and manage scalability
- Prevent waste
NOTE: Pull System – this term refers to a system in which the supplier does not produce more assets or services than are required by the customer. Where feasible, producing on demand can help avoid variations in production, as well as reduce WIP and unnecessary inventory. While the Holy Grail of Capacity Management is a pull system that achieves exact matching of capacity with demand, real-world constraints necessitate a certain amount of reserve capacity and/or incentives to shift demand to match capacity.
5. Control: How to sustain productivity gains and ensure Continuous Improvement?
We ensure the effectiveness of solutions by implementing a permanent control plan and updating data. This step involves reviewing, verifying and validating improvements, as well as avoiding regressions. The plan also includes institutionalizing best practices and recognizing the progress made by teams.
Once the transformation has started, teams realize that there is no limit in the quest for waste elimination. Pursuing perfection is a continuous journey in achieving operational excellence. It’s not a destination.
An operational expense for an organization employing skilled labor can easily exceed $100K/year/FTE. Using these rough numbers, an organization employing just 1,000 FTE that reduces underutilization by just 1% saves $1 Million/year in operational expense. Such significant benefits derived from such small improvements highlight the powerful leverage of Lean DMAIC principles in a robust capacity management initiative.
Keep in mind the following management actions to instill a culture of efficiency:
- Train teams to look for waste
- Define objectives according to the war on waste
- Implement mechanisms delegating decisions to operational teams
- Ask operational teams to propose an improvement