All companies want to produce more and more and make profits to be more and more competitive. But sometimes, in the rush to use the best raw materials to supply mass production, it is not always a guarantee that the results will be as expected compared to the costs invested.
Production costs are costs that may be directly or indirectly associated with the production or delivery of products or services.
They include the material you buy to make your products, wages, taxes, other benefits for employees involved in the production of the goods you sell, shipping costs to get the product to your customer, and any other expenses directly related to the manufacture of your products.
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Taking this variable into account, you are surely wondering how much your company produces to production costs, and if the results of this cost/production equation are profitable for your company. To answer this question, you must first calculate the productive capacity of your production area.
This calculation is carried out in all industrial sectors and is a basic tool to understand the value generation potential for your company.
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If production capacity is lower than demand, sales opportunities are lost. However, if, on the other hand, its production capacity is much higher, the company runs the risk of suffering from stopped stocks, idle machinery, and a wasted workforce.
To know how much your company produces, you must attend to three methods of analysis and measurement: installed capacity, effective capacity, and realized capacity.
The installed capacity consists of the calculation of the maximum productivity of your company if all the available machinery were used 24 hours a day without interruption. To get an exact number, you have to measure how much time is spent to produce a certain product and multiply it by the availability of an entire day.
It refers to how your company is capable of generating production, depending on the availability of labor, although facing maintenance problems of the machinery or failures in the production processes, due to low-quality materials.
It refers to the amount of calculation that was generated in a previous period, taking into account all the unexpected events that could have affected the production plant of your company.
In addition to calculating how much your company produces, the logistics area should know how to manage production capacity, so as not to waste resources with excess productivity. There are two fundamental ways to obtain this production control: action and demand.
The technique that limits the production capacity of the action is simple: if the quantity of a product in the inventory reaches a certain value by the management, the company takes immediate measures to reduce the capacity, generating free space for the workers.
If inventories are complete, this means that the market is not so demanding and it may imply a considerable loss to continue with such high production.
The technique of limiting production capacity by demand consists of observing the market and adjusting the generation of value according to the real needs of the consuming public. Therefore, it is important to achieve alignment with the commercial team, which is responsible for providing a strategic point of view on sales.
In some cases, it may even be worthwhile to liquidate part of the machinery and reduce the installed productive capacity, to minimize losses due to idleness.
In addition to being important to avoid waste, the control of production capacity is also necessary to meet market demands. If the demand is greater than the company can generate, it is missing out on sales opportunities and buyers.
In this case, it is imperative to increase production capacity, which can be done in several ways. In more scalable companies, it is possible to make this adjustment more easily, while in other companies, this increase must be carefully planned, since it represents a serious investment.
One of the most objective ways to increase installed capacity is by improving your company's technological ecosystem with more efficient, faster, and more robust machinery, which can increase the amount of manufacturing of a product at the same time.
In addition, with new machines, production and maintenance costs will be reduced considerably, as well as process times.
In factories that are not yet running 24 hours a day, creating extra changes can represent a strategy to reduce machine downtime and expand mass production. But it is essential to balance production costs with the extra labor force and the financial result that will be generated.
Another direct way to improve the productive capacity of your company is through an investment in infrastructure. For example, with the opening of another Unit or the expansion of the plant with more employees and machines.
As you will notice, it is very important to calculate the costs of this investment to understand how long it will pay off and if it is worth it.
In industry, unplanned downtime for corrective maintenance is one of the biggest setbacks to productivity. With careful planning for predictive and preventive maintenance, these interruptions can be minimized and production capacity increased significantly.
It may be a wise decision to use an ERP to effectively manage maintenance processes.
Outsourcing support activities and focusing on the core business of the company can be an effective way to increase productivity or at least reduce expenses in your industry.
Hiring expert partners to take on tasks that are beyond the company's value proposition broadens the team's focus and, most likely, improves the results of those outsourced activities. In addition, it significantly reduces costs.
Finally, an effective means of increasing productivity is by training the team's skills. With the proper technical and safety training, you can maximize production capacity, reduce failure losses and minimize downtime caused by accidents.
In conclusion, if you are concerned about how much your company produces, with this brief guide you can calculate your current production capacity, and detect possible failures that will allow you to apply better strategic practices aimed at improving production processes. In this way, the efficiency gained in your production area will translate into more profitable businesses, thanks to the proper management of products based on demand.