When you want to grow your business, you usually have to add more manufacturing space, IT infrastructure, human resources, R&D facilities, etc. Any significant capacity expansion is a strategic and vital decision that involves enormous resource commitments and is often irreversible. Therefore, such a decision has to be made judiciously, keeping all contributing factors in mind. Most companies, especially in the manufacturing sector, struggle when they have to tackle these situations that require a large investment in capital and leadership bandwidth. It is due to the fact that capacity expansion requirements are rare when compared to productivity or operational efficiency improvement needs. Anyway, capacity expansion is necessary to match current and future demands and improve revenue. Let’s learn about why rapid capacity expansion is required for a better future.
Factors affecting capacity expansion decisions
Capacity Expansion Decisions
While making a capacity expansion decision looks like a tedious activity, there are some practical tips that you can follow to make it work effectively. Here are five simple yet practical tips that can tilt the balance in your favor while making capacity expansion decisions.
- Industry Ecosystem
We are currently living in a connected world due to rapid digital transformation. Operating in silos will not work for most business sectors. Manufacturing industries are more reliant on the supply chain ecosystem than other industries. We have to scout for the co-location of firms from different sectors while making an informed decision on capacity expansion. You could gain an advantage from the easy input materials available for your production while also getting a ready-made market platform for your product as the output feeds as input to other industries that are next in line on the value chain.
- Skill Availability
While upskilling and reskilling are on the upswing, it is still crucial to take into account the availability of a skilled workforce in the market. The availability of employees is based on a number of things, especially if your processes need specific niches. This might prove challenging to pinpoint such talent quickly. So, keep track of which skills and competencies are required for your employees and which ones can be learned on the job.
You can opt to outsource a chunk or all of your planned capacity requirements. Although complete outsourcing is a possibility, only a part of the process is usually outsourced to vendors. The common use cases for outsourcing are technology, labor, and logistics. Therefore, we must understand clearly which operations you can outsource and whether your capacity expansion decision considers the availability and efficiency of outsourcing partners available at the nearest locations.
- Digital Highways
Can you build an effective production system without proper communication channels and technological tools? The short answer is no. 4G and 5G mobile networks and broadband connections are essential for seamless communication and partnership across industries in this era. If you intend to expand your business’s capacity, we will need to make additional investments in communication networks.
- Developmental Parameters
Quality of life, infrastructure, and the social development index are some of the key elements to consider when making capacity expansion decisions. There will be long-term implications of such considerations, and operating in less-than-ideal environments can adversely affect business decisions that do not match the overall company goals.
Advantages of Capacity Expansion Decision
- Brings new customers
- Opportunities to develop economies of scale
- Amortizing expenses
- Enhance your market influence
- Diversifying builds more protection
Challenges of Capacity Expansion Decision
- Possible cash shortages for day-to-day operations
- Higher capital requirements
- Loss of control
- Reduced productivity and quality
The growth of a business depends on various factors, but capacity expansion is among the top 3 that need a serious look. If you plan diligently and invest your resources in the right directions, then capacity expansion can bring a lot of advantages to your business prospects and take you in the right direction for achieving your business goals and improving your brand value in the process.