Five Plant Capacity Lessons Learned

The economic downturn should have forced many manufacturers to rethink how they plan for capacity utilization at their plants. Stephen Maurer, managing director of the manufacturing practice at advisory firm AlixPartners, offers these five key lessons manufacturers should have learned about plant capacity following the recession:

• The process of restarting the plant is likely to be much trickier than many people think. Once the key employee resources have moved on, rebuilding a high-performing team can be very difficult.

• A high level of vertical integration generally significantly increases fixed cost and associated break-even points, and makes it more difficult to flex with swings in the market.

Stephen Maurer:
"There is an old saying that 'good managers care as much about cost in good times as in bad times." • Complex and inflexible automation caused many companies problems in the downturn. These lines are very efficient when fully utilized but very expensive when they are only operating at a fraction of their capacity. Simple, more flexible automation can have a dramatic impact on manufacturing flexibility when volumes change either up or down.

• "There is an old saying that 'good managers care as much about cost in good times as in bad times." In the boom times, volume concealed many sins relating to asset productivity. Companies that were very rigorous about their cost structure and capital acquisition process when volumes were good generally have lower fixed costs, resulting in a much lower break-even point.

• Many companies are growing back volume without adding employees. "We are seeing this a lot in the automotive supply base. In many cases, suppliers cut costs to the point where they were profitable again with 30% less volume. Now that volumes are coming back, those that are controlling the growth in their fixed cost have the opportunity to make some real money for the first time in years."