Increasing capacity is a conversation we have all had with ourselves as shop owners at some point or another. So what exactly are we talking about when we say “Increase Capacity”?
Capacity is defined as the maximum amount that something can contain. If you ask my wife about capacity the answer you will get is, “The only capacity I want to talk about is the capacity of this vehicle. Between our kids and their friends we need another row of seats.”
Although not exactly shop related, it is a great example of not having enough capacity.
One step forward, two steps back.
There is nothing more frustrating than selling more work and not being able to produce it. If your current throughput can no longer match your monthly sales, then you have a dilemma. Increase capacity, or ultimately lose the ground you just made by getting extra sales.
One step forward, two steps back.
If it were a matter of just stating, “We need more capacity” and it was so, then there would be no problems with increasing capacity.
However, increasing capacity often means spending capital, taking out debt, or adding more building space.
Either way you go, your expenses are going to go up to increase capacity.
emotions and questions
The fact that we must invest to gain capacity usually brings with it a variety of emotions: Fear that we will not keep the work to support the investment, excitement that we will be able to handle more work and grow, deep thought about the logic of our upcoming decisions.
As we are running the gamut of emotions we start uprooting several potential questions surrounding increasing capacity:
- Are we ever going to get the business to a point where we can grow without investing everything we have made?
- Is there any other way to increase capacity without spending all our capital or going into debt?
- What is our new break even if we add debt service to our current balance sheet?
In this article, we will answer some of these questions by exploring the when, why and how of adding capacity to your shop and offer you resources to help make your growth decisions much easier.
when, why, and how
The discussion of increasing capacity can be overwhelming, but if you start by listing out the when, why, and how, then the task will become much easier.
So let’s get started on the main questions.
When do we expand capacity?
Why should we increase capacity?
How do we expand capacity and minimize potential negative effects on business?
When to increase capacity
This is a pretty easy question to answer.
To most owners it is intuition that tells us we are maxed out with our current setup. In order to keep up with increased sales we must add capacity to keep up with the workload.
Evidence of the "When” comes when jobs are falling further behind because of production bottlenecks. Generally, there will also be a lack of either quality control or oversight of the finished product. Quality control seems to suffer the most when we are at capacity because the jobs are getting farther behind and we don't have the time complete a thorough check before they leave the door.
The problems that stem from poor quality can devastate a business and WILL shut down a business’ growth engine quicker than any other force.
You probably won’t have to think too hard of a business that is experiencing this phenomena right now. Maybe it was a service company you used for repairs at your house and the worker was inexperienced or late because they were too busy to get to you. Or a flooring company that never even returned your call for a quote.
If your quality and your customer service seem to be going downhill, your "When" may have arrived.
As stated earlier the “When” of needing additional capacity is pretty easy to identify. The important step to take now is to not act in haste or make a snap business call that may put your business in jeopardy down the road. First, let’s take a deep look at the “why” and “how” to increase capacity.
Why Increase Shop Capacity
Identify your “Why” as soon as the “When” has become apparent. Your “why” can be anything. You want to grow, you want to be the best in your area, you want to be the biggest, you want to have more employees, whatever the reason we all have a why.
I suggest making a list of "Why I Desire to Increase Capacity". You may consider making this a pro/con list so you can evaluate the positives and negatives of your actions. List an action in the center of the sheet, on the left put a pro of that action and on the right of the sheet list a con of that action. This should put everything into perspective.
In high school I asked a local farmer how his farm seemed to always look great and just get better every time I came by. His response was, “If you're not growin’ you're dyin'.” This stuck with me and helped me to form my own why for growing.
How to Increase Capacity
If you are like me you probably just skipped down to this point of the article so you can get to the meat of the whole thing. If you did, I understand, but at least make sure you have your “Why” list that we talked about earlier.
One of the first things I learned when I was new to the cabinet making world was, “There's a hundred ways to skin . . . .” I don't even have to finish it! While that statement is surely true, let’s lay down a framework to go about your “skinning” a little smarter.
We can increase capacity in the following ways:
Add labor and equipment.
We can try to become more efficient in our processes to maximize efficiency.
We can outsource our manufacturing bottlenecks to an outsource company capable of handling our work load.
We know our options, but which one is the best and why?
Adding labor and equipment is probably the first option we consider when we realize we need to grow. There are times when that is the answer, but we have to consider that it will generally result in added debt or lease payments that the company will now be responsible for. Is your company in a place to take that on? Will you really be able to get ahead?
Becoming more efficient in our processes is also another option we consider early on. It is always a great thing to do in all of our operations. For tips on maximizing efficiency check out our articles on Delegation, Standardizing Systems, and Theory of Constraints. Although becoming more efficient is always a win, at some point you will likely find that capacity will still need to be expanded to truly continue growth.
Typically the last option we consider is outsourcing our bottlenecks. There's actually lot of pride and emotion that can block us from considering it. Its difficult to keep our pride of being cabinet makers on the shop floor, but if we want to continually get better in business we have to keep an open mind.
When it comes to the "How" we have to look at it strictly as a business decision so our judgment isn't clouded by our emotions. That's when we can see that outsourcing can often be our best option.
outsourcing enables growth
The idea behind outsourcing is not a new idea, but it is just recently becoming popular and viable.
Opting for an outsource partner for increasing capacity allows you to keep your cash where it belongs, in your company! In our experience, outsourcing can allow a shop to double capacity without spending any additional capital. More cash will leave your company in a strong position to gain more sales and be able to grow within your limits.
With systems like Lockdowel for frameless cabinet, a shop can offer frameless cabinets with no extra investment or tooling. Basically, you could be a frameless cabinet pro in no time and assemble it on the same workbench you assemble everything on now. With assembly time in the 2-5 minutes per box range you are sure to see the value in the Lockdowel system for easy, fast assembly.
We are proud to offer Lockdowel as our only method for assembling frameless cabinets.
For more information about outsourcing now and in the future of our industry, check out this study by the Wood Components Manufacturers Association. For more pros of outsourcing, read our previous article, "How to Make it in the Cabinet Industry: Part 2."
know to grow
As a cabinet maker, I understand that once a craftsman, always a craftsman. The problem though, is at some point you are going to want to grow beyond just your own, personal capabilities. In fact, the value of your shop depends on it.
If you have the grit to grow beyond your personal capabilities, you will soon find your when, why, and how.
The “When” is easy which begs the all important “Why”. If you take the time and pin down exactly why you want to increase capacity, then you are ready to tackle the “How." Remember when addressing the "How", keep an open mind and keep your pride of being a cabinet maker on the shop floor.
If you can push thru and execute these steps in detail you will be able to come up with a clear, concise plan of action that will keep your company nimble and eager for growth.