The Strategic Importance of Effective Capacity Management

The adage goes that effective (and efficient) supply chain management extends from “a supplier’s supplier to a customer’s customers.”

Manufacturers are all rushing to “win” the race to electric automobiles. With this comes literally thousands of new and unique parts, of which suppliers may not have the production and/or engineering capacity to meet.

According to Opsahl, “The capacity of a supplier to launch new stuff…isn’t so much dependent on machine tools and production capacity as it is on human capital: business development, engineering and program management experts.” The magnitude of new parts requiring development—each of which takes 6-12 months of intensive work—will likely lead to parts shortages as automobile manufacturers rush to mass produce electric vehicles.

In short, the demand for unique electric vehicles’ components could exceed supply (i.e., capacity) capability.  Compounding this issue is no one knows the degree to which customers will switch from traditional gasoline-powered vehicles to EVs, particularly given the volume of vehicles isn’t expected to change significantly, and manufacturers plan to introduce 50% more new models than the previous 20-year trailing average.

Video Spotlight:  

• Capacity Planning – Overview and Key Concepts  (June 30, 2019, LeanVlog)

This post is based on the Forbes article, The Automotive Supply Chain Has A Capacity Problem—But Not Where OEMs Think , by Dave Opsahl, November 3, 2022, and the YouTube video in the Spotlight. Image source: Morsa Images/Getty Images

Discussion Questions:

1.  How can automobile manufacturers and suppliers more effectively collaborate on expected needs (volume, timing, etc.) when the overall automobile electrification industry is in its infancy?

Guidance: The industry will need to focus on contingency planning, scenario modeling, and early supplier involvement (ESI).

2. What role does forecasting play when the shift (i.e., timing) between gasoline-powered and electric vehicles is unknown?

Guidance: Forecasting in an environment with so many unknowns is best accomplished through Collaborative Planning Forecasting & Replenishment (CPRF), heightened (frequency, timing, details) discussions with suppliers, and possible insourcing/vertical integration.

3. How can lean tools/concepts be utilized for process simplification/complexity reduction (PS/CR)?

Guidance: Process design, kaizen/continuous improvement, and cross-functional work teams will enable a focus on fewer ‘unique’ parts/system designs and increased interchangeability between automobile models.