INDUSTRY CAPACITY — Matching Marketplace Realities
2) Non-core business areas of activity. These are the services and products you provide that are different in nature to your core business. For printers, these might be design, prepress, postpress and fulfillment activities. These areas should be analyzed very carefully before you decide to jump in. If you make the decision to do so, then that piece of business should be consciously sized to always run at full capacity.
For my company, Rickard Bindery, this means we look at the amount of work we have suited to an operation in the slowest time of the year and size that capacity to be 80 percent of that slowest period.
This allows us to outsource the work that doesn’t fit well and keep outside vendors at least somewhat busy during slow periods, which has many loyalty benefits. It also gives us a department that is always contributing to its share of overhead and, as we all know, things just run better and with fewer errors when running at or very near capacity.
During expansion periods, equipment manufacturers sometimes offer additional non-core equipment as incentives for taking action on large core purchases.
Undeniably, it’s tempting to consider these offers. However, equipment “bargains” such as these are riddled with hidden costs like: diversion of management attention that should be devoted to core business; loss of your production floor space that could be used to build core business; reduction in core business working capital; and full-price variable labor.
Regarding labor costs, we have yet to find any employee willing to work at a 50 percent wage rate to match a 50 percent machinery discount.
3) Support capacity. This is the capacity that is not actually needed to operate and control production activity. Delivery, accounting, marketing and legal services are a few examples that come to mind. Most companies are wise enough to outsource their legal services. Many outsource the payroll function of accounting, but why not everything else? Rickard Bindery does. As a result, good things have happened. For example, our bean counting costs have been more than halved.