All companies face the challenge of using their resources to maximum efficiency. Companies that have excess resources face the prospect of losing money in that they have capacity they are not using. Companies that are using their resources to their full potential and still could produce or sell more beyond that potential are losing sales. The challenge to organizations is to balance their resource use so that they face neither shortages nor excess. This research considers how one company—Home Depot—might balance those challenges through the use of capacity planning.
What is Capacity Planning?
Capacity planning is the method that companies use to ensure that their resources are used to their full potential, and that the companies have the right resources in place to maximize their efficiency and profitability (Dutton, 2007). Capacity planning is often associated with manufacturing organizations that seek to use it to minimize supply chain constraints so that a minimum number of resources—machines or labor—are idle. Just-in-time inventory programs are an example of one way that companies can seek to improve capacity planning; there are also numerous software programs on the market that address this issue, as well (Martin, 2001).
Capacity Planning in a Retail Environment
Capacity planning is popular in manufacturing environments in part because the issues are relatively easy to quantify. Each machine has a specific capacity—it can process so many widgets in a period of time. The entire manufacturing process can be mapped out with the various machines and their capacity, and bottlenecks can be identified and isolated. Typically, additional resources are used to eliminate those bottlenecks, or techniques such as just-in-time processes are implemented to minimize the effects of the bottlenecks (Porter, 1997).
Increasingly, companies recognized that capacity planning techniques could be applied to more than just manufacturing. Purchasing, for example, was subject to capacity factors such as how long it would take for a company to deliver goods once they were ordered. Warehouse capacity and the ability to store goods came under the scrutiny of capacity planners. Even finance influenced capacity decisions as managing cash flow in order to pay for goods and services was recognized as presenting a constraint on capacity (Martin, 2001).
Each of these factors comes into play in the retail environment. Here, companies are not focused on their capacity to manufacture goods but rather on their capacity to purchase, store and sell goods. If a retailer has too many goods for sale, it will be forced to reduce prices in order to clear its inventory in addition to paying for excess inventory storage. If a retailer has too few goods available for sale, it is missing out on additional revenue (Martin, 2001).
Capacity Planning Implications at Home Depot
These are precisely the issues that confront Home Depot. The company wants to have enough of a particular good available for sale, but not so much that it faces reducing the sale price of the good. At the same time, it wants to ensure that its personnel are interacting with customers and “upselling” or offering a high level of customer service so that customers will return to the store in the future. This means that the company must invest in technology where possible so that store personnel can spend more time interacting with customers (Griffin, 2005).
To this end, the company invested in technology that provided credit authorization in less than one second; this improved the company’s ability to move customers through the checkout. More customers could be processed in a given period, lines were shorter and customer satisfaction improved. Technology, in fact, proved central to the company’s success in the 1990s and early 2000s as it focused on increasing its capacity, but the organization also provided comprehensive training to support the technology (Griffin, 2005).
Capacity planning is as important for retailers as for any other organization, and can rely on technology. However, personnel must be trained in capacity planning, as well, and any plan which fails to take the human element into account will fail to meet expectations. Home Depot has combined technology with the human interface to improve its capacity planning and has done so in ways that continue to contribute to its long-term success.