10 Key Factors That Affect Supplier Production Capacity

Before you start working with a new supplier to manufacture your products in China, Vietnam, or elsewhere, you need to assess their production capacity…

Chinese suppliers are prone to over-promising on their ability to handle orders. This is all very well, and some positivity from a supplier is not necessarily a bad thing, but a lack of supplier production capacity can cause quality, delivery, and cost issues down the line; not to mention upsetting your customers who won’t get their products when promised.

So, production capacity has quite a fundamental effect on your business on the whole.

 

How to assess a supplier’s production capacity?

There are 2 options:

1. You visit the supplier and examine their situation on-site in the factory, as well as asking specific probing questions.
2. You use a local service provider to source new suppliers and/or go in and perform factory audits, both of which will tackle the issues of production capacity.

With the coronavirus pandemic still ongoing, importers’ access to China is difficult at best, and so option 2 (using companies like Sofeast who are already on the ground in China) is a popular solution that is far more convenient.

If you want to explore the activities taken to assess supplier production capacity, listen to this episode of our podcast:

What factors impact production capacity?

Let’s imagine you have unrestricted access to a factory and you can look at all the factors that affect the supplier’s capacity to fulfil your order. What to look at?

Traditionally staff levels and equipment are used as a kind of barometer for potential capacity by suppliers, but these are not always the most important factors:

• Staff levels – with the exception of the garment trade, staff levels in the factory are not well correlated with capacity. Rather, it’s how the staff are used, equipment, processes, and many other factors.
  For instance, if a supplier’s factory is highly automated there is no need for a large number of operators, but their output may be a lot greater than that of a factory with many operators all working manually.
  The same can be said for factories that subcontract a lot of the work and mainly handle final assembly.
• Equipment – equipment has a role in capacity, but how the equipment is used and the processes surrounding its use are far more critical. If there are numerous bottlenecks in production, a piece of equipment which is capable of producing 20,000 pieces per day may only be able to produce 5,000. Of course, the supplier may not tell you this, they might merely give you the maximum number.

So let’s explore the other factors that can actually make more of a difference to production capacity:

1. Equipment maintenance – unplanned equipment downtime will cut capacity dramatically, especially if spare parts need to be ordered and it takes time. Does the supplier have a preventive maintenance plan? Does the equipment look like it’s cared for and in a good condition?
2. Supplier’s supply chain – your suppliers are reliant on their own suppliers, especially in the case of customized components. If their suppliers aren’t delivering on time, then your order will very likely be delayed. Have you examined these key sub-suppliers?
3. Component & material quality – the quality of your productions’ inputs (materials/components) has an impact. In the best case, poor quality will hold up production while the sub-standard materials are returned and replaced by those that reach your standards. In the worst case, it triggers rework, which consumes a lot of manpower.
4. Internal quality – if you have a number of operators reworking a batch, questions need to be asked about how that batch ended up with problems. Firstly, the rework takes away operators from production and secondly, the supplier may not be controlling their internal quality well enough. This will result in delays.
5. Material & production planning – can be lacking in China. What happens if the supplier hasn’t planned their processes or materials? There is likely to be idle time if operators are not given the equipment, material, etc, that they need when they need it. Poor planning is very bad for capacity.
6. Staff training – a high number of mistakes, and lower productivity, both affect capacity. The bottom line is, well-trained operators and office workers make fewer mistakes and work faster.
7. Tooling fixtures & automation – good process engineering implements the tooling or fixtures needed, that sets up automation, eliminates sources of mistakes, etc. It helps to speed up the production and improve quality.
8. Internal logistics – the speed with which your warehouse staff can get incoming materials and components to the operators certainly has an effect, so how organized are the warehouse and receiving staff? Any confusion, or poor planning, leads to delays which affect the amount to produce.
9. Engineering change notices – producing prototypes on a new design in-between two production work order does slow production down. Especially if changeovers take a long time. A customer that request a lot of engineering changes needs to be made aware of this.
10. Product mix – the types of production runs being performed can affect capacity. For example, with high mix low volume runs, operators are often switching between different product types and can’t get into as much of a rhythm. By contrast, during longer runs, the engineers have more time to improve the processes and make tweaks that improve speed, quality, etc, which all feeds into a greater capacity.

 

How to increase a Chinese factory’s capacity?

This is a good question following on from these 12 factors.

David Collins, Consulting Director at CMC, touches on improving all of the above in this video. He covers ERPs and production planning, material flow and factory layout, increasing staff and internal logistics efficiency, organizing packaging, and more:

Summing up…

The average Chinese manufacturer will describe their capacity to you in terms of the number of staff and machines they have on-site. While these figures may be impressive, they’re an unreliable source of information about the capacity and, therefore, the supplier’s ability to handle your order.

Rather, you’ll consider the activities and processes that affect how operators work and machines are used. So, in the case of machinery, for example, the maintenance of the equipment is critical as simply having a number of machines, some of which are inoperative due to being out of order, doesn’t mean much in comparison to fewer fully-operational machines.

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Has your quoted supplier production capacity proven to be as stated or was it less? What sort of issues did this cause for you? Let us know by commenting, please.

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