Capacity crunch at Tesla, the same as in your shop?
By Jack Greene, Jackson Productivity Research Inc.
Tesla has production capacity constraints according to news reports, within a major ramp-up of Model 3 output volume. And Tesla continues in the news, because capacity adds to other issues, from cash flow through the shortage of resources to work on other problems.
A ramp-up of Tesla’s scale is not common, although it does occurs at model change elsewhere in the auto industry, and when new product launches are scheduled. For most of us, such a major problem doesn’t occur. Hopefully.
But if Tesla is having capacity and utilization problems, we’d better remember it can happen to anyone.
I won’t try to solve the issues from a distance; especially if the experts on the ground are having trouble doing so. But capacity problems, bottlenecks, constraints do appear, all the time, in all sorts of activity. This article suggests common causes, and solutions that are usually effective.
Capacity, Utilization, Constraints; in the context of business operations
Capacity is the maximum amount possible, of… something. That something may be seats in a theater, grain in a silo, passengers in an airliner, gallons from a fountain. Or, to the focus of business, capacity may express the amount of widgets produced, service calls made, brick laid, pallets moved or stored, orders shipped, applications processed, lines of code written; all within a time frame.
Capacity is the sum of what your organization can create, given its resources. Often it can’t react as quickly as you’d like, either up or down. You may have noticed that.
The ability to produce a capacity is, sooner or later, limited by some constraint. Terms and units of the discussion are key. If one person visualizes the situation at a tree farm where trees grow around the clock, and another addresses the usage of a church auditorium, where most activity is on one morning of the week, there will be a serious disconnect.
A. In general,
1. Capacity will always depend on the product mix of output desired. So while your planning, at an optimum product mix, may yield a high capacity and utilization, your customers may buy an entirely different product mix.
2. Capacity will be controlled by one or more constraints, often equipment or people which tend to experience interference. Capacity will be limited by the lowest of the operating constraints that make up the total system. It may also be limited by some overlooked variable; space, utilities, materials handling.
3. Capacity will depend on production scheduling, as well as the availability of equipment to produce (think both equipment and people trained to operate it), as well as availability and delivery of components which may be produced in-house or half a world away.
4. The basic and effective way to raise capacity is to identify and quantify constraints; reduce the cycle time for the lowest constraint until it no longer is the lowest; micromanage all of the limiting factors carefully; reduce the cycle time for the next lowest constraint, and so on. If that sounds endless, it is.
B. The special case of new products and ramp-up, and learning curves
Some news reports suggest that Tesla constraints are merely because processes and equipment may be new to the factory, which hasn’t yet learned the exact procedure, and soon will. If so, it is easy to say, “give it six months and it will come around”; but we all know that is not acceptable in project management.
Volumes have been written about new products and ramp-ups and learning curves, and the suggested actions to work through individual constraints in priority order.
Personal experience says, get specs and process right before asking production to take over. That requires talent on the part of the specs and process people, and management discipline to refuse to let an arbitrary schedule force a premature product release. Never make your move too soon.
C. Manage constraints, by boardroom and policy actions
Don’t believe that constraints only exist on the operating floor of your enterprise. A management action, or policy, or practice, can well limit. Management does not set out to constrain, but sometimes it happens, and this section offers suggestions.
1. Take out the wasteful activity, all across the organization chart.
What is waste? A March 2009 “Business Week” article presents this test:
Will a customer pay for this activity?
Will my service fail without this activity?
Will I go to jail if I eliminate this activity?
Answer “no” to all three, and the activity can essentially be defined as waste.
Sounds good to me. And the cost savings will almost make you forget how much you have increased capacity.
2. Prioritize and assign resources according to priority. More on this later, in an article called Gorilla List. Where does the 900 pound gorilla sit? Anywhere he wants. Where does the first priority project obtain the resources to solve its problem? Anywhere in the organization chart, any purchase that can be justified. The second priority then selects, and so on. But first, management has to set priority and confirm, for lower priority projects, that lack of resources is a valid cause for delay.
3. As you match labor to the current requirement, do it objectively with work measurement. The resulting balance will be more efficient and productive. Until you establish objectively what output to expect from employees, you’ll never know how you stand, and they will never know how they are doing. Set expectations, assign responsibility, communicate, measure, report progress.
4. Cut cycle time and inventories concurrently. Reduce equipment changeover and its cost and negative impact on capacity and utilization. These actions tend to interfere with each other; take care.
5. Keep product quality up. Let me rephrase that; keep necessary quality up. Just because extremely high standards are necessary in pharmaceuticals and space ships doesn’t mean they are necessary for sunglasses and kitchen cabinets. Be sure to get the accelerator and brakes and air bags and steering system in your product line right. And remember the old adage that quality is built in, not inspected in. The capability of your process drives the quality level, not the other way around.
6. Balance the week, and the month.
Does your organization expend energy and resources to “make the month”? Rush out all product possible the last Friday of the month, and then ship nothing the next few days? Can you justify that behavior?
7. Reconsider your assumptions
It is said that no cost is fixed, as long as we are willing to reconsider our assumptions. The first reaction may be that these actions don’t relate to capacity, but if they tie up more than their fair share of capital or resources, they do. Consider,
· Match facility size and location to the customer base and volume.
· Rent or own facilities? Hire employees or retain temps?
· Expand, consolidate or relocate operations?
· Outsource work or perform it in-house?
· Part with under-loaded, high cost equipment?
· Move away from obsolescent technology?
· Apply product pruning, lop off the non-profitable products?
8. A frozen schedule helps output
The concept of schedule changes to meet customer orders has pros and cons. A change can benefit one customer of course; but at the expense of others. A change can cause an interruption to production output, and that is not free. An order that was first priority is now second. Be sure the change is worth the cost.
9. Provide your highly skilled people more hours in the day
Pull, from your key employees, work activities and tasks which can be adequately performed by less skilled employees. This will not only cut costs, it will provide the scarce, trained people more hours to perform their skills.
Your role model is a hospital operating room. Do you want the surgeons to hang around and clean up the OR afterwards? No, we will send in the cleaners while the surgeons go on to practice their skills elsewhere.
D. Focus attention on the constraints
to see that they are kept in operation; have plenty of material; receive immediate attention when there is a maintenance problem, are changed over as seldom as possible; are relieved at break and lunch and shift change. Observe to assure that all equipment is loaded and utilized. If constraints are not scheduled 24 hours a day, be sure to start them early to have their output on hand for the rest of the line when that equipment starts. Place lights, or alarms, at bottleneck equipment to alert others when that equipment goes down. Analyze scrap rates, reduce losses.
1. Capacity of an operation will be governed by its index time and components controlled by the operator. A good visual tool, called a “Man / Machine chart “, represents what happens and when. Specifically it is useful to determine how to reduce the cycle of the bottleneck.
A classic distinction relates to waiting; does the machine wait on the person or does the person wait on the machine? The terms “Internal” and “External” time are used; an internal element is performed by a person while the machine is performing its function. An external element is done by a person while the machine waits; obviously when you minimize external time, output rises.
Machine speeds are not necessarily fixed, they often may be sped up or slowed down. There is probably an optimum speed that will yield the most effective performance considering machine and operator wait times, product quality, machine reliability and maintenance.
2. Does overall output vary by crew size ; for instance is the cycle shorter if more people work on the activity? Determine the most cost effective crew size, depending on output required. Even overstaff, if it reduces the bottleneck index or up time. Balance crew work assignments, in any case.
3. Can short interval scheduling add control? Assign a small amount of work, perhaps 30 minutes, tell the worker how long the work should take, and require the worker to report when the work is finished. Then assign the next work element. This is very effective with non-repetitive work.
4. Study changeovers and down time , to reduce elapsed time. Stock change-over and replacement parts. Analyze and improve response time, crew size, sequence of events, methods, tools. Preventive maintenance is worth a chapter all by itself.
Remember that constraints come in a wide variety of forms
We tend to think of a constraint as a machine that cycles at a low speed, or breaks down often. In actual practice a constraint may present itself in many forms. Be alert to the constraint even if it consists of :
· a sales order that just had to be slipped into the schedule, which caused a line changeover and resultant delay
· a machine, under-loaded at one product mix, overloaded at another
· late shipment from a component vendor; perhaps for a new schedule.
· a busy chemist who creates new products, one at a time
· an undersized lab with no room to hire another scientist
· a test that determines product acceptability; physical, or chemical, or worse yet a 10 day biological test
· scrap that reduces the amount of acceptable product
· a vendor whose process is undersized for your present volume
- an inability to add a production shift
- an inability to add on to a facility
- a work position requiring rigorous training
Thanks for the attention, Good luck. Good luck, Tesla, Jack Greene
To comment on the blog, or discuss, contact Jack Greene at 843-422-1298 or at
By the way, you may want to keep your identity confidential early in the game, and that’s fine. Buy a cheap cell phone at the drugstore, and some minutes, call me. We’ll talk but you can keep your identity to yourself. I have worked that way before, and we’ll do it again. In the early stages, states and communities should not know your identity anyway; and I can help you select the long list, and into the short list, without knowing who you are myself. I’ll ask about your corporate preferences, and what required skills and major cost items are, to rank the communities by suitablity. Unless you are Amazon, and then apparently we play by a different set of rules.