Production For new products, what should we enter for capacity and automation?


All new products require capacity and automation. You cannot build a new product without a production plant!

The amount to enter for capacity and automation depends on the new product's intended segment. As a quick gauge, go to the Market Share Report, page 10 of the Courier. In the right column, Potential Market Share in Units, note the percentages for products in the intended segment. Next, multiply the percentage by the Units Demanded for the intended segment. If your new product satisfies the buying criteria for that segment, chances are its yearly sales will fall within that range.

Remember, each year segments grow by the percentages published in the segment analyses' Statistics boxes.

Depending on your strategy (and your financial resources) your company will need to decide if it wants to buy sufficient capacity to produce the product mostly on first shift, or purchase less capacity and run first and second shifts. The same constraints apply to automation. Higher automation increases the cost of the production line, plus it will increase the time needed to revise your product in R&D. However, higher automation lowers overall labor costs. Reviewing labor costs for existing products in the Production Information section of the Production Analysis (page 4 of the Courier) will give you an idea of labor costs at various automation ratings and plant utilizations.

Remember, second shift labor costs are 50% higher than first shift costs. 

In the year the invention project completes, you will be able to produce from the Revision Date through the end of the year. For example, if your project completes on July 1, you will be able to produce your product for the last six months of the year.

The spreadsheet will limit production to the amount that can be produced on first and second shift based upon the Revision Date.

If you have 600,000 units of First Shift Capacity (600 on the Production screen) over the course of a full year you can produce 1,200,000 units running first and second shifts. Stating it different, you can produce 100,000 units per month.

1,200,000 / 12 = 100,000

If a new product has a Revision Date of July 1and a First Shift Capacity of  600,000 units, you will only be able to produce 600,000 units using first and second shifts though the second 6 months of the year (from July 1 through December 31).

Remember, capacity and automation purchases take a full year to implement- buy it this year, use it next year. Generally, you should buy capacity and automation for a new product the same year you start an invention project in R&D.