Companies that creatively align capability with customer needs, reduce the risk of becoming excess capacity.

One of those recurring conversations that take place at any industry gathering is the age-old question of whether our industry has too much capacity. At one recent meeting, the conversation became extremely interesting, as the debate evolved into a geographic sector-by-sector analysis of the alleged over capacity that was wreaking havoc on everyone’s ability to succeed financially. As the debate continued, I began to question whether I was an optimist or whether I was hearing the epitaph for my company – if not the entire industry.

As long as I have been involved in our industry, marketing guys focusing on the supply and demand curve have debated about what the right amount of capacity really is. It seems to go from not enough to way too much – usually in a matter of a couple of quarters. When capacity is tight, most make money, while gleefully adding to their capacity and sharing in the anticipated never-ending upward cycle. In bad times, like now, everyone bemoans the fact that the other guy’s capacity is making it impossible to make a buck, and something needs to be done to correct this excess capacity. In this case, something does happen – companies fail! Maybe the problem is not how much overall capacity our industry has, but what the functional capacity [read:capability] is.  

The optimist in me looks around and sees opportunity in the guise of “if” I had certain capabilities, I could participate in more secure segments of the industry. The opportunist in me looks at what I am making and whom I am competing with and wishes that some other guy would fail, so I could grab his business and make some money. The problem is that every time a company fails, no one really gains from the other guy’s demise. At the same time, everywhere you look, there are articles, blogs or conversations discussing segments that are booming because so few have the capability to participate in some specialized facets of this niche market.

Dealing with such conflicting emotions is tough, but at some point, reality sets in. All companies need to stay focused on their customers – the markets they are in and the applications they provide – and that’s when I begin to understand that it’s not necessarily about the amount of capacity a company has but about having the right kind of capabilities coupled with this capacity.

This is an industry that is all about technology. Technology, as Intel’s Gordon Moore defined, is a moving target, and it is moving increasingly faster. The fact is that we are not in a stagnant industry, and our customers are anything but stagnant in their needs. To keep up, we need to make sure we are advancing our capability to satisfy our customers’ increasing demand for advanced technology.

Maybe another way to look at it is to compare capacity to skills. Is there an over capacity of creative people? I think we would all answer with a resounding no! Therefore, if effective use of capacity is similar to creativity, then why should we believe that there is too much capacity?

I believe our industry does not have excess capacity, but instead, it has an imbalance between capacity and creativity. We need to examine our capabilities and align them with our customers’ needs, making sure capacity stays on track. Doing this does not necessarily require having tons of capital at your disposal.

This is where creativity comes to the forefront. If your customers' requirements, for example, dictate having the capability to drill or plate higher aspect ratio holes, then talk to your suppliers to understand how far you can push your capabilities via process improvement and whom you can outsource deficient processes to in order to meet the customers' needs. In some cases, you will be surprised how easy it is to attain a level of capability that you previously thought was not possible. And if that doesn’t work, you may be able to find a cost-effective subcontractor to handle the processes that you cannot attain or do not have the time to develop in-house. Tackling the problem creatively can help you accommodate the customers' advanced technology requirements.

Those who listen to their customers and take on the challenges to add capability seriously are the companies that typically are not worried about if there is too much capacity. They are aligning their capacity and capability with the market needs of their customers to make sure they do not become excess capacity. These are the creative companies that are thriving, even in down times. Meanwhile, the companies who are caught up in the rhetoric of closed loop sales, development and marketing are the companies who will, regardless of geographic location or relative size, be the excess capacity that falls by the wayside.

So, capacity is an issue. Do we have too much, not enough or just the right amount? As you walk through your facility, look around, listen and think about what the answer is as it applies to your company’s customers and markets served. PCD&F


Peter Bigelow is president and CEO of IMI (www.imipcb.com); This email address is being protected from spambots. You need JavaScript enabled to view it..