Capacity

This is the last entry in the series about Inventory Management Fundamentals. If you missed the past entries on Demand Projection, Seasonality, Safety Stock and Inventory Reconciliation, you can check them out right here in the newsletter archives. 

This month’s newsletter is about capacity! Specifically, we’re looking at green coffee storage capacity and roasting capacity. We’ll look at how to calculate the green coffee storage capacity and roasting capacity of your facility, and then discuss why it can be very helpful to understand these numbers. 

Green Storage Capacity
Green coffee storage capacity is the maximum amount of green coffee that you can store at your roasting facility. To calculate the green coffee storage capacity of your facility, simply look at your storage area and try to accurately estimate how many bags of coffee you could fit in the space. Make sure that you leave enough space to safely work and move coffee around. If I have space at my facility for 20 standard pallets, then I can store about 200 69 kilo bags of green coffee, or 30,360 lbs. 

Why is it Important to Understand Green Storage Capacity? 
The primary reason that you want to know your storage capacity is to know the maximum amount of coffee you can release to your facility when the time comes to move coffees. Moving as much coffee as possible at once can help your business reduce freight costs and reduce the number of times that your team has to receive coffee. 

Once a roaster knows how much coffee they can release at a time and also knows how much of each coffee they are using per week, they can build releases that give them the optimal amount of inventory and safety stock for each coffee that they roast. Over time, releasing coffee this way will reduce the total number of deliveries that the roaster has to receive which reduces freight costs and saves time. 

Green Coffee Storage Capacity Implications
Understanding how much green coffee storage space you have can also help you make business decisions, such as new product decisions. 

Example:
Imagine a coffee roaster that has a small green coffee storage area relative to the size of their operation. This imaginary roaster is able to store 100 bags of green coffee and they are roasting about 50 bags of green coffee per week. We know already that they will need to get coffee delivered almost every week. This roaster should think twice about adding any new products that will take up more of their precious green coffee storage space!

Any roaster with limited green storage space will want to limit the amount of low volume products that they sell. The green coffee and packaging for those low volume products will take up a disproportionately large amount of space at the roastery and can increase the number of times that the roaster needs to have coffee delivered, which adds cost and complexity to the business. 

Roasting Capacity
Roasting capacity is the maximum amount of coffee that your business can roast in a period of time. Let’s calculate the weekly roasting capacity of an imaginary roaster.

Weekly Roasting Capacity = Batch Size x Number of Roasts per Hour x Roasting Hours per Week

Let’s say our imaginary roaster operates Monday to Friday, 7am to 7pm. It takes 1 hour each day to open the roastery and warm up the machines and 1 hour each day to turn off the machines and clean the facility. On Friday the roaster has to manage inventory and deep clean the roastery and only roasts for 5 hours. We then have 10 hours available for roasting Monday-Thursday and 5 hours available on Friday. Factoring in moving coffee around, weighing coffee, our between batch protocol, and cleaning out the chaff barrel, our team can do 3 roasts per hour. We have a 15kg roaster and our optimal batch size is 20lbs.

Weekly Roasting Capacity = 20lbs x 3 roasts per hour x 45 hours per week

Weekly Roasting Capacity = 2,700lbs

Note: Your facility might have another bottleneck that reduces the total roasting capacity of the operation. For example, if you can roast 2,000lbs of green coffee per week, but your bagger can only handle 1,000lbs of coffee per week, then your roasting capacity is reduced by the bottleneck created by the bagger. 

Calculate Roasting Capacity Utilization
Roasting Capacity Utilization is the amount of the available total roasting capacity that a coffee roaster is using.

Roasting Capacity Utilization = Average Weekly Volume / Total Roasting Capacity

Let’s calculate the roasting capacity utilization for the roaster in the previous example, assuming that this roaster is roasting 800lbs of green coffee per week on average.

Roasting Capacity Utilization = 800 / 2,700

Roasting Capacity Utilization = 29.6%

This tells us that this roaster can grow to be about 3x their current size with their current facility.
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Why is it important to understand roasting capacity?
Roasting capacity is important to understand as you make decisions for your business. If a roaster is currently using most of their roasting capacity, it likely doesn't make sense for them to be aggressively pursuing new wholesale accounts. Conversely, if a roaster has a lot of available roasting capacity, they may want to look into ways to grow through wholesale or private label. 

Summary
Understanding the green coffee storage capacity and roasting capacity of your company’s production facility is very important for making strategic business decisions. If you don’t already know these numbers, consider calculating them! Making strategic business decisions is an important part of running a sustainable business!

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