Contract manufacturing

What if I told you you had the potential to be a Jedi, if you could only learn to tap into the full capacity of your mind? Well, you can’t because Star Wars is fiction, but your manufacturing set up is not fiction. Poor capacity utilization is a common challenge for contract manufacturing organizations (CMOs). If you have 10 manufacturing sites and are only using half on a weekly, monthly or annual basis, then your utilization rates are low. Industry best practice points to 70 percent utilization rates or higher, yet, it’s common for CMOs to report utilization rates in the 30-40 percent range. McKinsey research found that  solid dose  manufacturers were, on average, using only 25 percent of their total capacity. Underutilization is so prevalent that, according to McKinsey, the pharma industry “could shut down three out of four plants today and still meet demand.”

Why is Your Capacity Underutilized?

Poor capacity utilization can result from equipment shutdowns, untrained operators or incorrect materials. Some production runs might need specialized staff who are unavailable at the point of production. In fact, shortage of skilled labor in manufacturing is predicted to be a persistent and growing problem for the foreseeable future. According to Deloitte & The Manufacturing Institute, Over the next decade, nearly three and a half million manufacturing jobs likely need to be filled and the skills gap is expected to result in 2 million of those jobs going unfilled. However, customers don’t see the complexities of operations. To them, these are just excuses.

Inefficiencies associated with capacity underutilization can have a significant impact on profitability. When agility is low and turnaround times are at risk, financial metrics are also in jeopardy. Consider the impact on return on invested capital when more than half your equipment sits idle. You have mixers, blenders and dryers go unused 60 to 70 percent of the time.

What Can be Done About a Contract Manufacturer’s Underutilization?

The good news is that technological advances combined with smarter supply chain practices might solve these problems. Some companies, are addressing the issue by adjusting their product mix and divesting several sites. Another solution is the ability to schedule operations on a more granular level. For many companies that might not be an option because of broken processes that keep them from scheduling to the degree necessary to utilize capacity.

Whatever corrective actions a company may choose, they need the data to determine what those actions are. With the Internet of Things (IOT), Enterprise Resource Planning (ERP) and Manufacturing Execution Systems (MES), all collecting and communicating data, there will be many ways to go about improving capacity utilization. Historically, acquiring visibility down the production line has been a challenge. Legacy systems weren’t designed to talk to one another, but companies need them to because they’re basically Franken-companies, made up of smaller companies put together into one through M&A activity and divestitures.

Help is Out There: Become a Contract Manufacturing Jedi

Capacity planning isn’t the easiest thing to nail down. Fortunately there’s software that can assist you in solving your planning and scheduling problems. Improve your capacity utilization, integrate systems for greater organizational visibility and restore declining profitability.

With the right technology on your side, you can tap into your full capacity and maybe even become a manufacturing Jedi. To learn more about the operational challenges faced by contract manufacturers, check out our infographic.


  1. Hi Catherine,
    I was a heavy user of QAD in Philips Singapore 1996 to 1999 when I was the SCM manager.
    I just got a project enquiry for an ERP system for a local hospital catering 4000 and scaling up to 6500 meals a day.
    Do you have something from order taking to ward delivery and billing with some degree of automation such as bar code, RFID or similar know how interfaces.

    Would like to hear from you soon!!!,
    Yours Sincerely,
    Ng Thian Ser