Creating Margin
Why having some spare capacity is important in whatever you do
Photo by Towfiqu barbhuiya on Unsplash
As we come to the end of the year and my last article until the New Year, I thought I’d share something about why we need to be conscious about not overloading ourselves with too many commitments in the new one.
In my younger days, I was responsible for the European sales and operation planning of about 50,000 tonnes per year of polyester film. This is made on a small number of huge machines, costing about £50-60m each, located around the world.
Because of the complexities of the manufacturing process, the output of a unit varied from day to day. When the unit ran well, it could make 30 metric tonnes per day, on an average day 25 metric tonnes, on a bad day maybe 15 and if the plant broke down…well that would be 0. There were bad days, sometimes several in a row. So the ongoing exam question was: what capacity per day do you plan for?*
Why am I telling you this story? After all, you’re very unlikely to end up in a specialist role like this. Well, there was a useful lesson that has stuck with me from those days; the importance of operational margin.
Operational Margin
Margin is the space between our load and our limit. In the case of our plant, the limit was what the plan could produce and the load was what we offered to the business, which in turn set the lead-time and promised delivery dates.
The limit of production was 30 if the unit is running really well but we couldn’t rely on that so we needed the offered load to be achievable over the long run. Planning on the average 25 being the limit was a safer move, but the effect of a bad day on customer service was huge.
That meant that we were safer still offering something a bit less. so the ‘spare’ capacity gave us some breathing room or margin. If we kept to the average we were running a bit ahead and if there was a problem, we could expect to catch up relatively quickly without having to constantly revise delivery dates.
As humans, we also need to create that operational margin for our output is amazingly inconsistent.
Why Not Run at 100%?
Running at 100% capacity for long periods doesn’t work. Eventually machines and people break. Machines need maintenance. People need rest. As humans, we’re inconsistent enough without outside interference. Mood, ill-health, hunger can all make our performance drop and that’s even before we throw in all the other factors that can put us off our stride e.g. unexpected rush items, family issues, weather etc.
Having margin enables you to run optimally. Changing tasks frequently incurs a switching cost. In an operations type environment, you reduce the total output and the same goes for humans. This loss of output due to frequent switching is central to the concept of Deep Work, made popular by Cal Newport. Focusing on one subject enables you to get into ‘flow’ and the output from thinking is increased.
Being unable to satisfy demand or being overwhelmed makes customers more demanding, not less. Our film customers ordered more film to make sure they got what they wanted. In service industries, clients tend to become more fixated on deadlines and progress reports if you fail to make deadlines.
All this puts far more stress on the individual with no improvement to performance or profitability. It’s possible to keep the output up for a short period of time but eventually something or someone snaps. This failure then creates a feedback loop of problems. If Elon Musk burns out, he’ll be OK. He needn’t work again. You? I suspect that’s a different story.
Being Smart With Margin
If not 100%, then what? Clearly, if machines don’t have orders to make or people are sitting around doing nothing, then it’s not optimal either. The answer on our production line was to make stock. We would make some stock of regular customer orders so that we could use that as a buffer if we had a problem, and continue to run the unit optimally.
In a people business, there are always important but not urgent activities that need to be done through the year that can be brought forward, within reason, to fill those quiet gaps. If it’s done now, then it’s something that won’t need to be done later e.g. I aim to do my Chartered Marketer Continued Professional Development early in the year rather than leaving it to the last minute. Then, if an emergency crops up in the submission month, it’s one less substantial task to worry about.
Many productivity tools like Asana, Trello, Motion.io have Kanban boards so that you can capture all your personal or work related tasks and work on the priorities when you have some spare capacity. Just pick something that’s important but not urgent and do it before it becomes urgent. However, resist the temptation to keep on working through the list!
Judgement Call
Setting the right amount of margin is very much a judgement call for individuals. Recession and the cost of living will put severe pressure on people to run with reduced personal margin and take on too much, but the consequences of doing too much and burning out may lead to far bigger problems in the long run.
For me, 2022 has been a year with greatly reduced limits. Long COVID lowered that limit of what is achievable in a day considerable and some weeks the load reduced to the bare minimum to get by. Now, finger crossed, over it, I’m still having to make sure that I raise that limit and allow enough margin in terms of physical health and mental stamina. So next year, I’ll be practicing what I preach.
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Thanks for supporting the newsletter in 2022. I wish you and your families a restful holiday. See you in 2023.
With Best Wishes
Pete