CAPACITY REQUIREMENT PLANNING

By

Sure ravikumar

Capacity Requirements Planning

• Capacity Requirements Planning is a computerized technique for projecting resource requirements for critical work stations.– Inputs:• Planned order releases• Routing file•Open orders file

–Outputs:• Load Profile for each work center

Definitions• Planned Order Releases: Information from the

Material Requirements Planning which tells when you should start the order so it can be completed on time.

Routing Files: Information that details the requirements of equipment and labor to complete the order as needed in the required time frame.

Open Orders Files: Information regarding the orders that are currently started and need to be completed.

Capacity Requirements Planning

• A tool for:– determining capacity that is available and required.– Alleviating bottleneck work centers.

• Helping planners make the right decisions on scheduling before problems develop.

• Verifies that you have sufficient capacity available to meet the capacity requirements for MRP plans.

What is Capacity?• The work that the system is capable of doing in a

period of time.• It must be determined at different levels:– plant – department– work center.

• It is normally stated in standard hours of work.

What is Capacity?• Capacity = (no. of machines or workers) x (no. shifts)

x (utilization) x (efficiency)

• Best operating level is the percent of capacity utilization that minimizes average unit cost. – Usually 80% with a 20% cushion

Utilization and Efficiency• Utilization is the percent of available time spent

working.

• Efficiency is how well a machine or worker performs compared to a standard output level.

Utilization and capacity

• Utilization=Actual Charged/ Schedule Available Hours

• Efficiency= Standard Hours Earned/ Actual Hours Charged

Reason to use CRP• Bottleneck Management -– The throughput of all products processed is

controlled by bottlenecks.– Work centers need to be scheduled at a rate to

prevent bottlenecks.– To eliminate bottlenecks, a time buffer inventory

should be established.

Basic Strategies for Timing Capacity

• CRP provides information to determine the timing of capacity expansion. The basic strategies in relation to a steady growth in demand are:– Capacity Lead Strategy– Capacity Lag Strategy – Average Capacity Strategy

Capacity Lead Strategy• In anticipation of demand, capacity is increased.

• This is an aggressive strategy and is used to lure customers away from competitors.

Average Capacity Strategy

• Average expected demand is calucated and capacity is increased accordingly

• This is the most moderate strategy

Capacity Lag Strategy • Increased capacity after demand has

increased• This is a conservative strategy and may result

in loss of customers• You assume customers will return after

capacity has been met

Capacity PlanningHow much to increase capacity demands

depend upon a number of factors, including:

• Anticipated demand – volume & certainty

• Strategic objectives

• Costs of expansion and operation

Adjustments to CapacityIncrease capacity by:

• Adding extra shifts

• Scheduling overtime or weekends

• Adding equipment and/or personnel

Reduce load by:

• Reducing lot sizes

• Holding work in production control

• Subcontracting work to outside suppliers

Adjustments to CapacityReduce capacity by:

• Temporarily reassigning staff

• Reducing the length of shifts

• Eliminating shifts

Increase load by:

• Releasing orders early

• Increasing lot sizes

• Making items normally outsourced

Capacity Planning• Best operating is seldom at 100% and varies with

industry.

– In industries where demand is highly variable, large capacity cushions are common.

– Companies with less flexibility and higher costs maintain small cushions – under 10%.

– Overbooking is common with some industries such as airlines.

Economies of Scale• Economies of scale is the best operating level.

• Economies of scale is the point where it costs less per unit to produce high levels of output.

– Occurs when fixed costs are spread over large number of units

Diseconomies of Scale• Occurs at a certain level of output.

–When fixed costs increase with number of units being produced, examples:

• Higher rework

• More equipment breakdown

What is CRP Used For?

• To determine the capability of a system or resource to produce a quantity of output in a particular time period. For example:– Should the hospital hire more registered

nurses to care for the projected patient load?– Should the hospital build more rooms for

patients?– What is the projected finish time for the

current projects?

CRP Produces Load Profile• CRP uses the information to produce a load profile

for each machine or work center. A load profile:

– Compares released orders and planned orders with the capacity of the work center.

– Identifies under loads and overloads.

What is a load?• Load refers to the standard hours of work

assigned to a facility.

What is the load percent?

Load percent is the ratio of load to capacity

Load percent=load/capacity

Engineering Calculations (Capacity)

Numbers of hours = 40 Shifts = 1Efficiency = 100%Utilization = 4/5 = 80%Capacity = 40 x 1 x 0.8 x 1.00 = 32 hours

Project 1 capacity = 4 (weeks) x 32 = 128Project 2 capacity = 2 (weeks) x 32 = 64Project 3 capacity = 4 (weeks) x 32 = 128Project 4 capacity = 3 (weeks) x 32 = 96

Engineering Calculations (Load)

Project 1 = 30 x 4 hours per mile = 120 hours(start by February 15th – must be completed by March 15th)

Project 2 = 20 x 4 hours per mile = 80 hours(start March 16th – must be completed by April 1st)

Project 3 = 5 x 4 hours per mile = 20 hours(start April 2nd – must be completed by May 1st)

Project 4 = 15 x 4 hours per mile = 60 hours(start by May 2nd – must be completed by May 23rd)

Engineering Calculations (Load %)

• Project 1 = 120/128 = 94%–Can be completed

• Project 2 = 80/64 = 125%–Can not be completed

• Project 3 = 20/128 = 16%–Can be completed

• Project 4 = 60/96 = 63%–Can be completed

Summary• To operate at maximum capacity, companies must

use the resources available. If resources under underutilized, the profit margin will not be maximum.

• Using capacity requirements planning helps a company identify potential problems, such as eliminating the possibility of overworking the current staff, overloading machines, losing customers because the work could not be completed as scheduled, paying penalties for late delivery.

• Thank you