ROUGH CUT CAPACITY PLANNING

ROUGH CUT CAPACITY PLANNING(RCCP)A. WHAT IS RCCP?Many people are familiar with the Manufacturing Planning and Control (MPC) Systems which are driven by Material requirements planning (MRP) engines. In such systems MRP uses a master production schedule (MPS) of end items to determine the quantity and timing of component parts production. MRP does not consider any capacity limitation; it strictly assumes that, sufficient capacity is available to produce components at the time when they are needed.The most common problem which is encountered in operating MRP based systems is the existence of an overstated MPS. An overstated master production schedule is the one which orders more than the production resources can complete. An overstated MPS causes raw materials and WIP inventories to increase because more materials are purchased and released to the shop than are completed and shipped. It also causes a buildup of queues on the shop floor. Since jobs have to wait to be processed, actual lead times increase, causing ship dates to be missed. As lead times increase, forecast over the planning horizon becomes less accurate. This is because of the fact that, forecasts are more accurate for shorter periods than for longer ones. Thus, overstated master production schedules lead to missed due dates. Because of all the above given reasons, validating the MPS with respect to available capacity is an extremely important step in MRP. The term used for this validation exercise is Rough Cut Capacity Planning (RCCP).There is no general agreement on the level of detail that should be incorporated in the MPS validation. An APICS monograph (Berry, Voliman, and Whybark 1979) presents case histories of several companies, including details on the capacity planning process. Some companies using very crude techniques while others are using detailed, time phased, methods.Basically there are three approaches to perform rough cut capacity planning. These can be summarized as follows;

a) Capacity planning using overall factors (CPOF) :It is the least detailed approach. Capacity requirement is quickly computed but is insensitive to shifts in product mix.b) Bill of labor (or bill of required types of machine hours) approach : It involves multiplying two matrices, the bill of labor and the master production schedule. This approach picks up shifts in product mix, but does not consider lead time offsets. It strictly assumes a lot-for-lot policy for setting lot sizes. When other techniques, such as economic order quantity etc is used, then this approach gives a very rough estimate.c) Resource Profile approach :

It is exactly same as Bill of labor approach, except that it takes lead-time offsets into account. Again, it strictly assumes a lot-for-lot policy for setting lot sizes as in the case of bill of labor approach.For the above indicated reasons, the bill of labor approach is recommended because it is easily implemented on a personal computer and is just as accurate as the more cumbersome resource profile approach.In any event, rough cut capacity planning should be used only to determine if sufficient capacity exists over broad time frames such as a month or a quarter.B. THE ROLE OF CAPACITY PLANNING IN THE PRODUCTION PLANNING AND CONTROL SYSTEM

An overview of the entire manufacturing planning and control (MPC) process based on MRP is given in Figure 1. Within this process, capacity management techniques are usually separated into four categories as;

a) resource requirements planning (RRP), b) rough cut capacity planning (RCCP), c) capacity requirements planning (CRP), and d) input/ output controlInfact, these capacity management techniques represent the four planning time horizons considered. In a typical MRP system the general sequence is; to create a master schedule, use rough cut capacity planning to verify that the MPS is feasible, perform the MRP explosion, and send planned order release data to capacity requirements planning. Figure 1Plossl and Welch (1979) describe the role played by RCCP in the overall MPC system as follows:a) Production and inventory planning is the process of dealing with flexibility to meet the desires of the customer, the need for stability in manufacturing and the resultant inventory levels to compensate for the mismatch. The process Involves performing three functions effectively: Developing an achievable Master Production Schedule. Planning and controlling priorities. Planning and controlling capacities.b) Priority Planning is the process of specifying batch quantities and their start and finish dates for all items where procurement and manufacture are involved.c) Priority Control is making the right things at the right time. It is completely dependent on maintaining a balance between master schedule [MPS] requirements and output rates. If the plant and its vendors do not produce enough in total, they will not be able to hold schedule for the right items.d) Capacity planning is the task of determining how much output is needed from plant facilities and from suppliers. If less-than-adequate capacity is available, the problem is unmanageable.e) Capacity control is the comparison between planned levels and actual outputs achieved and the identification of significant variances above or below plan. Corrective action must be initiated promptly if control is to be maintained, that usually means adjusting capacity, preferable in most cases to the alternative of changing the master schedule . . .In an MRP system, the functions of capacity planning and control are separated from the functions of priority planning and control. As Figure 1 illustrates, the capacity planning functions consist of resource requirements planning (RRP), rough cut capacity planning (RCCP), and capacity requirements planning (CRP). Capacity control is usually performed by input/output control. Priority planning is the task of the MRP system. On the shop floor priority control is determined by the use of a dispatching technique to sequence specific tasks on specific machines.Many people blame MRP system for its assumption of infinite capacity. This situation is somewhat ironic since the main task of MRP is not capacity planning but priority planning. That is, MRP is not a direct tool for capacity planning. So, capacity management should be handled by some other proper tools and techniques. However, there are very many companies which are not successful in using these because of the following reasons;a) Data requirements are quite high. b) The capacity planning process is designed to re iterative and therefore, is time-consuming. c) Many companies do not have a stable MPS. If the MPS is unstable, capacity planning is a futile exercise.C. A CASE STUDY OF RCCPAfter having reviewed what is rough cut capacity planning and the role of capacity planning in an MPC system, now we can proceed with an application exercise for RCCP and give more explanations for clarification when ever required. Remember that we are performing the RCCP to develop a Master Production Schedule which is not overstated. In other words, to develop a feasible MPS from a preliminary MPS.In this case study we will have a lamp manufacturing company which produces lamps similar to the one which is shown in Figure 2.

Figure 2

Figure 3Developing the Master Production ScheduleHaving the available information and data, the company develops a preliminary master schedule for the coming year as shown in Table 1.

Table 1

As can be seen from Table 1, demand for lamps is quite seasonal (see forecast column). The demand is at the peak during the winter holiday season (November & December) and a minor peak at income tax return time (May-June period). The company wishes to have stable employment in order to produce superior quality, so it chooses to operate a level production strategy (same regular/minimum production rate for all months - in our case 15000 units/month), with overtime as needed.When a level production strategy is used, finished goods inventory must be built in advance of the seasonal peak. The minimum level of inventory planned is the safety stock level, which provides protection against forecast error. Since the company has little excess capacity to permit recovery from poor forecasts, it carries a fairly substantial safety stock of 8,000 units. The maximum level of inventory planned is the amount needed at the end of October to meet the holiday peak season. For the previous year, that maximum was 47,900 units.Because the company produces a single product family and because its strategy of stable employment, it has limited options available for aggregate planning. So, the process of preparing the MPS is quite simple: Current inventory is known. The desired year-end inventory is known (15,000 units, enough to provide anticipation inventory for January, 2010). Minimum production is 15,000 units per month, or 180,000 units per year. Total demand is forecast to be 197,000 units. A maximum of 4,000 units per month can be built using overtime, and Anticipation inventory should be built as late as possible to minimize holding costs, so the 17,000 units to be built on overtime are allocated to August, September, October, November, and December.Validating the Master Production ScheduleThe company wishes to validate the master production schedule at five key resources: lamp assembly, oven, base forming, plastic molding, and socket assembly. Lamp assembly assembles the base, the socket, and the shade to complete the lamp. The oven bakes the ceramic clay created at the base forming department. Plastic molding creates the plastic lampshade. Socket assembly assembles all socket components except the power cord. The RCCP technique is used to verify that adequate capacity exists at each of the five stations. The technique consists of comparing a machine load report of capacity required to planned-available capacity at each work center.An example of a machine load report for plastic molding is shown in Figure 4. As the figure clearly shows, plastic molding has adequate capacity. There are 400 standard hours available without overtime (500 with overtime) during each month of the year. Capacity required varies from 320 standard hours to 380 standard hours. Thus, plastic molding should be able to meet the production schedule all year without overtime.

Figure 4

The next section discusses the determination of capacity available (RCCP techniques) and decisions to be taken if available capacity is inadequate. Both discussions assume a stable MPS.RCCP TECHNIQUESAll the three techniques as defined in section A of this document (CPOF approach, Bill of Labor approach and Resource Profile approach) serve the same basic purpose of determining available capacity. But, each of them has different data requirements and computational complexity.

Capacity planning using overall factors (CPOF approach) requires the least detailed data and the least computational effort. It is also the approach that is most affected by any changes that occur in product volume or the level of effort required to build a product. Capacity planning using overall factors can be performed using a calculatorThe bill of labor approach uses detailed data in terms of time standards for each product at the key resources. Here it should be remembered that, since production processes are continuously improved, time standards may become obsolete and hence, less reliable through out time. A time standard which is two or three years old is probably not good for use in these calculations. However, an adjustment factor which is known as efficiency that may be used to correct such outdated time standards. Resource profile approach is the most detailed technique. It also requires standard time data. In addition, it requires the lead time required to perform certain tasks.Both the bill of labor approach and the resource profile approach can be performed by using an electronic spreadsheet on a basic personal computer.All three techniques are designed to convert the master production schedule from units of end items to be produced into the amount of time required on certain key resources. In this way, the amount of time available on existing key resources can be determined in advance and thus, it becomes possible to plan timely expansion of these resources. In some cases, the RCCP process reveals that expanding the inadequate resources requires more time and/or money than the company is willing to invest. In such cases, the MPS must be revised.a) Capacity Planning Using Overall Factors (CPOF)CPOF approach requires three types of data inputs: The MPS data (data in terms of quantity),

The time the total plant requires to produce one "typical" part, and The historical proportion of total plant time required by each of the key resources.

If there are more than one product family, one "typical" part time is required for each family.CPOF multiplies the "typical" time by the MPS quantity to obtain total time required in the entire plant to meet the MPS. This time is then prorated among the key resources by multiplying total plant time by the historical proportion of time used at a given work center.The results of RCCP for our Lamp Manufacturing Company as calculated by using CPOF approach is given as shown in Table 2.

Table 2Our Lamp Manufacturing Company has only one product family, lamps. A typical lamp requires 0.22 standard hours of labor/machine time, as shown in Table 3. Multiplying each monthly MPS quantity which is shown in Table 1 by 0.22 yield the Total Capacity Requirements row of Table 2. The remaining rows of Table 2 are found by multiplying the total capacity requirement for the month times the historical proportion for the work center. For example, the value 1501.5 standard hours for lamp assembly for January is found by multiplying the historical proportion, 0.455, by January's total capacity requirement, 3300 hours. This computation can easily be performed for all work centers for all months using a spreadsheet program (such as ms excel) or a simple calculator. Table 3b) Bill of Labor ApproachIn literature, the definition of the bill of labor/machining is given as follows; The bill of labor/machining is a listing by item number of the amount of labor/machining required by a major labor/machining category to produce that item or group of part numbers. It is not intended to be a routing, but merely a means of estimating the capacity requirements for a particular item. The bill of labor/machining (BOL) may be compiled for every distinct item or for groups of similar items, and extended by the scheduled quantities to determine capacity requirements. (By Conlon)The bill of labor/machining is also known as; bill of resources or bill of capacity.In order to illustrate the concept of the bill of labor approach, we will use data from our Lamp Company. The bill of labor for lamp LAXX, as a "typical" lamp is shown in Table 3. (The standard time data is taken from engineering files. For this example, we will use the same data which we used for the CPOF approach.)To determine capacity required, the number of lamps to be assembled each month must be multiplied by the time per piece shown in the bill of labor. The assembly requirements are taken from the master production schedule (Table 1). To determine the total time required by a department in a given month, the number of lamps to be built during the month is multiplied by the time per lamp in the department. For example, it requires 0.10 hours to build one lamp at lamp assembly. January's MPS quantity is 15000 lamps. Therefore, 1500 standard hours are required at lamp assembly during January. All other entries in Table 4 are calculated in the same way.

Table 4Although the results as shown in Table 4 can be obtained by using a spread sheet, in todays manufacturing environment, probably all the required data is stored somewhere within the computer network which is composed of various manufacturing information system modules. For this reason, subject calculations may be done by a piece of software which is specifically designed for RCCP. Such a software can even give labor/machine load profiles as a graphical presentation, an example of which was given in Figure 4.If our Lamp Company produces more than one product, the time required for each product in each department would have to be determined. The sum of all product times for one department gives the required capacity for that department. In matrix notation see that; Table 4 is a five row by twelve column (5 x 12) matrix, The master schedule (Table 1) is a one row by twelve column (1 x 12) matrix and, The bill of labor (Table 3) is a five row by one column matrix (5 x 1). Students who are familiar with matrix multiplication will recognize that the process used to obtain the rough cut capacity requirements using the bill of labor approach is a matrix multiplication (The MPS must be transposed to enable multiplication.).The calculation routine for the first work center for the first month will be as follows;

Multiply the time for Product 1 at Work Center 1 by the demand quantity for Product 1, Multiply the time for Product 2 at Work Center 1 by the demand quantity for Product 2, Multiply the time for Product n at Work Center 1 by the demand quantity for Product n, and Add all the results to find the RCCP value for the first work center for the first month.Thus, the formula becomes;

n

Capacity Requirement = aik bkj for all i and j k=1A generalized example for the above calculation is given in Figure 5. Figure 5A numeric example which is for two products, two work centers and two months is presented in Figure 6.

Figure 6c) Resource Profile ApproachNeither the bill of labor approach nor the CPOF approach considers lead time offsets. Both approaches assume that all components are built in the same time period as the end item.The resource profile technique time phases the labor requirements. Each bill of labor must be time phased for the resource profile approach to be used. The resource profile technique is the most detailed rough cut approach, but is not as detailed as capacity requirements planning.Going back to our Lamp Company, we can develop a resource profile for Lamp LAXX (Table 5). This table would be identical to the bill of labor except that the time at each department is now associated with a specific time period, reflecting the lead time of the part. Consider the case that, our Lamp Company has a three-month lead-time. In the first month, the bases are formed. In the second month, the bases are processed through the oven, the socket assembly department creates socket assemblies, and shades are created at plastic molding. In the third month, the lamps are assembled from constituent components and subassemblies. Note that the lead times are unrealistically long. We created those numbers to produce a useful example. Table 5To create a resource profile, the lead-time had to be converted to periods of time prior to the period in which the order is promised. Since the last operation always occurs immediately prior to delivery, Lamp Assembly is shown as occurring at period 0.

Once the resource profile is created, the rough cut requirements are obtained by multiplying the resource profile by the MPS. This multiplication is not the simple matrix multiplication of the bill of labor approach. Rather, the procedure must keep careful track of the hours accumulated in each period. The resource profile approach is always implemented on a computer because of the tediousness of the calculations.A generalized example of the resource profile approach for a case involving two end products, two work centers, a three-month planning horizon, and a three months lead time should be developed and worked through in our example case. The generalized calculation for this case is given in Figure 7.

Figure 7Lets say a resource profile for Product 1 at Work Center 1 is split into three parts such as; the time required in Work Center 1 in the month the order for Product 1 is due, the time required in Work Center 1 one month before Product 1 is due, and the time required in Work Center 1 two months before Product 1 is due. Any or all of these times may be 0 for any given product and time until due date at any given work center, To find the time Work Center 1 works on Product 1 during Month 1, we multiply Month 1's demand by the time required at Work Center 1 during the month the product is due, we multiply Month 2's demand by the time required at Work Center 1 one month before the product is due, and we multiply Month 3's demand by the time required at Work Center 1 two months before the product is due. This process is then repeated for Product 2. We then add all six results (i.e., results of the multiplication process) to obtain the final value for the time required at Work Center 1 during Month 1. See term c11 in Figure 7.Because the end of horizon effect is unavoidable, the planning horizon for the resource profile approach must be quite long, To provide the same unbiased visibility as the bill of labor approach, the planning horizon must equal the bill of labor approach's planning horizon plus the lead time minus one period.

The results of RCCP using the resource profile approach for our Lamp Company can be developed as in Table 6.

Table 6This example would be a special case of the resource profile approach) because the product requires effort during only one period for all work centers. For lamp assembly, the results are identical with the BOL results, which have a time offset of 0. For the three operations having a one-month lead-time offset (oven, plastic molding, socket assembly), BOL results are shifted one month to the left. For base forming, results are shifted two months to the left. The left shift of some department times, reflecting the lead-time offset, results in an end-of-horizon effect during November and December, as predicted. Time requirements for November and December are 0 for some departments, reflecting the fact that the end item orders that require production in these departments will not be due until the following January or February. Since the planning horizon ends at December, no requirement can be shown at present. Users of the resource profile approach must be careful that the planning horizon is sufficiently long so that the first few periods do not exhibit an end of horizon effect. The first few periods of a planning horizon are the ones that must be accurate to provide MPS verification.Choosing a RCCP Technique

Obviously, the resource profile approach requires more computational effort than the bill of labor approach. Is there a return for the additional effort of creating the resource profiles and performing the extra computations? There may be a return, but only if lead times are quite long and the shop uses a lot for lot policy in establishing lot sizes.

It is not uncommon to find products whose manufacturing lead time runs several months. Most large, complex items such as airplanes, machine tools, and so on have very lengthy lead times. For parts having lengthy lead times, the resource profile approach might be useful because the bill of labor approach assumption that the components and the end item are built during the same month must be wrong. The resource profile approach avoids this assumption by including the time dimension. However, be aware that although the resource profile will have different information than the bill of labor approach regardless of how lot sizing is done, it is likely to have more accurate information only if lot sizing is lot for lot.

Since both the bill of labor and the resource profile results are incorrect when any lot sizing rule other than lot for lot is used, the bill of labor approach with time buckets as large as practical is recommended (i.e., monthly or quarterly buckets). For those companies having lot for lot lot sizing throughout all operations, the resource profile approach using small (e.g., weekly) buckets will provide quite a bit of additional information. Consider the profile shown in Table 7 and the master production schedule for the coming 4 weeks as shown in Table 8. Table 7 Table 8

The RCCP under bill of labor approach and under resource profile approach would be like as in Table 9 and Table 10 respectively. Table 9 Table 10

For an environment in which large batches lead to large week to week shifts in product, mix, the following analysis is correct: The CPOF approach utilizes less data than the bill of labor approach, but is insensitive to shifts in product mix. (The historical proportions of total hours used by CPOF reflect average product mix. They are insensitive to changes in product mix that occur because of seasonality and/or batching of components.) This statement explains both why CPOF has been used and why it should not be used now that computers are available. In the era before microcomputers (that for business purposes began about 1981) and even before inexpensive hand held calculators (that, perhaps surprisingly, began about 1976), the process of performing all of the multiplications required by the bill of labor approach was quite cumbersome. The CPOF approach was much simpler, requiring only that each total labor quantity, (i.e., one multiplication per cell) rather than several multiplications for each proportion. For many situations, CPOF was perhaps the only practical solution.

From the viewpoint of the traditional MRP user, the bill of labor approach is superior to capacity planning using overall factors, because it better predicts the actual change in hours required from week to week, From the viewpoint of the Just-in-Time philosophy discussed in a later section, there should not be such large product mix variations from week to week. If the lot size of each product were very small, then it would be possible to make each product every week. Since it is likely that the product is in fact consumed every week, then there is an advantage to matching the rate of production to the rate of sale or consumption so that inventory need not be stored. A secondary advantage of the "level load" philosophy of Just-in-Time is that capacity management is simplified,The bill of labor approach captures the changing product mix since each end product has its own bill of labor. For that reason, the bill of labor approach is strongly recommended over the CPOF approach. Given modern electronic spreadsheets, the bill of labor approach is just as simple to perform as CPOF. Thus, CPOF, while a useful technique only a few years ago, is clearly outdated and soon will be discussed only for historical interest.

The planning bill of material (or super bill of material) which covers different alternate lamp configurations is given in Figure 3.

The company runs only one shift, 40 hours per week, with a maximum of 10 hours per week overtime permitted. Given present employment levels, monthly production averages approximately 15,000 units without overtime and 19,000 units with maximum overtime.