Capacity requirements planning

What Is Capacity Requirements Planning?

Capacity requirements planning (CRP) is a detailed, short-range planning process within the broader field of Supply Chain Management. It involves calculating the amount of workload that existing production facilities and labor can handle, and comparing it against the planned production orders. The primary goal of capacity requirements planning is to ensure that a company has the necessary resources—including machines, labor, and work centers—to meet its production planning schedule. This process is crucial for effective operations management, enabling businesses to identify potential bottlenecks and make timely adjustments to avoid production delays and ensure smooth output.

History and Origin

Capacity requirements planning evolved as a critical component of sophisticated manufacturing planning and control systems. Its roots are firmly planted in the development of Material Requirements Planning (MRP) in the 1960s, which focused primarily on managing material flows. As businesses recognized the need for more comprehensive control over all resources, MRP systems evolved into Manufacturing Resource Planning (MRP II) in the early 1980s. MRP II expanded upon MRP by integrating financial planning, marketing, and, importantly, detailed capacity planning capabilities like CRP. This shift allowed companies to not only determine what materials were needed but also how and when production capacity would be utilized to meet demand. The addition of capacity requirements planning allowed for an integrated, or closed-loop, manufacturing planning and control system that could account for both materials and production constraints,,.
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Key Takeaways

Capacity requirements planning (CRP) is a short-range planning tool that ensures a business has adequate resources for its production schedule.
It assesses the workload on specific work centers, machines, and labor against their available capacity.
CRP helps identify potential bottlenecks and resource shortages, allowing for proactive adjustments.
The process is essential for maintaining production flow, meeting customer demand, and optimizing resource allocation.
It operates at a detailed level, considering individual work orders and specific machine/labor capabilities.

Formula and Calculation

Capacity requirements planning does not typically use a single, universal formula but rather a set of calculations for each work center to determine its load. The core idea is to sum the total standard hours of work required by all planned orders and compare it against the work center's available hours.

The calculation for the load on a work center can be expressed as:

\text{Work Center Load} = \sum_{i=1}^{n} (\text{Quantity}_i \times \text{Standard Time}_i)

Where:

(\text{Work Center Load}) = The total demand for capacity (in hours) on a specific work center.
(\sum_{i=1}^{n}) = Summation for all 'n' planned orders to be processed at that work center.
(\text{Quantity}_i) = The quantity of item (i) in a planned order.
(\text{Standard Time}_i) = The standard time (e.g., in hours per unit) required to produce one unit of item (i) at that work center. This includes setup time and run time per unit.

The available capacity of a work center can be calculated as:

\text{Available Capacity} = \text{Number of Machines/Workers} \times \text{Hours per Shift} \times \text{Number of Shifts} \times \text{Utilization} \times \text{Efficiency}

Where:

(\text{Number of Machines/Workers}) = The count of available production units or personnel.
(\text{Hours per Shift}) = The duration of each working shift.
(\text{Number of Shifts}) = The total number of shifts operated per planning period.
(\text{Utilization}) = The percentage of time a work center is actually used out of the total available time.
(\text{Efficiency}) = How well the work center performs when it is active, compared to standard performance.

By comparing the (\text{Work Center Load}) to the (\text{Available Capacity}), businesses can identify overload or underload situations. The inputs for these calculations often come from the Material requirements planning system's planned orders and the company's routing and work center data.

Interpreting the Capacity Requirements Planning

Interpreting the results of capacity requirements planning involves comparing the calculated workload against the available capacity for each work center and time period. A key interpretation is identifying discrepancies between demand and supply of capacity. If the workload significantly exceeds available capacity, it indicates an overload, meaning the company cannot meet its planned production schedule without intervention. This situation necessitates actions like overtime, outsourcing, or rescheduling. Conversely, if available capacity far exceeds the workload, it suggests underutilization of resources, which can lead to inefficiencies and higher costs.

Effective interpretation allows management to make informed decisions about adjusting resource levels, such as hiring temporary workers, purchasing new machinery, or modifying production scheduling. It also helps identify critical work centers that might become bottlenecks, even if the overall capacity appears sufficient. By analyzing the output of capacity requirements planning, firms can improve efficiency and ensure a smoother production flow, aligning capacity with actual production needs.

Hypothetical Example

Consider a custom furniture manufacturer, "Fine Woodworks Inc.," which uses capacity requirements planning to manage its production. They have a woodworking shop with several work centers, including a cutting station, an assembly station, and a finishing station.

A new order comes in for 100 custom dining chairs. The Master Production Schedule for the upcoming month includes these 100 chairs, in addition to existing orders.

Fine Woodworks Inc. has the following standard times for each chair at its work centers:

Cutting Station: 0.5 hours per chair
Assembly Station: 1.0 hours per chair
Finishing Station: 0.75 hours per chair

And the available capacity for the month (assuming a 160-hour work month for a single shift, with 90% utilization and 100% efficiency):

Cutting Station: 160 hours * 90% = 144 available hours
Assembly Station: 160 hours * 90% = 144 available hours
Finishing Station: 160 hours * 90% = 144 available hours

Step-by-step Capacity Requirements Planning:

Calculate Load for New Order:
- Cutting Station Load: 100 chairs * 0.5 hours/chair = 50 hours
- Assembly Station Load: 100 chairs * 1.0 hours/chair = 100 hours
- Finishing Station Load: 100 chairs * 0.75 hours/chair = 75 hours
Add to Existing Load: Suppose existing orders for the month already consume these hours:
- Existing Cutting Load: 80 hours
- Existing Assembly Load: 30 hours
- Existing Finishing Load: 110 hours
Total Load for the Month:
- Cutting Station: 80 (existing) + 50 (new) = 130 hours
- Assembly Station: 30 (existing) + 100 (new) = 130 hours
- Finishing Station: 110 (existing) + 75 (new) = 185 hours
Compare Load to Available Capacity:
- Cutting Station: 130 hours (Load) vs. 144 hours (Available) -> Underload/Sufficient
- Assembly Station: 130 hours (Load) vs. 144 hours (Available) -> Underload/Sufficient
- Finishing Station: 185 hours (Load) vs. 144 hours (Available) -> Overload of 41 hours!

In this scenario, Fine Woodworks Inc. identifies a significant overload at the Finishing Station. Without adjusting, they will not be able to complete the 100 chairs on time due to a bottleneck in finishing. They might need to consider options like scheduling overtime for the finishing team, temporarily shifting workers from less busy stations if cross-trained, or extending the lead time for the order. This foresight, provided by capacity requirements planning, allows the company to proactively manage its resources and commitments.

Practical Applications

Capacity requirements planning is a vital process across various industries, particularly in manufacturing and service sectors where managing resources and meeting deadlines are paramount. Its practical applications include:

Production Scheduling Optimization: CRP directly informs detailed production schedules, ensuring that the work assigned to each machine and employee aligns with their actual capacity. This helps to smooth production flow and avoid bottlenecks, leading to improved throughput.
Resource Allocation and Planning: It enables businesses to make informed decisions regarding resource allocation, such as determining when to hire additional staff, invest in new equipment, or utilize existing resources more effectively. For example, by pinpointing capacity gaps, companies can strategically plan for future hiring or machinery purchases.
⁵ Order Promising: Companies can use CRP to provide realistic delivery dates to customers. By understanding current and future capacity loads, they can accurately promise when an order can be completed, enhancing customer satisfaction and reliability.
Overtime and Outsourcing Decisions: When CRP reveals short-term capacity shortages, it guides decisions on whether to schedule overtime for workers or outsource certain production steps to maintain the schedule without long-term resource commitments.
⁴ Inventory Management: While closely linked to inventory management through MRP, CRP helps prevent excessive work-in-process inventory due to production imbalances, ensuring a more streamlined flow of goods.
Strategic Capacity Planning: Though primarily a short-range tool, the aggregated data from capacity requirements planning can inform longer-term capacity planning strategies, helping management anticipate needs for facility expansion or reduction.

Limitations and Criticisms

Despite its benefits, capacity requirements planning has several limitations and faces criticisms, primarily concerning its data demands and sensitivity to input accuracy:

Data Accuracy and Timeliness: CRP relies heavily on accurate and up-to-date data for factors like routing, work center availability, standard times, and inventory status. Inaccurate data can lead to misleading capacity analyses, resulting in either over-committing resources or underutilizing them. Ma³intaining this data can be time-consuming and challenging in dynamic environments.
² Forecasting Inaccuracy: The effectiveness of capacity requirements planning is directly tied to the accuracy of demand forecasting from the Master Production Schedule. Significant deviations between forecasted and actual demand can quickly render the CRP output irrelevant, leading to either idle capacity or missed deadlines.
¹ Complexity and Computational Effort: For companies with a large number of products, complex routings, and many work centers, performing detailed capacity requirements planning can be computationally intensive, even with specialized software. This complexity can also make the system less flexible to rapid changes on the shop floor.
Ignores Queue Times and Detailed Sequencing: Traditional CRP typically assumes work-in-process moves smoothly between operations and may not account for the variability in queue times, machine breakdowns, or specific sequencing rules that impact actual throughput. It primarily indicates aggregate load rather than the precise flow.
Rigidity: Once a CRP plan is generated, making quick adjustments to accommodate unexpected events (e.g., machine failure, sudden rush order, material shortages) can be difficult, potentially requiring a complete re-run of the planning process.
Focus on Hours, Not Skills: While CRP considers labor hours, it might not explicitly account for specialized skills required for specific tasks. An apparent surplus of labor hours might hide a shortage of workers with the necessary expertise, leading to an imbalance.

These limitations highlight the importance of robust data management, agile planning processes, and continuous monitoring alongside the implementation of capacity requirements planning.

Capacity Requirements Planning vs. Master Production Schedule

Capacity requirements planning (CRP) and the Master production schedule (MPS) are both critical components of a manufacturing planning and control system, but they operate at different levels of detail and serve distinct purposes.

The MPS is a high-level plan that specifies what products will be produced, when they will be produced, and in what quantities. It's a statement of production for specific end items, representing the anticipated build schedule. The MPS is often created with a broader view, considering customer orders, sales forecasts, and overall business objectives. While it considers rough-cut capacity to ensure feasibility, it doesn't delve into the detailed capacity of individual work centers or machines.

In contrast, capacity requirements planning takes the output of the MPS (and Material Requirements Planning's planned orders) and translates it into a detailed load on specific resources. CRP determines if the planned production from the MPS is truly feasible at the operational level by analyzing the precise hours needed at each work center against their available capacity. Where MPS might say "produce 1,000 units," CRP breaks down the labor, machine, and tooling hours required at each stage of the manufacturing process to produce those 1,000 units. The confusion often arises because both deal with "planning production," but MPS is about what to produce, and CRP is about if and how to produce it given current detailed resource availability.

FAQs

What is the primary purpose of capacity requirements planning?

The primary purpose of capacity requirements planning (CRP) is to verify the detailed feasibility of a production schedule by comparing the required workload against the available capacity of specific work centers, machines, and labor. It helps identify potential resource overloads or underutilization.

How does CRP differ from rough-cut capacity planning (RCCP)?

Rough-cut capacity planning (RCCP) is a higher-level, less detailed form of capacity planning that assesses the feasibility of the Master Production Schedule at key work centers or resources. CRP, on the other hand, is a much more detailed analysis, considering all work centers, individual planned orders, and precise routing data to determine specific short-term capacity needs.

What are the main inputs to capacity requirements planning?

The main inputs to capacity requirements planning include planned orders generated by the Material requirements planning system, routing information (which specifies the sequence of operations and work centers required for each product), and work center data (detailing available capacity, utilization, and efficiency).

What actions can a company take if CRP identifies a capacity overload?

If capacity requirements planning identifies an overload, a company can take several actions, such as scheduling overtime, hiring temporary workers, adding additional shifts, rerouting work to alternative machines or work centers, outsourcing production, or adjusting the Master Production Schedule by rescheduling or reducing quantities of planned orders.