Capacity Requirement
Planning
Operations Management 345
Joyce Hill
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)
(Russell & Taylor)
• 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.
Russell and Taylor
Utilization and Efficiency
Actual Hours Charged
Utilization =
Hours
Scheduled Available
Standard Hours Earned
Efficiency =
Actual Hours Charged
Reason to use CPR
• 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.
Capacity Planning
How much to increase capacity demands
depend upon a number of factors, including:
• Anticipated demand – volume & certainty
• Strategic objectives
• Costs of expansion and operation
Capacity Lag Strategy
• Increase capacity after demand has
increased.
• This is a conservative strategy and may
result in lose of customers.
• You assume customers will return after
capacity has been met.
Average Capacity Strategy
• Average expected demand is calculated
and capacity is increased accordingly.
• This is the most moderate strategy.
Adjustments to Capacity
Increase 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 Capacity
Reduce 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 underloads and overloads.
What is a load?
• Load refers to the standard
hours of work assigned to a
facility.
Russell and Taylor
What Is Load Percent?
• Load percent is the ratio of load to
capacity.
Load
Load percent =
x 100%
Capacity
Russell and Taylor
Load % Example
• A local road construction company needs to develop
engineering specifications prior to doing any pre-surfacing
preparation. The company has been awarded the bid on
four projects. They have one engineer. It takes 4 hours
per mile to develop the engineering specifications. The
first project is 30 miles long and must be started by
March 15th to complete on schedule. The second project
is 20 miles long and must be started by April 1st. The
third project is 5 miles long and must be started by May
1st. The fourth project is 15 miles long and must be
started by May 23rd. It is now February 15th. The
engineer works a 40 hours week and is very experienced
so he operates at 100% efficiency. Assume one project
can not be started until the previous project is completed.
Does the engineer have enough time to accomplish the
specifications on time?
Engineering Calculations
(Capacity)
Numbers of hours = 40
Shifts = 1
Efficiency = 100%
Utilization = 4/5 = 80%
Capacity = 40 x 1 x 0.8 x 1.00 = 32 hours
Project
Project
Project
Project
1
2
3
4
capacity
capacity
capacity
capacity
=
=
=
=
4
2
4
3
(weeks)
(weeks)
(weeks)
(weeks)
x
x
x
x
32
32
32
32
=
=
=
=
128
64
128
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
Road Construction Bidding
• In analyzing the engineering calculations,
the company must decide if it cost
effective to accept the bid on project 2.
Based on the current capacity, the
engineer is not able to complete the
engineering specifications as needed. If
the company accepts the bid, one of the
following adjustments will need to be
made:
– Add extra shift (weekend or evening)
– Schedule overtime
– Add personnel temporarily
Test Exercise of Load %
• A local hospital prides themselves in top quality
patient care. They have 5 registered nurses on
each of the 3 shifts and each nurse cares for 5
patients. Each patient requires 1.5 hours of RNs
time. For week one they have projected the patient
load to be 200 patients, week two the patient load
will be 225 patients, week three the patient load
will be 180 patients and week four the patient load
will be 195 patients. The staff consists of about
30% student graduate RNs; therefore the efficiency
is 70%. Each nurse works 36 hours per week. Does
the hospital have sufficient staff to provide care for
the patients?
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.
Resources
• Russell, Roberta A. and Bernard W. Taylor III Operations
Management. 4th ed. New Jersey: Prentice Hall 2003
• “Capacity Requirement Planning” MGT 651 –IV, Dr.
Ozatalay
• www.mitrol.com/html/capacityplanning.html
• www.coalitioncomputing.com/cccweb/products/software/g
p/eenterprise/modules/GP-CapacityRequirePlan.doc
• http://sandbox.aiss.uiuc.edu/oracle/nca/crp/crp.htm