Unit 3

Capacity Requirement Planning (CRP)

1
 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
 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.
 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 =
Scheduled Available Hours

Standard Hours Earned

Efficiency =
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.
 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.
 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
 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 1 capacity = 4 (weeks) x 32 = 128

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