05 BSCM v4.1

Basics of Supply Chain Management
Capacity Management and

Production Activity Control
Session 5
APICS Certified in Production and Inventory Management (CPIM)
51 © APICS CONFIDENTIAL AND PROPRIETARY

Basics of Supply Chain Management
1. 2. 3. 4. 5.
Capacity
Introduction to Material Management
Demand Master and
Supply Chain Requirements
Management Planning Production
Management Planning
Activity
Control
Aggregate Purchasing Lean and

Item Inventory Theory of
Inventory and Physical Quality
Management Constraints
Management Distribution Systems
6. 7. 8. 9. 10.

Learning Objectives
Capacity Management
– Explain why standard hours are used to measure capacity.
– Describe the four steps of capacity planning.
– Calculate available capacity.
– Explain the difference between rated and demonstrated capacity.
– Calculate load.
– Explain the five elements of manufacturing lead time.
– Describe the three steps of capacity requirements planning (CRP).
– Backward schedule an order from receipt into inventory to arrival at
the first work center operation.

Learning Objectives (cont.)

– Describe the three functions of production activity control (PAC).
– Explain the difference between capacity planning and the
capacity control function.
– List five files that provide information used in PAC.
– Differentiate between four types of scheduling techniques.
– Explain the relationships among bottleneck, throughput, and time
buffer.
– Calculate the change in planned and actual backlog.
– Explain why a low critical ratio indicates a high priority in order
sequencing.
– Contrast input/output control to flow control.

Session 5
Introduction

Manufacturing Planning and Control
Business planning
Resource
Capacity planning
S&OP
Priority planning
planning
Master scheduling RCCP
MRP CRP
Execution
Execution
Input/output
control
PAC
Order
sequencing

Transition from MRP to CRP and PAC
Master scheduling
MPS (priority plan) due dates

for end items Priority plan: for
components and
assemblies CRP
MRP Capacity
validation
Planned order releases (priority plan

quantities and due dates) for
component purchases and assembly
PAC

Session 5
Capacity Management

Capacity Management
Define capacity management.

Define capacity.
Explain the capacity planning process.
Review the calculation of capacity.
Demonstrate how CRP plans capacity at the component
level for the priority plan created by MRP.

Phases of Capacity Management
Planning phase
– Determine resources needed for the priority plan.
– Validate that they will be available and select methods to ensure
availability when needed.
– The planning phase occurs at all priority planning levels: S&OP,
master scheduling, and MRP.
Controlling phase
– Monitor output and comparing it to plan.
– Make adjustments as necessary.
– The controlling phase occurs during production activity control.
5  10 © APICS CONFIDENTIAL AND PROPRIETARY

Definition of Capacity
The capability of a system to perform its expected

function
The capability of a worker, machine, work center, plant, or
organization to produce output per time period
— APICS Dictionary

Capacity Planning Process
Determine the capacity available.

Translate the priority plan into capacity required for each
time period.
Sum up capacities for each time period required for each
resource in order to compare with capacity available.
Resolve differences between available capacity and
required capacity for each time period.

Determining Capacity Available
Capacity available—The capability of a system or

resource to produce a quantity of output in a particular
time period
— APICS Dictionary
Capacity available is based on

– available time
– utilization
– efficiency.

Problem 5.1
Elements of available time

– Number of machines or workers
– Hours of operations (such as hours per day and days per week)
Calculation formula:
Available time =
number of machines (or workers) × hours per day × days per week
What is the weekly available time for a work center that has four
machines and works eight hours a day for five days a week?

Problem 5.1 Solution
Available time =
number of machines (or workers) × hours per day × days per week
What is the weekly available time for a work center that has four
machines and works eight hours a day for five days a week?
Solution:
Available time =
4 × 8 hours per day × 5 days per week = 160 machine hours

Utilization
Elements of utilization
– Hours actually worked
– Hours of available time
hours actually worked
Utilization percent = × 100%
hours of available time

Problem 5.2
What is the utilization rate of a work center whose available time is for
160 hours a week but whose actual hours worked is 120?

What is the utilization rate of a work center whose available time is for
160 hours a week but whose actual hours worked is 120?
Solution:
120 hours
Utilization percent = × 100% = 75%
160 hours

Problem 5.3
Elements of efficiency
– Standard hours of output
– Hours actually worked
standard hours of work produced
Efficiency percent = × 100%
What is the efficiency rate of a work center where standard hours

produced for a week is 150 hours, but actual hours worked is 120?

Efficiency percent = × 100%
What is the efficiency rate of a work center where output in standard

hours for a week is 150 hours but actual hours worked is 120?
Solution: 150 hours

Efficiency percent = × 100% = 125%
120 hours

Problem 5.4
A work center produces 90 standard hours of work in one

week. The hours scheduled (available) are 80, and 70 are
actually worked. Calculate the utilization and efficiency of
the work center.

Utilization = × 100%
available hours

Efficiency = × 100%

70
Utilization = × 100% = 87.5%
80
90
Efficiency = × 100% = 128.6%
70

Problem 5.5
Elements of rated capacity

– Available time
– Utilization
– Efficiency
Rated capacity (standard hours) =
available time × utilization × efficiency
A work center consists of three machines that are operated eight

hours per day for five days per week. Utilization has been 75
percent and efficiency has been 110 percent. What is the rated
capacity?

Rated capacity (standard hours) = available time × utilization × efficiency
A work center consists of three machines that are operated eight

hours per day for five days per week. Utilization has been 75
percent and efficiency has been 110 percent. What is the rated
capacity?
Solution:
Rated capacity (standard hours) =
120 hours × .75 × 1.10 = 99 standard machine hours

Problem 5.6
A work center consists of six machines that are available

16 hours per day for five days a week. Utilization is 80
percent and efficiency is 110 percent. What is the rated
weekly capacity?
Rated weekly capacity =

Available time = 6  16  5 = 480 hours
Rated capacity = 480  .8  1.10

= 422.4 standard machine hours

Problem 5.7
Elements of demonstrated capacity

– Historical records of resource output capability
– Mathematical average of the resource’s past period resource
output
Calculation formula: Sum of standard hours

Demonstrated capacity for n past periods
(standard hours) = n past periods
Over the previous four weeks, a work center produced 110, 140,
120, and 130 standard hours of work. What is the demonstrated
capacity?

Sum of standard hours

for n past periods
Demonstrated capacity
(standard hours) = n past periods
Over the previous four weeks, a work center produced 110, 140,
120, and 130 standard hours of work. What is the demonstrated
capacity?
Solution:
Demonstrated 110 + 140 + 120 + 130
capacity = = 125 standard
4 hours
(standard hours)

Session 5
Capacity
Requirements
Planning

Capacity Planning Hierarchy
Production plan Resource planning
S&OP Capacity validation
Production plan:
product families
Priority plan:
for end items
RCCP
Master scheduling Capacity validation
MPS (priority plan) due

dates for end items
Priority plan: for
components and CRP
assemblies
MRP Capacity validation

Key Inputs to CRP
Load
Planning data
Shop calendar
Lead time

Key Inputs: Load
Calculation of total load per period at each work center:

Obtain component requirements (due dates and quantities) from MRP.
Determine operations time per work order (load) at each work center.
Operation time per work order =
number of pieces  run time per piece + setup time
Allocate operations time for each work order to appropriate periods at

each work center.
Calculate sum of work order loads per time period at each work center
(load profile).

Key Inputs: Planning Data
Description Source
Open shop orders Shop order file
Planned order releases MRP
Where work is done Routing file
Time needed (standard hours) Routing file
Lead times Routing or work center file
Work center capacity Work center file

Key Inputs: Shop Calendar
Month Week Monday Tuesday Wednesday Thursday Friday Saturday Sunday
2 3 4 5 6 7 8
27 123 124 125 126
9 10 11 12 13 14 15
28
127 128 129 130 131
July 16 17 18 19 20 21 22
29
132 133 134 135 136
23 24 25 26 27 28 29
30
137 138 139 140 141
30 31 1 2 3 4 5
31
142 143 144 145 146
2
July 2 Work day—123 Defines non-work days
123
Source: Arnold et al., Introduction to Materials Management , 7th ed.

Reprinted by Permission of Pearson Education

Key Inputs: Lead-Time Elements
Lead time
Queue Setup Run Wait Move
Operation
Queue Time waiting before operation begins time
Setup Time getting ready for operation
Run Time performing operation
Wait Time waiting after operation ends
Move Time physically moving between operations
Adapted from Material and Capacity Requirements Planning Certification Review Course, 1993, APICS

CRP Process Summary
1. Scheduling orders simulation

2. Establishing load profiles
3. Resolving differences

Scheduling Orders Simulation
What-if analysis—not actual scheduling

Uses backward scheduling method
Determines the following:
– When orders should be started and completed at each work
center
– Impact of queue, wait, and move times on timing of load on work
centers
– Operation time required at each work center
Operation time = setup time + run time

Problem 5.8
Order quantity = 100 units
From route sheet
Operation Work center Setup time Run time Total time Days
(standard (standard (standard
hours) hours) hours)
10 8 1.5 0.2 21.5 3
20 9 0.5 0.3 30.5 4
From work center files
Work center Queue (days) Wait (days) Move (days)
8 2 1 1
9 4 1 1
Schedule
Operation Work Arrival Queue Operation Finish Wait and
center date (days) (days) date move
10 8 2
20 9 2
Store Stores 120
5  38 © 2010 APICS CONFIDENTIAL AND PROPRIETARY

Order quantity = 100 units
From route sheet
Operation Work center Setup time Run time Total time Days
(standard (standard (standard
hours) hours) hours)
10 8 1.5 0.2 21.5 3
20 9 0.5 0.3 30.5 4
From work center files
Work center Queue (days) Wait (days) Move (days)
8 2 1 1
9 4 1 1
Schedule
Operation Work Arrival Queue Operation Finish Wait and
center date (days) (days) date move
10 8 103 2 3 108 2
20 9 110 4 4 118 2
Store Stores 120

Problem 5.9
Work Arrival Queue Finish Wait and

Operation Operation time
center date time date move
10 111 3 2 2
20 130 5 4 2
30 155 2 1 2
Store Stores 150

Work Arrival Queue Finish Wait and

Operation Operation time
center date time date move
10 111 127 3 2 132 2
20 130 134 5 4 143 2
30 155 145 2 1 148 2
Store Stores 150

Establishing Load Profiles
Available capacity
Work center load profile
80
70
60
Hours 50 Uncommitted capacity
40
30 Required capacity:
All released orders
20 All firm planned orders
All planned orders
10
0
32 33 34 35 36
Week

Methods for Resolving Differences
Change the available capacity.

– Use overtime or under-time.
– Hire or lay off.
– Add shifts.
– Use alternate routings.
– Subcontract.
– Reduce setup.
– Improve processes.
Alter the load.

– Alter lot sizes.
– Reschedule.

Session 5
Production Activity
Control

Resource
S&OP
planning
Capacity planning
Priority planning
Master
RCCP
scheduling
MRP CRP
Execution
Capacity
Purchasing PAC
control

Objectives of PAC
Execute the MPS and MRP.

Optimize use of resources.
Minimize work in process (WIP).
Maintain customer service.

PAC Functions and Feedback
PAC functions Plan/replan
• Ensure resources are ready
when needed.
• Schedule start and completion
dates at work centers.
Implement Control
• Gather information and prepare • Establish/maintain order priority.
shop packet. • Monitor/control WIP, lead time,
• Release orders to the shop floor and queues.
as authorized by MRP • Track and report production.
(dispatching).
• Report work center performance.
MANUFACTURING

Information Requirements
Types of information Source
Shop order number
Quantity on hand
Shop order quantity MRP
Order due dates
Operations required Item master file
Operations work centers
Product structure file
?
Manufacturing lead times
Operations times Routing file
Work center capacity
Work center file
On-order quantity
BOMs Shop order file
Efficiency/utilization
Tools required
Quantity available

Problem 5.10
Name of system or file source
Shop order
Item Product Work
Type of information MRP Routing and
master structure center
detail
Shop order number
Quantity on hand
Shop order quantity
Order due dates
Operations required
Operations work centers
Manufacturing lead time
Operation times
Work center capacity
On-order quantity
BOM
Material issue tickets
Efficiency/utilization
Tools required
Quantity available
Quantity complete/scrapped
Actual versus planned setup/run
Lead time remaining

Name of system or file source
Shop order
Item Product Work
Type of information MRP Routing and
master structure center
detail
Shop order number x
Quantity on hand x
Shop order quantity x x
Order due dates x x
Operations required x
Operations work centers x
Manufacturing lead time x x x
Operation times x
Work center capacity x
On-order quantity x
BOM x
Material issue tickets x
Efficiency/utilization x
Tools required x
Quantity available x
Quantity complete/scrapped x
Actual versus planned setup/run x
Lead time remaining x

Session 5
Scheduling

Scheduling Objectives
Objectives
– Meet delivery dates.
– Effectively use manufacturing resources.
Involves
– establishing start and finish dates for each operation needed to
complete an order.

Scheduling and Loading Techniques
Activities are scheduled from a

Forward
known start date through the
scheduling
finish date.
Backward Activities are scheduled back

scheduling from the due date.
Infinite loading assumes that

Infinite loading capacity is infinite at any work
center.
Finite loading assumes that

Finite loading there is a definite limit to
capacity at any work center.

Backward and Forward Scheduling
Forward scheduling Forward scheduling
release date completion date
Forward
Backward
Backward scheduling Backward scheduling

release date completion date
Reprinted with permission, BMS Associates Inc.

Infinite Versus Finite Loading
Capacity
(120 hours)
Capacity
(120 hours)
Source: Bihun and Musolf, Capacity Management Review Course, 1985

Bottlenecks
Time
buffer
Operation gateway Bottleneck
Throughput: The bottleneck is the drum (schedule) that controls the

throughput of the entire system.
Rope: The virtual rope releases materials to the gateway work center at a
rate that protects the drum at the bottleneck.
Time buffer allows enough time for work to flow from the gateway to the
bottleneck and to make sure the bottleneck is never idle.
Work centers fed by the bottleneck have their throughput controlled by the
bottleneck.

Session 5
Implementation

Execute the Plan—Shop Order Packet
Order number, part number, name and description, and

quantity
Engineering drawings
BOMs
Route sheets
Material issue tickets
Tool requisitions
Job tickets and move tickets

Order Release Process
Resolve
Check Check capacity

Review Y
tooling and OK? requirements
order
materials and availability
OK?
N Resolve or
reschedule
Y
Release
order
Source: Arnold et al., Introduction to Materials Management , 7th ed.

Session 5
Control

Control Goals, Objectives, and Levers
Goals:
• Meet delivery dates.
• Make best use of resources.
Objectives:
• Control progress of orders on the shop
floor.
• Control lead time, especially queue.
Control levers:
• Set the correct priority or sequence orders at
each work center.
• Control input/output of work at work centers.
• Control material flow rate in flow production.

Dispatch List
Work center: 10
Rated capacity: 80 standard hours per week
Shop date: 250
Order Part Order Setup Run Operation date

number number quantity hours hours Start Finish
123 6554 100 1.5 15 250 251
121 7345 50 0.5 30 251 252
142 2687 500 0.2 75 252 257
Total standard hours 2.2 120
Jobs coming:
145 7745 200 0.7 20 257 258
135 2832 20 1.2 1.0 259 259
Adapted from Arnold et al., Introduction to Materials Management, 7th ed.


Dispatching Rules
Jobs are performed in order

First come, first served
received.
Jobs are performed according to
Earliest job due date
end-item due dates.
Jobs are performed according to
Earliest operation due date
operation due dates.
Jobs are sequenced according to
Shortest process time
process time.
Jobs are sequenced using an
Critical ratio index of relative priority of orders at
a work center.

Critical Ratio
time remaining
Critical ratio =
work remaining
Example:
Today’s date is 180
Time Work Critical

Order Due date remaining remaining ratio
A 185 5 days 10 days .5
B 190 10 days 10 days 1.0
C 195 15 days 10 days 1.5
If critical ratio is less than (<) 1, order is late.

If critical ratio is equal to (=) 1, order is on time.
If critical ratio is greater than (>)1, order is ahead of schedule.

Problem 5.11
Work center: 201
Capacity per period: 40 standard hours
Period 1 2 3 4 5 Total
Planned input 38 32 36 40 44 190
Actual input 34 32 32 42 40 180
Cumulative variance
Planned output 40 40 40 40 40 200

Actual output 32 36 44 44 36 192
Cumulative variance
Planned backlog 32
Actual backlog 32

Work center: 201
Period 1 2 3 4 5 Total
Planned input 38 32 36 40 44 190
Actual input 34 32 32 42 40 180
Cumulative variance -4 -4 -8 -6 -10 -10
Planned output 40 40 40 40 40 200

Actual output 32 36 44 44 36 192
Cumulative variance -8 -12 -8 -4 -8 -8
Planned backlog 32 30 22 18 18 22 --
Actual backlog 32 34 30 18 16 20 --

Problem 5.12
Work center: 20
Period 1 2 3 Total
Planned input 38 36 42
Actual input 34 36 40
Cumulative variance
Planned output 40 40 40
Actual output 42 36 42
Cumulative variance
Planned backlog 30
Actual backlog 30

Work center: 20
Period 1 2 3 Total
Planned input 38 36 42 116
Actual input 34 36 40 110
Cumulative variance -4 -4 -6 -6
Planned output 40 40 40 120

Actual output 42 36 42 120
Cumulative variance 2 -2 0 0
Planned backlog 30 28 24 26
Actual backlog 30 22 22 20

Flow Control
Method used when material flow is based on a set

production rate in a continuous manufacturing system
Characterized by uninterrupted production runs, fixed
routings, committed production lines (capacity)
In lean, rate of flow controlled by
– rate of customer demand (takt time)
– kanban signals that trigger pull from upstream workstations
– control of WIP levels by resource balancing among workstations.

Tracking and Production Reporting
Production tracking and reporting covers a wide variety of

topics and activities:
– order status
– exception reports
– inventory status
– labor reports
– machine performance
Other users besides manufacturing

– finance and accounting
– customer service and sales

Session 5
Wrap-Up and
Homework

Learning Objectives
Capacity Management
– Explain why standard hours are used to measure capacity.
– Describe the four steps of capacity planning.
– Calculate available capacity.
– Explain the difference between rated and demonstrated capacity.
– Calculate load.
– Explain the five elements of manufacturing lead time.
– Describe the three steps of CRP.
– Backward schedule an order from receipt into inventory to arrival at
the first work center operation.

Learning Objectives (cont.)

– Describe the three functions of PAC.
– Explain the difference between capacity planning and the
capacity control function.
– List five files that provide information used in PAC.
– Differentiate between four types of scheduling techniques.
– Explain the relationships among bottleneck, throughput, and time
buffer.
– Calculate the change in planned and actual backlog.
– Explain why a low critical ratio indicates a high priority in order
sequencing.
– Contrast input/output control to flow control.

Vocabulary Check
Objective: Reinforce terminology used in this session.

Complete the activity in class, individually or in pairs, or as
homework.

Vocabulary Check Solution
1
C
A
P
A
2 3 4
L C E F F I C I E N C Y
O I O
5
C A P A C I T Y R E Q U I R E M E N T S
D Y W
A A
6
V R I
7
B A C K W A R D S C H E D U L I N G N
I S F
8
L R A T E D C A P A C I T Y I
A H N
9
B F I N I T E L O A D I N G I
L D T
10
E C U E
O L L
11
P R O D U C T I O N A C T I V I T Y C O N T R O L
T N A
R G D
O I
12
U T I L I Z A T I O N N
G

Problem 5.13
Calculate the utilization, efficiency, and rated weekly capacity.
Available hours =
Actual hours worked =
Standard hours produced =
Utilization =
Efficiency =
Weekly available time =

Rated capacity =

Calculate the utilization, efficiency, and rated weekly capacity.
Available hours = 12,000

Actual hours worked = 10,400
Standard hours produced = 11,480
Utilization = 10,440 × 100% = 87%

12,000
Efficiency = 11,480 × 100% = 110%

10,440
Weekly available time = 3 × 16 × 5 = 240 hours

Rated capacity = 240 × .87 × 1.10 = 229.7

Problem 5.14
Complete input/output report. What corrective action should be
taken?
Work center: 20
Period 1 2 3 4 Total
Planned input 36 38 35 40
Actual input 34 32 32 42
Cumulative variance
Planned output 40 40 40 40
Actual output 38 36 40 38
Cumulative variance
Planned backlog 32
Actual backlog 32

Complete input/output report. What corrective action should be
taken?
Work center: 20
Period 1 2 3 4 Total
Planned input 36 38 35 40 149
Actual input 34 32 32 42 140
Cumulative variance -2 -8 -11 -9 -9
Planned output 40 40 40 40 160

Actual output 38 36 40 38 152
Cumulative variance -2 -6 -6 -8 -8
Planned backlog 32 28 26 21 21
Actual backlog 32 28 24 16 20

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Basics of Supply Chain Management

Capacity Management and

APICS Certified in Production and Inventory Management (CPIM)

51 © APICS CONFIDENTIAL AND PROPRIETARY

Aggregate Purchasing Lean and

52 © APICS CONFIDENTIAL AND PROPRIETARY

53 © APICS CONFIDENTIAL AND PROPRIETARY

Production Activity Control

54 © APICS CONFIDENTIAL AND PROPRIETARY

55 © APICS CONFIDENTIAL AND PROPRIETARY

Master scheduling RCCP

56 © APICS CONFIDENTIAL AND PROPRIETARY

MPS (priority plan) due dates

Planned order releases (priority plan

57 © APICS CONFIDENTIAL AND PROPRIETARY

58 © APICS CONFIDENTIAL AND PROPRIETARY

Define capacity management.

59 © APICS CONFIDENTIAL AND PROPRIETARY

5  10 © APICS CONFIDENTIAL AND PROPRIETARY

The capability of a system to perform its expected

5  11 © APICS CONFIDENTIAL AND PROPRIETARY

Determine the capacity available.

5  12 © APICS CONFIDENTIAL AND PROPRIETARY

Capacity available—The capability of a system or

Capacity available is based on

5  13 © APICS CONFIDENTIAL AND PROPRIETARY

Elements of available time

5  14 © APICS CONFIDENTIAL AND PROPRIETARY

5  15 © APICS CONFIDENTIAL AND PROPRIETARY

5  16 © APICS CONFIDENTIAL AND PROPRIETARY

5  17 © APICS CONFIDENTIAL AND PROPRIETARY

5  18 © APICS CONFIDENTIAL AND PROPRIETARY

What is the efficiency rate of a work center where standard hours

5  19 © APICS CONFIDENTIAL AND PROPRIETARY

What is the efficiency rate of a work center where output in standard

Solution: 150 hours

5  20 © APICS CONFIDENTIAL AND PROPRIETARY

A work center produces 90 standard hours of work in one

hours actually worked

standard hours of work produced

5  21 © APICS CONFIDENTIAL AND PROPRIETARY

5  22 © APICS CONFIDENTIAL AND PROPRIETARY

Elements of rated capacity

A work center consists of three machines that are operated eight

5  23 © APICS CONFIDENTIAL AND PROPRIETARY

A work center consists of three machines that are operated eight

5  24 © APICS CONFIDENTIAL AND PROPRIETARY

A work center consists of six machines that are available

Rated weekly capacity =

5  25 © APICS CONFIDENTIAL AND PROPRIETARY

Available time = 6  16  5 = 480 hours

Rated capacity = 480  .8  1.10

5  26 © APICS CONFIDENTIAL AND PROPRIETARY

Elements of demonstrated capacity

Calculation formula: Sum of standard hours

5  27 © APICS CONFIDENTIAL AND PROPRIETARY

Sum of standard hours

5  28 © APICS CONFIDENTIAL AND PROPRIETARY

5  29 © APICS CONFIDENTIAL AND PROPRIETARY

MPS (priority plan) due

5  30 © APICS CONFIDENTIAL AND PROPRIETARY

5  31 © APICS CONFIDENTIAL AND PROPRIETARY

Calculation of total load per period at each work center: