You are on page 1of 40

Chapter 7.

Capacity Planning
and Management

Homework problems: 1,2,5,6,7,8,9.

Capacity planning and management addresses
two managerial problems:

Matching capacity to plans–by either providing

sufficient capacity to execute the plan or
adjusting the plan to meet available capacity.

Consider the marketplace implications of faster

throughput times–at the expense of reduced
capacity utilization.
1. The Role of Capacity Planning in MPC Systems

The primary objective of capacity planning

techniques is to estimate capacity requirements
early enough to be able to meet those
Flawless execution of the capacity plan allows
the firm to avoid unpleasant surprises
 Insufficient capacity leads to deteriorating
delivery performance
 Excess capacity may be a needless expense
1. The Role of Capacity Planning in MPC Systems
Capacity Planning:
The process of determining the amount of capacity
required to produce in the future. This process may
be performed at an aggregate or product-line level
(resource (requirements) planning), at the master –
scheduling level (rough-cut capacity planning), and
at the material requirements planning level (capacity
requirements planning).
Objective is to ensure a match between capacity
available in specific work centers and capacity
requirements implied by the production plan, MPS,
and detailed material plans (note: all 3 levels).
Its links to other MPC systems, see Fig. 7.1
Capacity Planning in the MPC System

Long Range
Resource Sales and operations Demand
(requirements) Planning (SOP) management
planning (RRP)
Master production
Rough-cut Capacity
Scheduling (MPS)
Planning (RCCP)

Medium Range
Detailed material
Planning (MRP)
Planning (CRP)

Short Range
Finite Loading
Shop-floor Supplier
Input/output analysis systems systems
1. The Role of Capacity Planning in MPC Systems
Resource (requirements) Planning:
Capacity planning conducted at the business plan
level. It is the process of establishing, measuring,
and adjusting limits or levels of long-range capacity.
Resource planning is normally based on the sales &
operations plan but may be driven by higher level
plans beyond the time horizon for the production
plan, e.g., the business plan.
It addresses those resources that take long periods
of time to acquire. Resource planning decision
always require top management approval.
Synonym: long-range resource planning, resource
requirements planning (RRP).
1. The Role of Capacity Planning in MPC Systems
Rough-Cut Capacity Planning (RCCP):
 The process of converting the master production
schedule (MPS) into requirements for key/critical
resources, often including labor, machinery,
warehouse space, suppliers’ capabilities, and in some
cases, money.
 Comparisons of capacity required of items in the MPS
to available capacity is usually done for each key
 Three approaches to performing RCCP are: capacity
planning using overall factors (CPOF), capacity bill
(bill of capacity), and resource profile.

1. The Role of Capacity Planning in MPC Systems

Capacity Requirements Planning (CRP):

 The process of determining in detail the amount of
labor and machine resources required to accomplish
the tasks of production.
 Open shop orders (scheduled receipts) and planned
orders (i.e., orders planned for future release) in the
MRP system are input to CRP, which through the use
of part routings and time standards translates these
orders into hours of work by work center by time
 Even though rough-cut capacity planning may indicate
that sufficient capacity exists to execute the MPS,
CRP may show that capacity is insufficient during
specific time periods.
1. The Role of Capacity Planning in MPC Systems

Finite Loading:
 Assigning no more work to a work center than the
work center can be expected to execute in a given
time period.
 The specific term usually refers to a computer
technique (called advanced production scheduling
(APS)) that involves calculating shop priority revisions
in order to level load operation by operation.
 Finite loading can be seen as a shop scheduling
process as well as a capacity planning procedure.

1. The Role of Capacity Planning in MPC Systems
Input/Output Control:
 A technique for capacity control where planned and
actual inputs and planned and actual outputs of a work
center are monitored. Planned inputs and outputs for
each work center are developed by capacity
requirements planning and approved by manufacturing
 Actual input is compared to planned input to identify
when work center output might vary from the plan
because work is not available at the work center.
Actual output is also compared to planned output to
identify problems within the work center.
 Syn: input/output analysis, production monitoring.
Links to Other MPC System Module (Summary)

Resource Rough-Cut Input/output
Requirements Finite Loading
Planning Planning Analysis
• Linked to • Linked to • Linked to • Linked to • Linked to
sales and Master material material shop floor
operations Production requirements planning and control
planning Schedule planning shop floor • Monitors
(SOP) (MPS) (MRP) control actual
• Converts • Estimates • Prepares • Considers consumption
SOP data to capacity detailed adjustment of capacity
aggregate requirements capacity plan of plans due during
resource of MPS based on to capacity execution of
units time-phased utilization detailed
material material
plans planning

2. Capacity Planning and Control Techniques

Capacity planning using overall factors (CPOF)

Capacity bills more

Resource profiles sophisticated

Capacity requirements planning (CRP)

 The first three procedures are for rough-cut capacity

planning (RCCP) and can be used with or without
MRP. Capacity requirements planning (CRP) has to
be used in conjunction with time-phased MRP

2.1 Capacity planning using overall factors (CPOF)

1. MPS as the input

2. Based on standards or historical data for end products
3. Overall labor and/or machine-hour capacity
requirements are estimated.
4. Example: Fig. 7.2 and 7.3

 Pros: ease of calculation and minimal data

 Cons: valid only when the product mixes or
historical divisions of workload between
work centers remain constant.

CPOF Example (Fig. 2 and 3)

Total required
capacity =
(33*0.95)+(17*1.85) Work center capacity = Total required capacity
= 62.80 *Historical percentage (e.g., 62.8 * 60.3%=37.87)
2.2 Capacity Bills

Rough-cut capacity planning method that provides

more direct link to individual end products
Bill of capacity indicates total standard time to
produce one unit of an end product (by work
Master production schedule data is then used to
estimate capacity requirements for each work
Requires more data than CPOF procedure
2.2 Capacity Bills

In addition to what’s provided by CPOF,

capacity bills takes into account any shifts in
product mix. As a result, more data (e.g.,
BOM, routing, labor or machine hour for each
operation) must be available.
Figures 7.4 ~ 7.6.
 Capacity bills is more desirable than CPOF
especially for firms experience significant period-to-
period product mix variation.
 Learn how to prepare capacity bill
 Compare Fig. 7. 3 with Fig. 7.6 for results.
Capacity Bill Example

Total hours include

Std. Setup hours both std. run time
are spread over the and std. setup time
standard lot size
Capacity Bill Example (Fig. 5 and 6)

MPS quantities
are multiplied by
bill of capacity to
determine work
center capacity
requirements by
period (33*0.05 +
17*1.30 = 23.75)
2.3 Resource Profiles

The standard hours of load placed on a resource by time

period. That is, production lead time data has to be
taken into account to provide time-phased projection of
the capacity requirements for individual production
Synonym : bill of resources, product load profile
Figures 7.7~7.9. (Pay attention to 7.8)
 Bill of Resources: A listing of the required capacity
and key resources needed to manufacture one unit of
a selected (typical) item or family. The resource
requirements are further defined by a lead-time offset
so as to predict the impact of the item/family
scheduled on the load of the key resource by time
Resource Profile Example (Fig. 7.7)
Production of one unit of product A in period 5
requires production activity in periods 3, 4, and 5
and in work centers 100, 200, and 300
Resource Profile Example (Fig. 7.8)

(by work center
and period) for
one unit of end
product are
multiplied by
the MPS plan
to determine

are then
summed over
all periods to
finalize the
2.4 Capacity Requirements Planning (CRP)

Capacity requirements planning differs from the

rough-cut planning procedures
Utilizes time-phased material plan from MRP
Takes into account materials in inventory
Accounts for the current status of work-in-
Accounts for service parts and other demands
not accounted for in the MPS
Requires more inputs and more computational
2.4 Capacity Requirements Planning

 Capacity Requirements Planning (CRP):

 Input includes BOM + routing + time
standards + lead time (note: these are
required by Resource Profiles) plus MRP
(i.e., planned orders, WIP, scheduled
receipts). Example, Fig. 7.10.

Capacity Requirements Planning Example
Detailed MRP

quantity multiplied

by processing time
for work center

This process is repeated for each work center to complete the plan
3. Scheduling Capacity and Materials Simultaneously

Capacity requirements planning doesn’t

consider capacity when planning materials
Assumes that capacity can be adjusted, given
sufficient warning
Planning capacity and materials at the
same time allows construction of a plan
that works within current capacity
Finite Capacity Scheduling

Simulates job order start and finish times

in each work center
Establishes a detailed schedule for each
job in each work center
When a work center’s capacity is not
sufficient for all planned jobs, prioritization
rules determine which jobs will be shifted
to later times
3. Scheduling Capacity and Materials Simultaneously

Finite loading/scheduling can be seen as an extension

of the approach used by CRP systems, except CRP
calculate only capacity needs and it does not make
adjustments for infeasibility.
Finite scheduling determines which jobs will first be
processed/completed based on various priority rules,
though it does not solve the under-capacity problem.
The result of finite loading is a set of start and finish
dates for each operation at each work center based on
work center capacities and the other scheduled jobs.
(see Fig. 7.11).

Finite Capacity Scheduling

Product A
does not
consume all

Combination of
all products
consumes all
capacity in
several periods

orders are
shifted to
stay within
3. Scheduling Capacity and Materials Simultaneously

Finite loading/scheduling approaches:

Vertical loading: deciding on which job to schedule next in a
work center with a focus on planning and utilizing the capacity of
a work center independently.
Horizontal loading: the focus is on the entire shop orders with
the highest priority shop order or job is scheduled in ALL of its
The horizontal loading may be in conflict with vertical loading, as
horizontal loading may create more “holes” in the schedule (i.e.,
capacity utilization at work centers may not be as high).
Nevertheless, horizontal loading will complete whole jobs faster
than vertical loading.
Back scheduling: scheduling job backward from their due dates.
Front scheduling: scheduling job into the future, starts with the
current date, so each job is completed as soon as possible.
e.g., Advanced Production Scheduling (APS) Fig. 12 & 13.
4. Management of Capacity Planning/Utilization

Capacity monitoring with Input/Output Control:

 Never release work that can not be completed, e.g.,
Fig. 7.14.
 Backlog: All of the customer orders received but
not yet shipped. Sometimes referred to as “open
orders” or “ the “order board”. Syn: order backlog.
 Backorder: An unfilled customer order or
commitment. It is an immediate (or past due)
demand against an item whose inventory is
insufficient to satisfy the demand.

Capacity Monitoring with Input/Output Control
Planned inputs are determined by the capacity
planning process
Planned outputs depend upon the nature of the
work center
Capacity-constrained planned output is determined by
the processing rate of the work center
Non-capacity-constrained planned outputs match
planned inputs
Differences between plan and actual must be
addressed (management by exception)
Managing Bottleneck Capacity–Theory
of Constraints
Determine bottleneck work centers

Rough-cut capacity planning Capacity resource planning

Look for quick solutions to eliminate bottlenecks

Expand capacity Alternate routings

Concentrate scheduling efforts on managing bottleneck resources

Use finite scheduling for bottleneck jobs, with
Schedule jobs that run through bottlenecks
horizontal loading and back scheduling for the
separately from non-bottleneck jobs
most critical
Capacity Planning in the MPC System

Short-term capacity planning problems

can be reduced by well-executed
production and resource planning
Efficient use of sufficient capacity by a
good shop-floor system reduces capacity
4. Management of Capacity Planning/Utilization

Measure of Capacity:
 Direct labor cost and its role in total production cost
 Hiring/firing vs. lifetime employment
 Machine/equipment capacity in the new
manufacturing environment. e.g., computer
integrated manufacturing and flexible automation.
 Capacity utilization and flexibility

4. Management of Capacity Planning/Utilization

 Choice of the planning technique: general justification

Low cost Accuracy

Ease of preparation Complexity

CPOF Capacity bills Resource profiles

 Environmental dependent-- in JIT:

 Capacity bills is better than CPOF because product mix is
 Resource Profiles is of little need because lead time is insignificant.
 CRP is not necessary because WIP is minimal.
 I/O control is not needed for shop floor because of the use of “pull”.

Choice of a Specific Planning
Rough-cut methods requirements APS Systems

Requires more data

Most general
CPOF and computational Highest levels of effort
Widely applicable
effort High levels of accuracy
Capacity bills Easier to implement but
Only applicable in possible with good data
Resource profiles less powerful
conjunction with MRP and flawless execution
Useful in JIT situations
Unnecessary under JIT
4. Management of Capacity Planning/Utilization

Using the Capacity Plan:

 Ensure a match between available capacity and required
capacity. If not, either available capacity or required capacity
(material plan) has to be changed.

Available Capacity Required Capacity

Over/under time Alternate routing
Hiring/firing Make or buy
Change # of machines Subcontracting
Raw material change
Inventory change
Promise date change

4. Management of Capacity Planning/Utilization

Data Base Requirements:

 CPOF: MPS, standard hours of end items, historical workload
 Capacity Bills: MPS, BOM, routing, labor/machine hour for each
 Resource Profiles: all of the above + lead time for component
parts and subassembly.
 CRP: all of the above + MRP

 Note: There is an increasing requirement for data from CPOF to


Capacity plans must be developed concurrently with
material plans if the material plans are to be
Capacity planning techniques must match the level
of detail and actual company circumstances.
Capacity planning can be simplified in JIT
Better resource and production planning processes
lead to less difficult capacity planning processes.
Better shop-floor systems reduce the need for short-
term capacity planning.
More detailed capacity planning systems demand
more data and database maintenance.
When capacity does not match the requirements, it
isn’t always capacity that should change.
Capacity must be planned, but use of capacity must
also be monitored and controlled.
Capacity planning techniques can be applied to
selected key resources.
Capacity measures should reflect reasonable levels
of output from key resources.