What is Capacity Requirement Planning?

Capacity requirement planning is a process focused on helping managers and senior leaders assess and understand capacity needed versus capacity available. It aims to ensure that the necessary production resources are available to meet demand.

Why is Capacity Requirement Planning Important?

Capacity requirement planning aligns production capacity with the demands outlined in the master production schedule.

Without a reliable capacity planning system in place, manufacturing businesses could face issues such as unplanned downtime, missed delivery dates, wasted resources and customer dissatisfaction.

The Benefits of an Efficient CRP

• Reduce costs – Avoid unnecessary costs by minimising excess inventory, overtime and wasted resources (labour, equipment, materials).
• Increase efficiency – Streamline production processes, reducing bottlenecks and downtime, leading to faster turnaround times and higher output.
• Improve customer satisfaction – Improve on time in full (OTIF) by creating realistic production plans, and enhancing reliability and trust.
• Enhance ability to meet market demand – Quickly adapt to changing requirements, ensuring your manufacturing business can meet fluctuating demand.

Several factors can influence the capacity planning process; understanding these is critical to achieving optimal production and reducing bottlenecks.

Misalignment of employee skills and project needs

When employees' skills do not match project requirements or the right skilled labour is unavailable, it can quickly lead to inefficiencies such as delays bottlenecks and mistakes, affecting throughput and productivity.

Fluctuations in market demand or supply

Inaccurate demand forecasts and unexpected changes in customer demand can disrupt manufacturing production schedules, leading to under or over-capacity, impacting areas such as inventory, customer satisfaction, labour utilisation and costs.

Seasonality must also be factored into capacity planning for many industries.

More recently, procuring raw materials and components has been a major challenge for manufacturers. Meeting production demands is critically dependent on reliable supply.

Equipment downtime

Machinery is a set resource which dictates maximum output. The condition of equipment and planned maintenance affects available capacity, but unplanned downtime for equipment failure, for example, can significantly reduce available capacity, leading to production delays.

Compliance

Standards such as Good Manufacturing Practice (GMP) in medicines manufacturing, and environmental or safety regulations may place restrictions and obligations on production, affecting capacity.

Quality issues

Poor quality management processes and procedures can lead to high rates of scrap and rework – this impacts capacity planning.

Here are the main 3 steps for effective Capacity Requirements Planning:

Step 1: Current capacity assessment

The first step is to understand production goals; determine the quantities of each product and component required, and production stages and timeframes.

Then review your current production capacity: get a clear picture of all available resources, labour, machinery, planned maintenance and downtime to form your baseline production capacity.

Step 2: Understand the demand for resources

Top manufacturers know the importance of forecasting future demand by analysing market trends, historical sales data and customer orders to determine the required production capacity at different times of the year.

Next, list production activities needed for each product, including processes, setup times, and cycle times; then estimate the workload each resource will handle. Don’t forget to account for setup and transition times between tasks.

By this stage, you should be able to compare the capacity needed to the available capacity and identify gaps.

Step 3: Determine capacity modification requirements

How are you going to address the gaps identified in the previous step? You can adjust the production schedule or reprioritise production tasks.

You can explore reallocating resources such as moving workers to different shifts or balancing the load between machinery.

Overtime, extra labour, outsourcing or investing in new machinery or training are other options available.

Here is a step-by-step example of Capacity Requirement Planning using a fictional company called ABC Electronics.

Forecasting demand

ABC Electronics forecasts demand for the next quarter based on market trends, sales data, and customer orders. They estimate:

● 50,000 smartphones

● 30,000 tablets

● 20,000 laptops

Bill of Materials (BoM)

Each product has a detailed BOM, specifying the parts and labour required for assembly. For simplicity:

● A smartphone requires 5 hours of labour

● A tablet requires 6 hours of labour

● A laptop requires 8 hours of labour

Routing information

Each product follows a specific production route through the factory:

● Smartphones: Assembly Line 1 -> Quality Check -> Packaging

● Tablets: Assembly Line 2 -> Quality Check -> Packaging

● Laptops: Assembly Line 3 -> Quality Check -> Packaging

Available capacity

The factory operates two shifts, 8 hours each, per day, 5 days a week. They have:

● Assembly Line 1: 2 lines, each with a capacity of 1,000 hours/week

● Assembly Line 2: 1 line, with a capacity of 1,000 hours/week

● Assembly Line 3: 1 line, with a capacity of 1,000 hours/week

Quality Check and Packaging have sufficient capacity to handle the production.

Calculating required capacity

● Smartphones: 50,000 units * 5 hours/unit = 250,000 hours

● Tablets: 30,000 units * 6 hours/unit = 180,000 hours

● Laptops: 20,000 units * 8 hours/unit = 160,000 hours

● Total Required Hours: 250,000 + 180,000 + 160,000 = 590,000 hours

Comparing available and required capacity

● Total available capacity per week (Assembly Lines 1, 2, 3 combined): 4,000 hours

● Total available capacity per quarter (13 weeks): 4,000 hours/week * 13 weeks = 52,000 hours

The calculation shows a significant gap between available capacity (52,000 hours) and required capacity (590,000 hours).

Identifying bottlenecks and solutions

In this example, the production capacity is insufficient to meet the forecasted demand. ABC Electronics must explore options to address this gap:

• Increase shift hours – Add overtime or additional shifts to increase weekly capacity.
• Hire more workers – Temporarily or permanently increase the workforce to boost production.
• Outsource production – Partner with another manufacturing facility to meet excess demand.
• Improve efficiency – Invest in technology or process improvements to reduce the labour hours required per unit.

Developing a plan

ABC Electronics decides to:

• Add a third shift for Assembly Lines 1 and 2, increasing capacity to 6,000 hours/week.
• Hire temporary workers for the peak production period.
• Explore outsourcing for a portion of smartphone production to meet immediate demand.

Implementation and monitoring

The company implements these changes and closely monitors production to ensure targets are met. Regular reviews are conducted to adjust plans as needed based on actual performance and any changes in demand.

By following the CRP process, ABC Electronics can proactively address capacity issues, ensuring they meet customer demand while optimising their resources.

Capacity Requirements Planning focuses on ensuring the required resources are available to meet the production plan – how the production plan will be achieved with the available resources.

Production Planning is focused on what and when - which products to produce, in what order, when, and with what resources

Here are the most common CRP terms you need to know.

Access Orchestrate is designed to give you a holistic, detailed view of production at all times, enabling you to make better-informed decisions and optimise the use of your time and resources.

Get in touch with us today to arrange a free consultation with our manufacturing software experts; we’ll talk through your current challenges and help you achieve maximum efficiency across your operations.