Capacity Requirement Planning

What is Capacity requirement planning(CRP)?


Capacity requirement planning usually known as capacity planning,can be defined by  the process used to determine how much capacity is needed (and when) in order to manufacture greater product or begin production of a new product.

Capacity:The number of units a facility  can hold,receive,store or produce in a period of time is called capacity.Normally it is expressed as standard hours of work.It determines fixed cost.
It must be determined at different levels:

# plant
# department
# work center

capacity = (no. of machine or worker) * (no. shifts)*(utilization)*(efficiency)

Utilization: It is the percentage of design capacity achieved

utilization = actual output / design capacity

Efficiency: It is the percentage of effective capacity achieved.

efficiency = actual output / effective capacity

Planning over a time horizon:
1.long term planning
2.intermediate range planning
3.short range planning

# Design capacity:The maximum theoretical output of a system normally expressed as a rate.

#Effective capacity:The capacity a firm expects to achieve given current operating constraints;often lower the design capacity.

# Productive capacity:The maximum output rate for products or services or to the amounts of key resources available in each operating period.

Capacity considerations:
1.forecast demand accurately
2.understand the technology & capacity increments
3.find the optimum operation level (volume)
4.build for change

Managing Demand:

1.Demand exceeds capacity:
         a. increase in price
         b. capacity increase(long term planning)
         c. scheduling long lead time
         d. alternative products
         e. subcontracting
         f. overtime
         g. extra shift

2.Capacity exceeds demand:
         a. promotion
         b. advertisement
         c. product changes
         d. stimulate market
         e. reduce the length of shift

3.Adjusting to seasonal demands:
    produce product with complementing demand patterns.

Determination of capacity:
    1.Determine capacity(known demand forecast & existing process bottlenecks)
    2.Formulate alternatives
    3.Evaluate alternatives based on -
          a.economic factors:cost,revenues,risks
          b.strategic impacts:competitions,flexibility,quality & organizational & managerial adjustments
4.Select optimum alternative & implement capacity development plan.

Approaches to capacity expansion:

Finally,to conclude,now-a-days all industries uses different software for their capacity planning.

For more details:

1.Principles of operation management by heizer

2.Operation mangement by stevenson

3.Operations management by kostas

feel free to comment....