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Capacity Requirement Planning

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Institute of Management Technology


Supply Chain Management

Term paper


Capacity Requirement Planning

Submitted to: Submitted by:

Dr. Anwar Ali Section-B2C


Prayas Garg

Capacity Requirement Planning

Capacity Requirements Planning is a computerized system for projecting resource requirement for critical work stations. Several components are input into the system to effectively address the capacity and planning needs, including :

Inputs as:

* Planned order releases

- on forecasted orders

- on customer orders

* Routing file

- Equipment

- Labor

* Open orders file

Outputs as:

* Load profile for each work center

Capacity requirements planning is a computerized tool that is used to determine the available and required capacity to help alleviate bottlenecks and to help identify potential problems before they occur. It is a tool that measures

* capacity to determine you have sufficient capacity to meet the requirements for the Material Requirements Planning. MRP is the computerized inventory system used for generating purchase orders and work orders of materials, components and assemblies.

* Alleviating bottleneck work centres.


To fully understand the definition of the information that goes into the capacity requirement planning, it is important to understand the terms used.

* Planned order release: The planned order releases is from the material requirements planning which translates a master schedule for end items into time-phased requirements for subassemblies, components and raw materials. It is used to be certain materials are available when needed.

* Routing Files: The routing files has a triple component - it determines which workers and/or machines are needed for an order, which operations should be completed first, and the length of time each operation will take.

* Open order files: They contain the data on the jobs currently being worked on but are not yet completed.

What is Capacity?

Capacity is the maximum output or volume a system can produce, the maximum work that a system is capable of doing in a given period of time. This information is needed to determine projects companies can commit themselves to, bid on or accept. By calculating the capacity, the company can determine if they are capable of completing the project within the timeframe required. It is normally stated in standard hours of work.

It is affected by the following:

* Product Specifications: If the product specifications change, the work content will change, thus affecting the number of units that can be produced

* Product Mix: Each product has its own work content measured in the time it takes to make the product. If the mix of product produced changes, the total work content for the mix will change

* Plant and Equipment: This relates to the methods used to make the product. If the method is changed, the output will change. Similarly, if more machines are added to the work center, the capacity will change

* Work Effort: This relates to the speed or place at which the work is done. If the workforce changes pace, perhaps producing more in a given time, the capacity will be altered.

It must be determined at different levels like:

* Plant, which can be considered as a group of different work centres,

* Work center ,

* Machine or individual worker.

It is usually calculated as:

Capacity= (Number of machines or workers)*(Number of shifts)*Utilization*Efficiency

Capacity utilization is seldom figured at 100%. Best operating level is the percent of capacity utilization that minimizes avarege unit cost and usually this figure is comes around 80% with 20 % cusion.

Several factors are considered when calculating utilization, for example it would be determined whether if it is feasible to run machinery 100% of the time. By doing so, there would not have any time for maintenance on the machines. Operating at 100% would certainly provide a higher profit margin for a period of time; therefore, short term profit would be very good. However, in planning projects we have to plan long term, for machinery to continue operating we would have to calculate some down time to do preventive maintenance. Other things to consider is the off time for workers, with lunches, meetings, breaks, they will not work 100% of the time at are on the job.

Utilization and Efficiency:

Utilization is defined as the percent of available time spent working. It takes into account the down time a worker has during the work day. Down time would include time out for meetings, lunches, absenteeism or other breaksdowns that cause unavoidable delays.

Where as Efficiency is defined as how well a machine or worker performs compared to a standard output level. It can be calculated by using past history data or from work measurement techniques. It is effected by the product mix, the inventory on hand, how efficient the machinery



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