Capacity Requirement Planning – definition | purpose | calculate
Capacity Requirement Planning
Peter makes bow ties. His company is called Peter’s Bows. It has grown over the years and has customers all over the world. It’s not just Peter making the bow ties now. He has several employees that also sew the bow ties. Each month, Peter performs capacity requirements planning, or CRP. Capacity requirements planning tells you whether you have enough capacity to produce the amount of products you need. For Peter, it tells him whether he and his team are able to sew the required number of bow ties that sell each day. He performs this planning once a week so that he can continue to meet the bow tie demands of his customers.
CRP is part of MRP, or materials requirements planning. Companies perform MRP so they can see what materials are needed, in what quantity, and when they are needed to successfully fill all their orders. The MRP tells companies when to order the materials so they can make the products to fulfill demand. CRP tells companies how many products they can make per employee, per workstation, etc. per hour, per day, per month.
For Peter, his MRP tells him when he needs to order his fabrics and in what quantity to make the bow ties that his customers have ordered. His CRP tells him how many bow ties each of his employees and himself can make per hour, per day, etc. Peter looks at his CRP and determines whether he has the capacity to fulfill all his orders or not. He also uses his CRP to make adjustments in the workloads so that everybody has an even workload and all the orders get fulfilled.
Inputs
To perform a CRP, certain pieces of information are needed. To calculate the amount of available work hours you have, you need to know information such as how many employees you have, how many hours each employee can work, how many machines you have, and how efficient they are, etc.
For Peter to calculate the amount of available work hours, he needs to know the number of workers he has and the number of hours each worker is available. Since Peter works full time and so do his other employees, his calculation becomes number of workers times 40 hours per week. If the employees had different working hours per week, Peter would need to add the working hours per week for each employee. Peter has 3 other employees, making a total of 4 workers including himself. Multiplying 4 times 40 gives 160 working hours per week.
To calculate the time needed to fulfill orders, you need to know information such as the number of products that need to be made, the time it takes to make each product, set-up time per employee and workstation, etc. To do this calculation, Peter needs to know the number of bow ties that need to be made, the time it takes to make each bow tie, and then the time it takes to set-up.
Peter wants to calculate this time per week, so he looks at the orders he needs to fulfill for the week. Right now, he has 300 bow ties that need to be made for the week. It takes 30 minutes to make one bow tie. It takes 10 minutes to set up each morning. The total set-up time for the week is 10 * 5 = 50 minutes. Before Peter makes his calculation, he changes his minutes into decimals. He gets 30 / 60 = 0.5 and 50 / 60 = 0.83. To calculate the total time needed, he multiplies the number of bow ties that need to be made by the time it takes to make each bow tie, and then, he adds the set-up time for the week. Peter gets ( 300 * 0.5 ) + 0.83 = 150.83 work hours needed per week to fulfill 300 bow ties per week.
Output
Now, Peter has two results from his CRP. He has the total time available per week of 160 hours and a total work hours needed to fulfill 300 orders per week of 150.83 hours. Peter can use these two results to go further with his CRP. He can now calculate the load on his business. To calculate this load, he takes the work hours needed per week and divides it by the available hours per week. He then changes this into a percentage. He gets 150.83 / 160 = 0.94 or 94%. He is operating at a load of 94%. Peter actually has the capacity to expand a little bit more.
Balancing Capacity
Another part of CRP that Peter can do is to use his CRP to help him balance his capacity. Balancing the capacity means distributing the workload evenly for efficiency so that the required number of orders can be fulfilled. Balancing Peter’s capacity may involve using overtime, adding more employees, decreasing employees, decreasing the time it takes to make each bow tie, adding equipment, etc. By doing one, some, or all of these things, Peter can increase his capacity and balance the workload so that no one is overworked.
For example, while performing his CRP, Peter might notice that one of his employees does work faster than another. Instead of giving the same amount of work to each, he can decide to give more work to the faster worker so that both employees end up working the same amount of time. No one will be overworked, and more work will be accomplished when the workload and capacity are balanced.
Lesson Summary
Let’s review what we’ve learned. Capacity requirements planning, or CRP tells you whether you have enough capacity to produce the amount of products you need. It is part of MRP, or materials requirements planning.
To calculate the amount of available work time you have, you need to know information such as how many employees you have, how many hours each employee can work, how many machines you have, how efficient they are, etc. To calculate the time needed to fulfill orders, you need to know information such as the number of products that need to be made, the time it takes to make each product, set-up time per employee and workstation, etc.
When you have these two calculations, you can then calculate the capacity load by taking the work hours needed to fulfill orders and dividing it by the number of available hours. You then turn this answer into a decimal to find your load. This load tells you at what capacity you are running. Anything over 100 percent is over capacity and means that you do not have enough hours available to do all the work.
CRP can help you balance your workload and capacity. By performing CRP, you can determine whether you need to increase over time, add or decrease the number of employees, streamline the production process, etc.