Capacity requirements planning (CRP) is the function of establishing, measuring, and adjusting limits or levels of capacity.
The term CRP in this context refers to the process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production.
Capacity requirements planning is one of the management tools. It helps the company to use its resources efficiently by making its production process accurate.
It determines the capability of the production goal of the company. Through this process, the company can find out how many products that can make and how much ability it has to meet the objectives of production.
What are the inputs required for Capacity Requirement Planning?
The inputs required for capacity requirement planning are capacities of each work center, open shop order, lead times, routings, and planned order releases.
You can get all the above data by referring work center file, open order file, material requirement plan, and routing file.
How to plan Capacity Requirements?
It is an important aspect of the company. A company develops its own capacity requirement plan based on some factors.
With the help of the following steps, you can easily plan the capacity requirements.
Discover the requirements at work level: To find out the work level capacity requirements you need to arrange the workloads based on the type of work, the process of work, and the person who does the work.
Once this workload arrangement is completed then define a satisfactory service for every work, find out the resources required to attain that work, and calculate the amount of work done.
After that set a service level agreement (SLA) between vendor and customer.
Study the present capacity: Before planning the capacity requirements, analyzing the present capacity is a crucial aspect.
To do this, first, you need to match the quantification of items referred in service level agreement with their goals.
Then find out the usage of resources. Check out which workload is the main consumer of each resource.
Define a plan for the future: Estimate the amount of work over a period of particular quarters and figure out the system for satisfying service level.
Once you plan the capacity requirements, re-evaluation is also more important. Capacity requirements planning mainly depends on the type of business and type of industry.
How to re-evaluate Capacity requirements planning?
Following are the few tips to re-evaluate CRP
- Study the latest records of inventory and sales to find the number of products or services that are selling
- Find out whether the demand is increasing or decreasing
- Study the production records to find the number of products that the company manufacturing
- If the production is sufficient to meet the future demand no need to make changes. If it is not sufficient then the company has to initiate to increase capacity requirements and the production level by hiring more employees, upgrading equipment, upgrading technologies
Factors that affect the capacity requirements planning
Some of the factors affect the capacity planning. They are
- Type of products: Products with complexity require more time to produce leads to delay in the production process and it also requires more skilled employees and the most efficient equipment. Simple products need less time. Hence it can be produced in large volume with a short period of time.
- Financial expenditure: Company must have the ability to invest in machinery or workforce.
- Availability of skilled workforce: If the company has the same skilled employees or no skilled employees, then it affects the capacity of the output product.
- The capacity of the equipment: Equipment in good condition helps to speed up the production process.
Capacity requirements planning advantages
- CRP plays an important role in the success of a company.
- It gives a clear picture of the ability of the company to meet its customer demand.
- It helps to find out how much that company must invest in its employees, equipment, and materials.
- It helps to find the company’s place in the market.
- It helps to do on-time delivery of the products or services.
Capacity requirements planning disadvantages
- It consumes more time to do the planning. It is easier and less time-consuming to assign the work to an employee as soon as the project comes than to schedule it. But by considering the size of your company you need to execute CRP. Nowadays you can speed up the capacity requirements planning with the help of planning tools.
- Maintain discipline throughout the project in the organization is one of the disadvantages. You need to schedule the capacity requirements in the exact structure and managers or supervisors should consider it as their important task. Otherwise, there will be a chance of breaking the schedule at the employee level.
Types of capacity requirements planning strategies
What is capacity requirements planning strategy?
Capacity requirements planning strategy is the type of process used to find out and add the required capacity along with the available resources to meet the customer demand.
Capacity requirement strategy helps manufactures to determine the number of raw materials, machines, and labor resources are required for a time period to meet customer demand over products or services.
If there is a lack of capacity planning, it is difficult to meet customer’s demands that lead to losing the customer.
- Lead strategy: This method is a belligerent approach. In this method, the manufacturer invests to increase his resource capacity before an increase in actual demand. This strategy allows the manufacturer to get market share opposite to his competitors. The con of this method is when the actual demand is lesser than the predetermined demand then there will be a chance of excess inventories.
- Lag strategy: This strategy is directly opposite to lead strategy. In this type of approach, the manufacturer adds the required capacity only when the available capacity is crossed its limits. The manufacturer waits to enhance the capacity till the increase in actual demand. In this method, there is no risk of storing extra inventories.
- Match strategy: It is the in-between strategy of lead and lag strategies. In this method, the manufacturer adjusts or boosts the capacity gradually according to the market condition.
- Dynamic strategy: This is the safest type of approach. In this method, the manufacturer adds the capacity before it is required by analyzing the sales forecast and actual demand. Hence this strategy is accurate and less risky.
Get more definitions about capacity requirements planning (CRP) and other ERP related terms here.