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Capacity Requirement Planning Operations Management 345 Joyce Hill.

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1 Capacity Requirement Planning Operations Management 345 Joyce Hill

2 Capacity Requirements Planning Capacity Requirements Planning is a computerized technique for projecting resource requirements for critical work stations.Capacity Requirements Planning is a computerized technique for projecting resource requirements for critical work stations. –Inputs: Planned order releasesPlanned order releases Routing fileRouting file Open orders fileOpen orders file –Outputs: Load Profile for each work centerLoad Profile for each work center

3 Definitions Planned Order Releases: Information from the Material Requirements Planning which tells when you should start the order so it can be completed on time.Planned Order Releases: Information from the Material Requirements Planning which tells when you should start the order so it can be completed on time. Routing Files: Information that details the requirements of equipment and labor to complete the order as needed in the required time frame.Routing Files: Information that details the requirements of equipment and labor to complete the order as needed in the required time frame. Open Orders Files: Information regarding the orders that are currently started and need to be completed.Open Orders Files: Information regarding the orders that are currently started and need to be completed.

4 Capacity Requirements Planning A tool for:A tool for: –determining capacity that is available and required. –Alleviating bottleneck work centers. Helping planners make the right decisions on scheduling before problems develop.Helping planners make the right decisions on scheduling before problems develop. Verifies that you have sufficient capacity available to meet the capacity requirements for MRP plans.Verifies that you have sufficient capacity available to meet the capacity requirements for MRP plans.

5 What is Capacity? The work that the system is capable of doing in a period of time.The work that the system is capable of doing in a period of time. It must be determined at different levels:It must be determined at different levels: –plant –department –work center. It is normally stated in standard hours of work.It is normally stated in standard hours of work.

6 What is Capacity? Capacity = (no. of machines or workers) x (no. shifts) x (utilization) x (efficiency)Capacity = (no. of machines or workers) x (no. shifts) x (utilization) x (efficiency) (Russell & Taylor) Best operating level is the percent of capacity utilization that minimizes average unit cost.Best operating level is the percent of capacity utilization that minimizes average unit cost. –Usually 80% with a 20% cushion

7 Utilization and Efficiency Utilization is the percent of available time spent working.Utilization is the percent of available time spent working. Efficiency is how well a machine or worker performs compared to a standard output level.Efficiency is how well a machine or worker performs compared to a standard output level. Russell and Taylor

8 Utilization and Efficiency Actual Hours Charged Utilization = Scheduled Available Hours Standard Hours Earned Efficiency = Actual Hours Charged

9 Reason to use CPR Bottleneck Management -Bottleneck Management - –The throughput of all products processed is controlled by bottlenecks. –Work centers need to be scheduled at a rate to prevent bottlenecks. –To eliminate bottlenecks, a time buffer inventory should be established.

10 Basic Strategies for Timing Capacity CRP provides information to determine the timing of capacity expansion. The basic strategies in relation to a steady growth in demand are:CRP provides information to determine the timing of capacity expansion. The basic strategies in relation to a steady growth in demand are: –Capacity Lead Strategy –Capacity Lag Strategy –Average Capacity Strategy

11 Capacity Lead Strategy In anticipation of demand, capacity is increased.In anticipation of demand, capacity is increased. This is an aggressive strategy and is used to lure customers away from competitors.This is an aggressive strategy and is used to lure customers away from competitors.

12 Capacity Planning How much to increase capacity demands depend upon a number of factors, including: Anticipated demand – volume & certaintyAnticipated demand – volume & certainty Strategic objectivesStrategic objectives Costs of expansion and operationCosts of expansion and operation

13 Capacity Lag Strategy Increase capacity after demand has increased.Increase capacity after demand has increased. This is a conservative strategy and may result in lose of customers.This is a conservative strategy and may result in lose of customers. You assume customers will return after capacity has been met.You assume customers will return after capacity has been met.

14 Average Capacity Strategy Average expected demand is calculated and capacity is increased accordingly.Average expected demand is calculated and capacity is increased accordingly. This is the most moderate strategy.This is the most moderate strategy.

15 Adjustments to Capacity Increase capacity by: Adding extra shiftsAdding extra shifts Scheduling overtime or weekendsScheduling overtime or weekends Adding equipment and/or personnelAdding equipment and/or personnel Reduce load by: Reducing lot sizesReducing lot sizes Holding work in production controlHolding work in production control Subcontracting work to outside suppliersSubcontracting work to outside suppliers

16 Adjustments to Capacity Reduce capacity by: Temporarily reassigning staffTemporarily reassigning staff Reducing the length of shiftsReducing the length of shifts Eliminating shiftsEliminating shifts Increase load by: Releasing orders earlyReleasing orders early Increasing lot sizesIncreasing lot sizes Making items normally outsourcedMaking items normally outsourced

17 Capacity Planning Best operating is seldom at 100% and varies with industry.Best operating is seldom at 100% and varies with industry. –In industries where demand is highly variable, large capacity cushions are common. –Companies with less flexibility and higher costs maintain small cushions – under 10%. –Overbooking is common with some industries such as airlines.

18 Economies of Scale Economies of scale is the best operating level.Economies of scale is the best operating level. Economies of scale is the point where it costs less per unit to produce high levels of output.Economies of scale is the point where it costs less per unit to produce high levels of output. –Occurs when fixed costs are spread over large number of units

19 Diseconomies of Scale Occurs at a certain level of output.Occurs at a certain level of output. –When fixed costs increase with number of units being produced, examples: Higher reworkHigher rework More equipment breakdownMore equipment breakdown

20 What is CRP Used For? To determine the capability of a system or resource to produce a quantity of output in a particular time period. For example:To determine the capability of a system or resource to produce a quantity of output in a particular time period. For example: –Should the hospital hire more registered nurses to care for the projected patient load? –Should the hospital build more rooms for patients? –What is the projected finish time for the current projects?

21 CRP Produces Load Profile CRP uses the information to produce a load profile for each machine or work center. A load profile:CRP uses the information to produce a load profile for each machine or work center. A load profile: –Compares released orders and planned orders with the capacity of the work center. –Identifies underloads and overloads.

22 What is a load? Load refers to the standard hours of work assigned to a facility.Load refers to the standard hours of work assigned to a facility. Russell and Taylor

23 What Is Load Percent? Load percent is the ratio of load to capacity.Load percent is the ratio of load to capacity. Load Load Load percent = x 100% Capacity Capacity Russell and Taylor

24 Load % Example A local road construction company needs to develop engineering specifications prior to doing any pre-surfacing preparation. The company has been awarded the bid on four projects. They have one engineer. It takes 4 hours per mile to develop the engineering specifications. The first project is 30 miles long and must be started by March 15 th to complete on schedule. The second project is 20 miles long and must be started by April 1 st. The third project is 5 miles long and must be started by May 1 st. The fourth project is 15 miles long and must be started by May 23 rd. It is now February 15 th. The engineer works a 40 hours week and is very experienced so he operates at 100% efficiency. Assume one project can not be started until the previous project is completed. Does the engineer have enough time to accomplish the specifications on time?A local road construction company needs to develop engineering specifications prior to doing any pre-surfacing preparation. The company has been awarded the bid on four projects. They have one engineer. It takes 4 hours per mile to develop the engineering specifications. The first project is 30 miles long and must be started by March 15 th to complete on schedule. The second project is 20 miles long and must be started by April 1 st. The third project is 5 miles long and must be started by May 1 st. The fourth project is 15 miles long and must be started by May 23 rd. It is now February 15 th. The engineer works a 40 hours week and is very experienced so he operates at 100% efficiency. Assume one project can not be started until the previous project is completed. Does the engineer have enough time to accomplish the specifications on time?

25 Engineering Calculations (Capacity) Numbers of hours = 40 Shifts = 1 Efficiency = 100% Utilization = 4/5 = 80% Capacity = 40 x 1 x 0.8 x 1.00 = 32 hours Project 1 capacity = 4 (weeks) x 32 = 128 Project 2 capacity = 2 (weeks) x 32 = 64 Project 3 capacity = 4 (weeks) x 32 = 128 Project 4 capacity = 3 (weeks) x 32 = 96

26 Engineering Calculations (Load) Project 1 = 30 x 4 hours per mile = 120 hours (start by February 15 th – must be completed by March 15 th ) Project 2 = 20 x 4 hours per mile = 80 hours (start March 16 th – must be completed by April 1 st ) Project 3 = 5 x 4 hours per mile = 20 hours (start April 2 nd – must be completed by May 1 st ) Project 4 = 15 x 4 hours per mile = 60 hours (start by May 2 nd – must be completed by May 23 rd )

27 Engineering Calculations (Load %) Project 1 = 120/128 = 94%Project 1 = 120/128 = 94% –Can be completed Project 2 = 80/64 = 125%Project 2 = 80/64 = 125% –Can not be completed Project 3 = 20/128 = 16%Project 3 = 20/128 = 16% –Can be completed Project 4 = 60/96 = 63%Project 4 = 60/96 = 63% –Can be completed

28 Road Construction Bidding In analyzing the engineering calculations, the company must decide if it cost effective to accept the bid on project 2. Based on the current capacity, the engineer is not able to complete the engineering specifications as needed. If the company accepts the bid, one of the following adjustments will need to be made:In analyzing the engineering calculations, the company must decide if it cost effective to accept the bid on project 2. Based on the current capacity, the engineer is not able to complete the engineering specifications as needed. If the company accepts the bid, one of the following adjustments will need to be made: –Add extra shift (weekend or evening) –Schedule overtime –Add personnel temporarily

29 Test Exercise of Load % A local hospital prides themselves in top quality patient care. They have 5 registered nurses on each of the 3 shifts and each nurse cares for 5 patients. Each patient requires 1.5 hours of RNs time. For week one they have projected the patient load to be 200 patients, week two the patient load will be 225 patients, week three the patient load will be 180 patients and week four the patient load will be 195 patients. The staff consists of about 30% student graduate RNs; therefore the efficiency is 70%. Each nurse works 36 hours per week. Does the hospital have sufficient staff to provide care for the patients?A local hospital prides themselves in top quality patient care. They have 5 registered nurses on each of the 3 shifts and each nurse cares for 5 patients. Each patient requires 1.5 hours of RNs time. For week one they have projected the patient load to be 200 patients, week two the patient load will be 225 patients, week three the patient load will be 180 patients and week four the patient load will be 195 patients. The staff consists of about 30% student graduate RNs; therefore the efficiency is 70%. Each nurse works 36 hours per week. Does the hospital have sufficient staff to provide care for the patients?

30 Summary To operate at maximum capacity, companies must use the resources available. If resources under underutilized, the profit margin will not be maximum.To operate at maximum capacity, companies must use the resources available. If resources under underutilized, the profit margin will not be maximum. Using capacity requirements planning helps a company identify potential problems, such as eliminating the possibility of overworking the current staff, overloading machines, losing customers because the work could not be completed as scheduled, paying penalties for late delivery.Using capacity requirements planning helps a company identify potential problems, such as eliminating the possibility of overworking the current staff, overloading machines, losing customers because the work could not be completed as scheduled, paying penalties for late delivery.

31 Resources Russell, Roberta A. and Bernard W. Taylor III Operations Management. 4 th ed. New Jersey: Prentice Hall 2003Russell, Roberta A. and Bernard W. Taylor III Operations Management. 4 th ed. New Jersey: Prentice Hall 2003 “Capacity Requirement Planning” MGT 651 –IV, Dr. Ozatalay“Capacity Requirement Planning” MGT 651 –IV, Dr. Ozatalay gp/eenterprise/modules/GP-CapacityRequirePlan.docwww.coalitioncomputing.com/cccweb/products/software/ gp/eenterprise/modules/GP-CapacityRequirePlan.docwww.coalitioncomputing.com/cccweb/products/software/ gp/eenterprise/modules/GP-CapacityRequirePlan.docwww.coalitioncomputing.com/cccweb/products/software/ gp/eenterprise/modules/GP-CapacityRequirePlan.doc


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