What is Capacity Requirements Planning? Types, Benefits and Strategies

A manufacturing process requires a lot of planning before it commences. The planning is required to see what’s coming, significantly if it impacts the business’s revenue. Capacity requirements planning is crucial for the manufacturing business as it clearly determines if the company can deliver orders. Businesses nowadays rely on CRP systems to ensure a strategic planning process with fewer errors. So better planning will increase revenue and improve customer satisfaction.

Understanding Capacity Requirements Planning

Capacity requirements planning is the process of determining if the company’s production capacity meets the production goals. It can also be referred to as CRP or capacity planning. This CRP system first analyses the company’s planned manufacturing schedule. Later, this method examines if the production schedule has the capability to meet the capacity in real.

If the company identifies the production capabilities to be insufficient, it will change its production goals to align it with the capacity. In addition, capacity planning conjointly works with materials requirement planning ensuring the company’s physical assets to meet manufacturing requirements.

Also Read :?What is S&OP (Sales and operations planning) ?

Example of Capacity Requirement Planning

Assume that you are the retailer and the holiday festivities are fast approaching. You have to instantly create a plan based on the demand pattern. It means that you will have to consider various aspects.

The first step is to consider analysing the past season’s sales and compare it with the current market demand. After analysing the trend, reach out to the suppliers to get the resources you need to fulfil the demand.

Since it is a holiday festive season, you need to deeply analyse the labour. It is not uncommon to hire seasonal workers to handle the demand during that period.

In the final step, it is vital to track the items that are sold and the products that are warehoused. Tracking accurately will help in understanding the demand and restocking the products before they run out.

Steps of Capacity Requirements Planning

An important point to note here is that capacity planning depends on the accuracy of the data that is used for the planning process. If the company is still relying on spreadsheets or other disparate systems for data, the information they garner may not be accurate or updated. These data will not be of much use during the planning process.

On the contrary, if the company relies on automated software like an ERP system , accurate, relevant and updated information can be acquired which will be very helpful for the planning process. The software has the capability to extract data in real time.

When determining capacity requirements planning, the following steps must be followed–

1. Examine current capacity

In this step, various aspects have to be considered. Information should be collected regarding time studies. Further, live data should be collected regarding equipment capabilities. Other aspects like the number of hours and available shifts, absenteeism and supply chain variables such as vendor performance, lead times and inventory data should be analysed.

2. Create a robust demand plan

The development of a demand plan is crucial for capacity planning. Relying on supply chain management software will help in acquiring accurate data as it will allow aggregate demand planning, based on production time to calculate work centre capacity, find out bottlenecks in advance, analyse the what-if scenarios, master scheduling and others.

3. Decide on capacity modification requirements

The first two steps give you a clear understanding of capacity and demand. This step allows you to make adjustments in determining demand. Decide if additional shifts or overtime is needed. Analyse if certain production aspects have to be outsourced. So if you find the demand to be consistent, consider purchasing additional equipment.

Continue Reading here about the Benefits and Types of Capacity Requirements Planning.