5B. Capacity Management


At each level, manufacturing develops priority plans to satisfy demand. However, without the resources to achieve the priority plan, the plan will be unworkable. Capacity management is concerned with supplying the necessary resources.

The term capacity, or plant capacity, is used to define the maximum rate of output that a plant is able to produce under a given set of assumed operating conditions. It is closely related to production rate. The assumed operating conditions refer to the number of shifts per day, number
of days in the week that the plant operates, employment levels, whether overtime is included or not, and so on.

Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time.
Capacity is defined as the capability of a worker, machine, work center, plan or organization to produce output per period of time. Capacity is a rate of doing work, not the quantity of work done.

3 kinds of capacity are important: capacity available, capacity required & Load.
Capacity available is the capacity of a system or resource to produce a quantity of output in a given time period.
Capacity required is the capacity of a system or resource needed to produce a desired output in a given time.
Load is the amount of released and planned work assigned to a facility for a particular time period. It is the sum of all the required capacities.

Capacity management is the function of establishing, measuring, monitoring and adjusting limits or levels of capacity in order to execute all manufacturing schedules. As with all management processes, it consists of planning and control functions.

Capacity planning is the process of determining the resources required to meet the priority plan and the methods needed to make that capacity available. It takes place at each level of the priority planning system. These priority plans cannot be implemented, however, unless the firm has sufficient capacity to fulfil the demand.

Capacity control is the process of monitoring production output, comparing it with capacity plans and taking corrective action when needed.

Balancing Capacity


There are 2 ways of balancing capacity available and load: alter the load or change the capacity available.

Altering the load means shifting orders ahead or back so the load is levelled. If orders are processed on other work stations, the schedule and load on the other work stations have to be changed as well.
It may also mean that other components should be rescheduled and the MPS changed.
For these reasons, changing the load may not be the preferred course of action.

 

 

 

In the short run, capacity can be adjusted. Some ways that this may be done are as follows:

- Schedule overtime or under-time;
- Adjust the level of the workforce by hiring or laying off workers. The ability to do so will depend on the availability of the skills required and the
training needed;
- Shift workforce from under-loaded to overloaded work centers;
- Use alternate routings to shift some load to another work center;
- Subcontract work when more capacity is needed or bring in previously
subcontract work to increase required capacity.

The result of CRP should be a detailed workable plan that meets the priority objectives and provides the capacity to do that. Ideally, it will satisfy the MRP and allow for adequate utilization of the workforce, machinery and equipment.

Capacity Available

Capacity available is the ability of a system or resource to produce a quantity of output in a given time period. Capacity available is dependent on below parameters Product specifications: Capacity available depends on product specification and can change with it.

Unit of measure f the variety of products is not large, it is often possible to se a unit common to all products. However, if a variety of products is made, a good common unit may not exist. In this case, the unit common to all products is time.

Standard time Using time-study techniques, the standard time for a job can be determined – that is the time it would take a qualified operator working at a normal pace to do the job. It provides a yardstick for measuring work content and a unit for stating capacity. It also used in loading and scheduling.

Levels of capacity
Capacity needs to be measured on at least 3 levels:
- Machine or individual worker,
- Work center,
- Plant, which can be considered as a group of different work centers.

Design capacity Maximum output rate or service capacity an operation, process, or facility is designed for
Effective capacity Design capacity minus allowances such as personal time, maintenance, and scrap
Actual output Rate of output actually achieved--cannot  exceed effective capacity.

Determining capacity available
There are 2 ways of determining the capacity available: measurement and calculation. Demonstrated (measured) capacity is figured from historical data. Calculated or rated capacity is based on available time, utilization and efficiency.

Calculated or rated capacity is based on available time, utilization and efficiency.

Rated capacity = Available time x Utilization x Efficiency

Available time. The available time is the number of hours a work center can be used. The available time depends on the number of machines, the number of workers and the hours of operation.

Utilization. The available time is the maximum hours we can expect from the work center. However it is unlikely this will be attained all the time. Downtime can occur due to machine breakdown, absenteeism, lack of materials and all those problems that cause unavoidable delays. The percentage of time that the work center is active compared to the available time is called work center utilization:

Utilization can be determined from historical records or by a work sampling Study

Efficiency. The workers might be working at a faster or slower pace than the standard working pace, causing the efficiency of the work center to be more or less than 100 %.

Demonstrated capacity
One way to find out the capacity of a work center is to examine the previous production records and to use that information as the available capacity of the work center. Notice that demonstrated capacity is average, not maximum, output.

Ex : A work center produced  100,200,300 & 400 standard hours of work in last 4 weeks. what is the demonstrated capacity of the work center ?
Ans :
Demonstrated Capacity = (100 + 200 + 300 + 400) / 4 = 250

Capacity Planning

Capacity planning involves calculating the capacity needed to achieve the priority plan and finding ways of making that capacity available. If the capacity required cannot be met, the priority plans have to be changed.

Priority plans are usually stated in units of product or some standard unit of output. Capacity can sometimes be stated in the same units. If there is no common unit, capacity must be stated as the hours available. The process of capacity planning is as follows:

- Determine the capacity available at each work center in each time period;
- Determine the load at each work center in each time period:
o Translate the priority plan into the hours of work required at each work center in each period time,
o Sum up the capacities required for each item on each work center to determine the load on each work center in each time period;
- Resolve differences between available capacity and required capacity.

Capacity planning is executed at four levels: resource planning, rough-cut capacity planning, capacity requirements planning, and input/output control.

 

 

 

 

 

 

 

 

 

 

 

Resource planning involves long-range capacity resources requirements and is directly linked to production planning. Typically , it involves translating monthly, quarterly or annual product priorities from the production plan into some total measure of capacity, such as gross labor hours. Resource planning involves changes in manpower, capital equipment, product design or other facilities that take a long time to acquire and eliminate.

What is RCCP?
A problem commonly encountered in operating MRP systems is the existence of an overstated MPS. An overstated master production schedule is one that orders more production to be released than production can complete. An overstated MPS causes raw materials and WIP inventories to increase because more materials are purchased and released to the shop than are completed and shipped. It also causes a buildup of queues on the shop floor. Since jobs have to wait to be processed, actual lead times increase, causing ship dates to be missed. As lead times increase, forecast accuracy over the lead-time diminishes because forecasts are more accurate for shorter periods than for longer ones. Thus, overstated master production schedules lead to missed due dates and other problems. Validating the MPS with respect to capacity is an extremely important step in MRP. This validation exercise has been termed rough cut capacity planning (RCCP).

What is CRP
You can use CRP to verify that you have sufficient capacity available to meet the capacity requirements for your MRP plans. In this way, you can identify short term discrepancies between required and available capacity.
CRP typically verifies capacity for all the resources required to meet your material plan.

The various capacity plans relate only to their level in the priority plan, not to subsequent capacity planning levels.After the plans are completed, production activity control and purchasing must be authorized to process or implement shop orders and purchase orders.


 

Capacity Required (LOAD)

Simply identifying capacity is only half of the problem.  Manufacturers also have to consider the load going through each of the work centers in the manufacturing process.  This is where the MRP system helps.  The MRP system defines how many jobs have to move through each work center.  If the amount of time required for each job is identified through the use of standards (a standard is an estimate of the period of time it should take to perform an operation), then a capacity analysis can be performed to compare the amount of work each work center can perform to the amount of work it will have to perform in order to meet the dispatch report requirements.

If a manufacturer knows the standards for performing the operations that have to move through each work center and the capacity of each work center, the manufacturer can compare each work center’s capacity to its load.  If the capacity is greater than the load, the manufacturer should not have a problem (the work center can support the load, and the work should be accomplished on time).  If the load exceeds the capacity, then the manufacturer has a constraint.  The work center has more work than it can perform, and it will not complete the jobs it is supposed to in time to meet the dates specified in the MRP-generated dispatch report.  At least a few of the jobs moving through the work center will fall behind.  Unless the downstream work centers have excess capacity, it is not likely these jobs will recover to their downstream dispatch report due dates, and that means the delivery to the customer will be late.

Where excess capacity exists, it usually exists because the company has not tailored capacity to meet market conditions.  In these situations, companies can be lulled into believing that capacity versus load assessments are not necessary to assure delivery performance.  Such a belief is dangerous for two reasons:

From a cost containment perspective, the company should be concerned about excess capacity (the company is paying for capacity it does not need, but that is an issue outside this paper’s scope).
The company may make delivery commitments on future orders, especially during an economic upturn, and find out too late that it does not have the required capacity to deliver in accordance with its commitments.

Determining the capacity required is a two-step process. First, determine the time needed for each order at each work center; then, sum up the capacity required for individual orders to obtain the load.

Time needed for each order
The time needed for each order is the sum of the setup and the run time. The run time is equal to the run time per piece multiplied by the number of pieces in order.

Load
The load on a work center is the sum of the required times for all planned and actual orders to be run on the work center in a specific period. The steps in calculating load are as follows:
Determine the standard hours of operation time for each planned and released order for each work center by time period;
- Add all the standard hours together for each work center in each period.
The result is the total required capacity (load) on that work center for each time period of the plan.
The load must be now compared to the available capacity. One way of doing this is with a work center load report.

Work center load report
The work center load report shows future capacity requirements based on released and planned orders for each time period of the plan.
Loads for all weeks can be calculated and recorded on a load report:

The report shows released and planned load, total load, rated capacity and (over)/under capacity. This type of display gives information used to adjust available capacity or to adjust the load by changing the priority plan. In this example, weeks 20 and 21 are overloaded, the balance are under-loaded and the cumulative load is less than the available. For the planner, this shows there is enough total capacity over the
planning horizon and available capacity or priority can be juggled to meet the plan.

Capacity Requirements Planning

The CRP occurs at the level of the MRP. Planned orders from the MRP and open shop orders (schedule receipts) are converted into demand for time in each work center in each time period. This process takes into consideration the lead times for operations and offsets the operations at work centers accordingly. In considering open shop orders, its accounts for work already done on a shop order. Capacity planning is
the most detailed, complete and accurate of the capacity planning techniques. Because of the detail, a great amount of data and computation are required.

Routing–Based and Rate–Based Capacity Planning (Oracle EBS)
You can plan capacity for individual resources assigned to operations on routings, or you can plan capacity by production line. Required and available capacity for routing– based plans are stated in hours per week per resource, and for rate–based plans by production rate per week per line. Resource requirements are also based on the effective date ranges in routings.

The inputs need for a CRP are open shop orders, planned order releases, routings, time standards, lead times and work center capacities. This information can be obtained from the following:
- Open order file,
- MRP,
- Routing file,
- Work center file

Open order file An open shop order appears as a scheduled receipt on the MRP. It is released order for a quantity of a part to be manufactured and completed on a specific date. The open order file is a record of all the active shop orders. It can be maintained manually or as a computer file.

Planned order releases Data from Material Requirements Planning that tells when a production order should start (it is offset by the appropriate lead time).They are inputs to the CRP process in assessing the total capacity required in future time periods.
A suggested production, purchase or replenishment order generated by an MRP or other planning system to meet a projected shortage against desired safety stock levels. The shortage date becomes the due date, the release date is backward scheduled based on lead time, and the quantity is based on the specified lot size. Planned orders for upper level items create requirements for lower level components, and MRP generations delete existing planned orders and regenerate new ones based on changes in requirements. Planned orders must be firmed or accepted before releasing to production or to a vendor.

Routing file
 A routing is a path that work follows from work center to work center as it is completed. Routing is specified on a route sheet or, in a computer-based system, in a route file. A routing file should exist for every component manufactured and contain the following information:
- Operations to be performed,
- Sequence of operations,
- Work centers to be used,
- Possible alternate work centers,
- Tooling needed at each operations,
- Standard times: setup times and run times per piece.

Work center file A work center is composed of a number of machines or workers capable of doing the same work. A work center file contains information on the capacity and move, wait and queue times associated with the center.
The move time is the time normally taken to move material from one workstation to another. The wait time is the time a job is at a work center after completion and before being moved. The queue time is the time a job waits at a work center before being handled. Lead time is the sum of queue, setup, run, wait, and move times.

Shop calendar
 Another piece of information needed is the number of working days available. The Gregorian calendar has some serious drawbacks for manufacturing planning and control. The months do not have the same number of days, holidays are spread unevenly throughout the year and the calendar does not work on a decimal base.

How many working days do we really have?
Because of this problem, it is desirable to develop a shop calendar.

Rough-cut capacity planning



A problem commonly encountered in operating MRP systems is the existence of an overstated MPS. An overstated master production schedule is one that orders more production to be released than production can complete.

An overstated MPS causes raw materials and WIP inventories to increase because more materials are purchased and released to the shop than are completed and shipped.

It also causes a buildup of queues on the shop floor. Since jobs have to wait to be processed, actual lead times increase, causing ship dates to be missed. As lead times increase, forecast accuracy over the lead-time diminishes because forecasts are more accurate for shorter periods than for longer ones. Thus, overstated master production schedules lead to missed due dates and other problems. Validating the MPS with respect to capacity is an extremely important step in MRP.

This validation exercise has been termed rough cut capacity planning (RCCP).



Rough-cut capacity planning
checks whether critical resources are available to support the preliminary master production schedules. Critical resources include bottleneck operations, labor and critical materials. Here the resource bill is for a single product. As before, the only interest is in bottleneck work centers and critical resources.

Basically there are three approaches to perform rough cut capacity planning. These can be summarized as follows;

a) Capacity planning using overall factors (CPOF) :
It is the least detailed approach. Capacity requirement is quickly computed but is insensitive to shifts in product mix.

b) “Bill of labor” (or bill of required types of machine hours) approach :
It involves multiplying two matrices, “the bill of labor” and the “master production schedule”. This approach picks up shifts in product mix, but does not consider lead time offsets. It strictly assumes a lot-for-lot policy for setting lot sizes. When other techniques, such as economic order quantity etc is used, then this approach gives a very rough estimate.

c) “Resource Profile” approach :
It is exactly same as “Bill of labor approach”, except that it takes lead-time offsets into account. Again, it strictly assumes a lot-for-lot policy for setting lot sizes as in the case of “bill of labor approach”.

Suppose a firm manufactures four models of cycle in a work center that is a bottleneck operation. The company wants to schedule to the capacity of the work center and not beyond. Below figure shows the MPS and resource bill.

Master Production Schdule Week One Production   Resource Bill - Cycle Assembly Time (Stnd hours)
Model A100 200 units   Model A100 1
Model A101 250 units   Model A101 2
Model A102 300 units   Model A102 2
Model A103 500 units   Model A103 1

The capacity required on this critical resource is

Model A101 = 200 hours
Model A102 = 500 hours
Model A103 = 600 hours
Model A104 = 500 hours
Total time required = 1800 hours

Resolution of differences
The next step is to compare the total time required to the available capacity of the work center. If available capacity is greater than the required capacity, the MPS is workable. If not, methods of increasing capacity have to be investigated. Is it possible to adjust the available capacity with overtime, extra workers, routing through other work centers or subcontracting? If not it will be necessary to revise the MPS.

Finally, the MPS must be judged by 3 criteria:
- Resource use: is the MPS within capacity restraints in each period of the plan? Does it makes the best use of resources?
- Customer service: will due dates be met and will delivery performance be acceptable?
- Cost: is the plan economical, or will excess costs be incurred for overtime, subcontracting, expediting or transportation?