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Rough-cut capacity planning

By Anonymous - Posted on 26 December 2011

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?

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