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Critical capacity planning

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The capacity planning is a critical function in Supply chain planning.

A capacity is a work load that can be performed in a work center for a given period. We usually express the capacity in machines hours, labor hours or in throughput rate.

There are two capacity types:

  • Available capacity: Remaining available work load after capacity allocations to work orders.
  • Required capacity: This represents the required capacity to fulfill manufacturing order requirements. Generally called work load, it is the work amount to do on a work center for a given unit of time.

We often represent the capacity and the load by a funnel, where inside are the work orders and work in process and where the output represents the capacity:

Capacity levels

The capacity management aimed at plan, adjust and control the load requirements versus the demonstrated or available capacity during all planning phases - S&OP, MPS, MRP – but also during the shopfloor execution.

The generic process can be described as follow:

  • Evaluate the available capacity per period
  • Evaluate the work load derived from all work orders generated by the MRP per period
  • Solve the gaps between load and capacity for the concerned period(s)


According to the planning level, the capacity aggregation and time horizon change to best fit with the planning process:

Rough Cut Capacity Planning (RCCP)

At S&OP level

The rough cut capacity planning aimed at checking whether or not the load is over the capacity for critical bottlenecks only, in order to plan if required for new investments (new machines, factory extension,) or for a workforce increase.

Usually those critical resources are checked because the leadtime to increase their capacity could be long enough to be in troubles.

The RCCP is used at S&OP level for long term plan as described above but is also used at the MPS level to check the critical work centers.
We frequently use bill of resources to evaluate the load for S&OP product families. Those resources are built based on historical data, enabling to translate product quantities into capacity requirements, and checks if the resources meet the demands.
Again the number of product families should be maximum 20, otherwise this is a waste of time to try to do it well. So there are maximum 20 bills of resources to build for the S&OP.

At the MPS level

Remember that the MRP principle run with infinite capacity. So it is quite easy to have a nice plan but not realistic due to manufacturing constraints, especially in term of capacity issue to meet the demand.
Here the check is done at work center level for critical ones. The load estimation is done through macro-routings that take into account only critical work centers, and the total load is calculated by multiplying the work hours by the MPS product quantity.

The calculation is more precise as done for individual finished goods, and the standard routing times per work center could be used if routings are already entered in the IT system.
In case of over loading in some critical work centers, to keep the same customer service we usually move backward MPS in order to flatten the load over multiple periods and get a better line utilization. Obviously punctual overtimes to tackle any capacity issue are welcome!

Capacity Requirement Planning (CRP)

All the work orders are then exploded in their routing in order to evaluate the load for each work center – labor or machine – required to fulfill them. With the S&OP and the MPS, all the critical work centers should have enough capacity to respect the planning, and so all remaining work centers – not critical.

The calculation is very precise in order to evaluate the load for all manufacturing resources:  set-up, machines, labor, overhead, inspection, kitting, assembling…
The work orders are first exploded into work load with an infinite capacity, and then adjusted by the planned. The adjustments are limited to a few days time horizon, in order to fine tune the line utilization.

Capacity calculation

We have previously noted that the capacity unit of measure could be the hour or the unit.

Now let’s try to understand the capacity calculation:

Calculated capacity = Maximum capacity X Availability rate X Efficiency rate X Yield rate


  • Full capacity: These are the total working hours or opening hours for a given equipment on a 7/24 basis
  • Utilization rate: This is the ratio of the actual equipment run time compared to the full opening hours. Basically, it deducts the plant shut down time, idle time and the maintenance time.
  • Efficiency rate: This ratio compares the standard run time to complete an operation with the actual time spent to complete the operation.
  • Yield rate: This ratio takes into account the defects produced at the line or equipment that is wasting capacity.


A Work center is composed of 2 identical machines and 2 shift per day. The daily work time is 8 hours on a 5 day week.
During the week, one machine was down 15 hours for maintenance, and 2 hours idle.
The MPS planned to manufacture 400 products A, with a set-up time of 2h and a routing time for the machining of 0.2h.
It took 90 hours to manufacture 412 products, whom 12 were defective.

Capacity calculation

Maximum capacity = 2*24*7 = 336 hours and opening capacity = 2*2*8*5 = 160 hours

Availability rate = (336 - 160 – 15 – 2)/336 = 57%

Efficiency rate = (90 - 2+412*0.2 )/90 = 94%

(note that we use the total item produced :412)

Yield rate = (412 – 12) /412 = 97%

This leads to the capacity = 336*57%*94%*97% = 336*52% = 130 hours

And the overall equipment efficiency (OEE) is equal to 52%.

Demonstrated capacity

Another method consists in evaluating the actual capacity on a work center based on historical data and computing the average.
This is surely the most accurate on the short term but when checking the long term capacity it could be dangerous to mix the actual capacity based on past months with future capacity based on new equipments.

CRP & workload profile Example

Let’s take the work orders below for our products A and B:

Here we assume that the yield rate is equal to 0.
Let’s compute the Capacity Requirement Planning (CRP) using the routing data below:

Finally we get the following workload profile:

So we can see that globally there is enough capacity to meet the demand, but simply the orders on week 4 (2) should be moved to the week 3 (1) in order to make it.

But it implies also to have the raw material and components available also 2 weeks before…there are many checks to do before changing any work orders…also we haven't specify a firm horizon here in the MRP that can disturb a bit any change.

Last modified on Tuesday, 28 August 2012 08:30

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