TYPES OF CAPACITY PLANNING

Rough cut capacity planning/rough cut plan (RCCP) Capacity requirements planning (CRP)

RCCP
*It is a medium-term planning aid and used to verify whether enough available capacity exists at critical resources to accomplish a projected Master Plan Schedule (MPS). *The purpose of RCCP is to check the feasibility of the MPS, provide warnings of any bottlenecks, ensure utilization of work centers and advise vendors of capacity requirements.

continuation
*RCCP provides aggregate information to top management far enough in advance to permit management to make changes in capacity (i.e. hire more people, buy more equipment) to accomplish a given MPS. *RCCP is the technique used to validate the MPS. In RCCP the top level plans are extended by a summarized resource profile for each product. *The resource profile identifies the key resources required, the no. of hrs. of resources required to make the product and approximately when those resources are required relative to the completion of the product.

CRP
*It occurs at the level of Material Requirements Planning (MRP). *It is the process of determining in detail the amount of labor and machine resources needed to achieve the required production. *It is the last level of capacity analysis. *It is the planning and control of the resources needed to produce the requirements generated by the MRP system.

Continuation of CRP
*Detailed available capacity must be determined and compared to the anticipated capacity required. *The process involves each work center and covers the same horizon and time periods as the MRP. *Both Open (released) shop orders and planned shop orders are considered in the determination of the required capacity (work load). *Detailed schedules for all orders are calculated based on the routing files, lot sizes and work center files. *CRP is that part of RRP that tests the MPS for capacity feasibility.

CRP PROCESS
*CRP takes the planned order releases off the MRP schedules and assigns the orders to work centers by consulting the routing plans. *Routing plans specify the sequence of the processes required for each other. *Next, the lots of materials are converted to capacity load data by using labor and machine standards, and then likely load schedules are prepared for

each center that includes all orders. *If enough capacity is available at all the work centers in all weeks, then the MPS is firmed up.

CRP Process continued

*If not, then it must be determined if the capacity can economically be changed. If over time, subcontracting. Standby machines/other means can be used to augment capacity, then the MPS can be firmed up. *If capacity cannot be economically changed, then either the routing/assignment of orders to work centers must be changed to improve capacity/the MPS must be changed by rescheduling orders to better level capacity and the process is repeated.

CAPACITY PLANNING DECISIONS

*capacity planning decision involves *Assessing existing capacity *Forecasting future capacity *Developing capacity alternatives *Evaluating capacity alternatives *Selecting the best capacity alternative

Assessing existing capacity

*Capacity of a plant can be expressed as the rate of output i.e. units per day or per week or per month, tons/month, gallons/hr, labor hrs/day etc. *But for organizations where product lines are more diverse, it is difficult to find a common unit of output. *More appropriate measure of capacity for such firms is to express the capacity in terms of money value of output per period of time (day/week/month)

FORECASTING/ ESTIMATING FUTURE CAPACITY

*Capacity planning decision involves both ST & LT consideration. There are different strategic issues in ST & LT which a manager must consider before forecasting future CR of the firm. *Changes in process technology must also be anticipated. Capacity planning must involve forecasts of technology as well as product demand.

DEVELOPING CAPACITY ALTERNATIVES

*After existing and future capacity requirements are assessed, alternative ways of modifying capacity must be identified. *ST adjustments for increasing or decreasing capacity are possible either through capital-intensive or labor-intensive processes. *In capital-intensive processes, ST capacity can be changed by changing over and maintaining facilities, procuring raw materials and man power, managing inventory and scheduling can also be modified by such capacity changes.

continuation
*In labor intensive processes, ST capacity can be changed by laying off/hiring people/by having employees work over time/be idle. *Strategies for changing capacity also depend upon how long the product can be stored in inventory. In the case of perishable products storing in inventory may not be feasible. *This is also true for many service organizations offering products such as insurance protection, emergency operation like fire, police etc. and taxi and barber services etc. Instead of storing output in inventory, input can be expanded or shrunk temporarily in anticipation of demand

LT RESPONSES
*LT consideration relates to over all level of capacity such as facility size. It has following strategies. *LT capacity expansion which is feasible through subcontracting, constructing building or buying equipments, updating or modifying its existing facilitiesand by restarting its facilities that may be put on hold previously. *LT capacity reduction may happen by way of selling off the existing resources and by laying off the employees, by temporarily shutting down the facilities along with transfer of employees to some other concern of the same mgt. and by way of developing and phasing in new products also along with decision to phase out the old products.

Factors to be considered in developing capacity alternatives

*Design flexibility into systems *Take stage of lifecycle into account *Take a Big picture approach to capacity changes *Prepare to deal with capacity chunks *Attempt to smooth out capacity requirements *Identify the optimal operating level *Choose a strategy if expansion is involved

EVALUATING CAPACITY ALTERNATIVES

*Models available to assist in capacity planning are *Present value analysis *Break-even analysis *Linear programming *Decision tree analysis

SELECTING THE BEST CAPACITY ALTERNATIVE

o It is a last decision in capacity planning *After evaluating the alternatives regarding capacity, choose those alternatives which are most promising ones and follow them

AGGREGATE PLANNING
*An attempt to balance capacity and demand so that costs are minimized. *The term aggregate is used because planning at this level includes all resources in the aggregate. *Aggregate resources total no. of workers, hours of machine time, or tons of raw materials *Aggregate units of o/p gallons, feet, pounds of o/p *Aggregate units in service hrs. of service delivered no. of patients seen

AGGREGATE PLANNING
*It is intermediate in nature. *Most aggregate plans cover a period of 3 18 months *Serves as a foundation for future ST planning like production scheduling, sequencing and loading

Need for aggregate planning

*Reasons for every organization to plan aggregate production. They are *Demand fluctuations seasonal variations *Capacity fluctuations less no. of working days, scheduled and unscheduled plant shutdowns *Difficulty in altering production rates *Benefits of multi-period planning

Cost associated with aggregate planning

*Hiring and lay-off costs cost of recruiting, screening, training cost and cost of laying-off *Inventory carrying cost cost of storage, insurance, security, safety, obsolescence, deterioration and record keeping *Backorder cost demand>production, the shortfall is carried over to the next period as backorders. Costs of keeping track of backorders, loss of customer goodwill and loss of sales revenues resulting from backordering

COSTS
*Overtime costs costs associated with using manpower beyond normal working hrs. it usually costs 150% of regular time, with double time on weekends or Sundays. *Under-time refers to planned under utilization of the workforce rather than

lay-offs. Idle time *Basic production costs fixed and variable costs, indirect and direct labor costs and regular as well as over time compensation

costs
*Cost associated with changes in the production rate cost of hiring, training and laying-off personnel. Hiring temporary help ia way of avoiding these costs *Cost of regular payroll cost of producing a unit of output during regular working hours, including direct and indirect laborers, materials and manufacturing expenses *Other costs subcontracting costs, part time labor cost and cost of stock-out

APPROACHES OF AGGREGATE PLANNING

*Two basic approaches to estimating the capacity Top-Down Approach and Bottom-Up Approach *Top-down approach It involves development of the entire plan by working only at the highest level of products. This plan is disaggregated to allocate capacity to product families and individual products *This approach rests on the assumption that if the proper amount of capacity is available, the right amount of capacity for all of the parts will be available.

BOTTOM-UP APPROACH
*Also known as sub-consolidation approach. *It involves development of plans for major products and product families at some lower level. *These sub-plans are then consolidated to arrive at the aggregate plan, which gives the overall output and the capacity required to produce it. *This is also known as RRP. Both capacity and materials must be available for products to be made and hence material plan need to be coordinated with a more detailed production plan.

AGGREGATE PLANNING PROCESS

*4 Steps involved *Concept of aggregation starts with a meaningful measure of output. Organizations with multiple products will find it difficult to find a common factor of measure of o/p *Goals for aggregate planning proper utilization of plant capacity the aggregate plan should be consistent with the cos goals and policies *Aggregate demand forecast *Interrelationships among decisions mgrs. To consider the future consequences of current decisions

Strategies for aggregate planning

*Two planning strategies available level strategy and chase strategy *A level strategy seeks to produce an aggregate plan that maintains a steady production rate or a steady employment level.

*In order to satisfy changes in customer demand, the firm must raise or lower inventory levels in anticipation of increased or decreased levels of forecast demand

CHASE STRATEGY
*Implies matching demand and capacity period by period. The workforce size is varied according to demand, keeping the utilization of workers and inventory size constant. *During months of low demand, the workforce size is decreased and the extra workers are laid off. Similarly during months of high demand, more workers are hired. *The hiring and laying-off costs are high. The workers, morale is also low due to a sense of insecurity.

MIXED STRATEGY
*Most firms find it advantageous to utilize a combination of the level and chase strategy. *Also called as hybrid or mixed strategy, can be found better to meet organizational goals and policies and achieve lower costs than either of the pure strategies used independently. *The strategy seeks to maintain level production during periods of low demand by building inventory and chase the demand by additional alternatives during periods of high demand. *Thus the focus shifts between level and chase.

Techniques for aggregate planning

*Techniques range from informal trial and error approaches, which usually utilize simple tables or graphs to more formalized and advanced mathematical techniques *Graphical or trial-and-error approach *This approach is a two-dimensional model relating cumulative demand to cumulative o/p capacity. *It is one of the techniques used in developing and evaluating various alternative plans/a combination of these alternatives. *The method evaluates various alternative plans and identifies the best plan through trial and error.

MATHEMATICAL APPROACH
*Linear programming It is an optimization technique that allows the user to find a maximum profit/revenue/a minimum cost based on the availability of ltd. Resources and certain limitations known as constraints *Mixed-integer programming it can provide a method for determining the no. of units to be produced in each product family. *Linear decision rule It is another optimizing technique. It seeks to minimize total production costs using a set of cost-approximating functions to

obtain a single quadtatic equation.