Capacity Planning

Capacity planning is the process process of determining the production capacity required by an organization to meet the changing demands for its products.

“Capacity” means the maximum amount of work that an organization is capable of completing in a given period of time.

So, capacity planning is measured with units of work.  How is work measured?  The actual output volume of work varies, depending on the product.  This makes it difficult to measure work using production volume.

The output value might be a more meaningful measure of work.  Financial professionals might find the output value useful in Capital Expense (CAPEX) planning and calculating the Return-on-Assets.  The value of production output is still dependent on the costing method and the assumptions that are used to allocate expenses.

Capacity and Work is Measured in Time

For operational professionals, the most meaningful measurement of capacity is in units of time.  Using standard times in the master data, a certain volume of demand for a product will always require the same time from work-centers and production resources.

Using time, planners can calculate the amount of work required to meet demand and the number of resources required to perform that work.  This is the simple truth about capacity planning: demand and supply are converted to units of time.

Capacity planning is the process of balancing demand and supply using units of time.  There are three key measurements that go into the capacity planning process:

Demand = Load

Customers order products in units of quantity. Planners first needs to explode product-level demand against the Bill of Materials to calculate part- or item-level demand.  This needs to be done for all levels of a multi-level Bill of Materials.

The easiest way is to output a Product BOM or Indented BOM from the host system.  A Product BOM lists all the dependent items at every level required for a single unit of parent.  Many MRP systems will allow this or a complete explosion of open demand to every item level.  Table Explosions are an important data process.  They allow you to express a table at the next level of detail.

The exploded demand is then exploded by the process routing.  The routing contains the standard times that are required to produce a standard manufactured part or product.  The process routing is at the heart of the planning process.  It is a vital element of Master Data and the accuracy of the process routing will determine the effectiveness of capacity planning.

Sale demand exploded by the product BOM gives you total demand.  Total demand exploded by the process routing gives you total load.  This is the demand-side of the process of planning capacity.

Supply = Work Centers + Calendar

The capacity available to meet demand comes from work centers that perform to a calendar.  A work center (workcenter) is a resource type or a standard combination of resources that perform work to a standard.  A work center could be a single operator, a single machine or some fixed combination of operators and machines that work in unison.

Resources are interchangeable in work centers; i.e. any instance of a work center can provide the same capacity.

Each work center performs its work to a specific shift pattern.  There may be different shift lengths, begin- and end-times but each work center should be allocated to a unique shift pattern.  You could give each work center its own shift pattern, but this would create quite a lot of overhead in managing all of those calendars.  Most manufacturing companies have fewer than ten shift patterns, even though they may have hundreds of different work centers.

Supply comes from a list of time intervals (or buckets)  exploded by the list of work centers.  The calendar can then calculate the amount of capacity for each work center in each time interval or bucket.

Planning Interval

the third element of time is the time interval or bucket.  This is the period over which we are planning capacity.

The calendar provides the amount of working hours in any given period.  Planning can be done at different levels of granularity.  Most common is days and weeks, but you can also get good results down to shifts or up to months and quarters.

The load provides the amount of production time that is required for any given period.  It is important to understand that this is where the limit of precision arises.  Capacity planning depends on allocating all of the load for a given work order into a single time bucket.  It will not calculate the actual start- and stop time for the work order and determine if that work order falls across multiple buckets.

So, the choice of interval or bucket size needs to be made carefully.  The planning range, the work order load and the accuracy of the process routing data will all affect the accuracy of capacity planning to the chosen level of precision.

For example, if you want to plan to shifts, but the average work content for a single work order is many hours, then the it will not give you a very accurate result down to the shift level.  Likewise, if you try to do it six months out, the variability in the process and subsequent changes to the plan will make those results meaningless.

Capacity Planning in Practice

To build a good process for planning capacity, you need to combine demand and supply over the right time interval.

The demand is converted to production load by the BOM and process routing.  It will rely on the accuracy of this data.  Each work order needs a start-date/time that will determine which time interval the load is allocated to.

The supply is formed from a list of the work centers and the shift patterns to which they operate.

To see a live example of capacity planning, please visit our download pages.  We have a Capacity Planning Tool for free download.  Read this article for more information on how it works.

We also have a bonus tutorial available in the Fast Excel e-Learning System that tells you exactly how to use the Fast Excel Development Method to build your own capacity planner tool using Excel spreadsheets.

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