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M&DC Purchasing & Supply Chain: Material Management



Capacity Management



  • So far we have been concerned with planning priority, that is, determining what is to be produced and when. The system is hierarchical, moving from long planning horizons and few details (production plan) through medium time spans (master production schedule) to a high level of detail and short time spans (material requirements plan). 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. This chapter looks more closely at the question of capacity: what it is, how much is available, how much is required, and how to balance priority and capacity.

  • Capacity is the amount of work that can be done in a specified time period. In the ninth edition of the APICS Dictionary, 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.

  • Two kinds of capacity are important: capacity available and capacity required. Capacity available is the capacity of a system or resource to produce a quantity of output in a given time period.

a. Capacity required

  • is the capacity of a system or resource needed to produce a desired output in a given time period. A term closely related to capacity required is load. This 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.
    These three terms—capacity required, load, and capacity available—are important in capacity management and will be discussed in subsequent sections of this chapter. Capacity is often pictured as a funnel as shown in Figure 5.1. Capacity available is the rate at which work can be withdrawn from the system. Load is the amount of work in the system.

b. Capacity management

  • is responsible for determining the capacity needed to achieve the priority plans as well as providing, monitoring, and controlling that capacity so the priority plan can be met. The eighth edition of the APICS Dictionary defines capacity management as “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.

c. Capacity planning

  • is the process of monitoring production output, comparing it with capacity plans, and taking corrective action when needed. Capacity control will be examined in Chapter 6.

d. Capacity control

  • 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 process. Production planning, master production scheduling, and material requirements planning determine priorities: what is wanted and when. These priority plans cannot be implemented, however, unless the firm has sufficient capacity to fulfill the demand. Capacity planning, thus, links the various production priority schedules to manufacturing resources.


  • Capacity planning involves calculating the capacity needed to achieve the priority plan and finding ways of making that capacity available. If the capacity requirement 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, for example, tons of steel or yards of cloth. If there is no common unit, capacity must be stated as the hours available. The priority plan must then be translated into hours of work required and compared to the hours available. The process of capacity planning is as follows:

  1. Determine the capacity available at each work center in each time period.

  2. Determine the load at each work center in each time period.

  • Translate the priority plan into the hours of work required at each work center in each time period.

  • Sum up the capacities required for each item on each work center to determine the load on each work center in each time period.

  1. Resolve differences between available capacity and required capacity. If possible, available capacity should be adjusted to match the load. Otherwise, the priority plans must be changed to match the available capacity.

  • This process occurs at each level in the priority planning process, varying only in the level of detail and time spans involved.

a. Planning Levels

Resource planning

  • Resource planning involves long-range capacity resource 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. If a resource plan cannot be devised to meet the production plan, the production plan has to be changed. The two plans set the limits and levels for production. If they are realistic, the master production schedule should work. (See Chapter 2, p. 40.)

Rough-cut capacity planning

  • takes capacity planning to the next level of detail. The master production schedule is the primary information source. The purpose of rough-cut capacity planning is to check the feasibility of the MPS, provide warnings of any bottlenecks, ensure utilization of work centers, and advise vendors of capacity requirements. (See Chapter 3, p. 54.)

Capacity requirements planning

  • is directly linked to the material requirements plan. Since this type of planning focuses on component parts, greater detail is involved than in rough-cut capacity planning. It is concerned with individual orders at individual work centers and calculates work center loads and labor requirements for each time period at each work center.

  • Figure 5.2 shows the relationship between the different levels of priority planning and capacity planning. Notice that, although the upper levels of priority planning are input to lower levels, the various capacity plans relate only to their level in the priority plan, not to subsequent capacity planning levels. Resource planning relates to production planning but is not an input to rough-cut capacity planning.

  • After the plans are completed, production activity control and purchasing must be authorized to process, or implement, shop orders and purchase orders. Capacity must still be considered. Work center capacity control will be covered in the next chapter.

  • The capacity requirements plan (CRP) occurs at the level of the material requirements plan. It is the process of determining in detail the amount of labor and machine resources needed to achieve the required production. Planned orders from the MRP and open shop orders (scheduled 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, it accounts for work already done on a shop order. Capacity planning is the most detailed, complete, and accurate of the capacity planning techniques.

  • This accuracy is most important in the immediate time periods. Because of the detail, a great amount of data and computation are required.

a. Inputs

  • The inputs needed 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.

  • Material requirements plan.

  • Routing file.

  • Work center file.

b. Open order tile.

  • An open shop order appears as a scheduled receipt on the material requirements plan. It is a released order for a quantity of a part to be manufactured and completed on a specific date. It shows all relevant information such as quantities, due dates, and operations. The open order file is a record of all the active shop orders. It can be maintained manually or as a computer file.

c. Planned order releases.

  • Planned orders are determined by the computer’s MRP logic based upon the gross requirements for a particular part. They are inputs to the CRP process in assessing the total capacity required in future time periods.

d. Routing tile.

  • A routing is the 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 operation.

  • Standard times: setup times and run times per piece

Figure 5.3 shows an example of a routing file.

e. Work center tile.

  • A work center is composed of a number of machines or workers capable of doing the same work. The machinery will normally be similar so there are no differences in the kind of work the machines can do or the capacity of each. Several sewing machines of similar capacity could be considered a work center. A work center file contains information on the capacity and move, wait, and queue times associated with the center.

Part Name: Gear shaft                           Part Number: SG 123
Drawing Number: D123X

Operation No.

Work Center

S/U Time (standard hours)

Run Time/piece (standard hours)






Turn shaft





Mill slot





Drill 2 holes











Figure 5.3 Routing file.

  • 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.

f. Shop calendar.

  • Another piece of information needed is the number of working days available. The Gregorian calendar (which is the one we use every day) 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. Suppose the lead time for an item is 35 working days and on December 13 we are asked if we can deliver by January 22. This is about six weeks away, but with the Gregorian calendar, some calculations have to be made to decide if there is enough time to make the delivery. Holidays occur in that period, and the plant will be shut down for inventory the first week in January. How many working days do we really have?

  • Because of these problems, it is desirable to develop a shop calendar. This can be set up in different ways, but the example shown in Figure 5.4 is typical.

5. Capacity Available

a. Priority.

  • Capacity available is the capacity of a system or resource to produce a quantity of output in a given time period. It is affected by the following:

    • Product specifications. If the product specifications change, the work content (work required to make the product) will change, thus affecting the number of units that can be produced.

    • Product mix. Each product has its own work content measured in the time it takes to make the product. If the mix of products being produced changes, the total work content (time) for the mix will change.


Figure 5.4 Planning calendar. (Source: The American Production and Inventory Control Societ); Inc., Material Requirements Planning Training Aid, 5—21. Reprinted with permission.)

  • Plant and equipment. This relates to the methods used to make the product. If the method is changed—for example, a faster machine is used—the output will change. Similarly, if more machines are added to the work center, the capacity will change.

  • Work effort. This relates to the speed or pace at which the work is done. If the workforce changes pace, perhaps producing more in a given time, the capacity will be altered.

  • Product specification and product mix depend on the design of the product and the mix of products made. If these vary considerably, it is difficult to use units of product to measure capacity. So what units should be used to measure capacity?

b. Measuring Capacity

Units of output

  • If the variety of products produced at a work center or in a plant is not large, it is often possible to use a unit common to all products. Paper mills measure capacity in tons of paper, breweries in barrels of beer, and automobile manufacturers in numbers of cars. 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.

  • The work content of a product is expressed as the time required to make the product using a given method of manufacture. 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 is also used in loading and scheduling.

c. Levels of Capacity

  • Capacity needs to be measured on at least three levels:

    • Machine or individual worker.

    • Work center.

    • Plant, which can be considered as a group of different work centers.

d. Determining Capacity Available

  • There are two 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

Rated capacity.

  • Rated, or calculated, capacity is the product of available time, utilization, and efficiency.

Available time.

  • The available time is the number of hours a work center can be used. For example, a work center working one eight-hour shift for five days a week is available 40 hours a week. The available time depends on the number of machines, the number of workers, and the hours of operation.

e. Example Problem

  • A work center has three machines and is operated for eight hours a day five days a week. What is the available time?


Available time = 3 x 8 x 5 = 120 hours per week


f. 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 material, 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:

                                                      Hours actually worked

                                 Utilization=                                          x 100%

                                                          Available hours


g. Example Problem

  • A work center is available 120 hours but actually produced goods for 100 hours. What is the utilization of the work center?



Utilization=              x100% = 83.3%    


h. Efficiency.

  • It is possible for a work center to utilize 100 hours a week but not produce 100 standard hours of work. 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%.

                      actual rate of production

            Efficiency  =                                                                                                    X 100%

                         standard rate of production


i. Example Problem

  • A work center produces 120 units in a shift. The standard for that item is 100 units a shift. What is the efficiency of the work center?



Utilization=              x100% =120%    


j. Rated capacity.

  • Rated capacity is calculated by taking into account the work center utilization and efficiency:


Rated capacity = available time X utilization X efficiency


k. Example Problem

  • A work center consists of four machines and is operated eight hours per day for five days a week. Historically, the utilization has been 85% and the efficiency 110%. What is the rated capacity?


Available time = 4 x 8 x 5 = 160 hours per week

Rated capacity = 160 x 0.85 x 1.10 = 149.6 standard hours

  • We expect to get 149.6 standard hours of work from that work center in an average week.

l. 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.

m. Example Problem

  • Over the previous four weeks, a work center produced 120, 130, 150, and 140 standard hours of work. What is the demonstrated capacity of the work center?



            120 + 130 + 150 + 140

        Demonstrated capacity =                                            = 135 standard hours


  • Notice that demonstrated capacity is average, not maximum, output. It also depends on the utilization and efficiency of the work center, although these are not included in the calculation.

  • Efficiency and utilization can be obtained from historical data if a record is maintained of the hours available, hours actually worked, and the standard hours produced by a work center.

n. Example Problem

  • Over a four-week period, a work center produced 540 standard hours of work, was available for work 640 hours, and actually worked 480 hours. Calculate the utilization and the efficiency of the work center.


                                  hours actually worked               480

               Utilization =                             .                                                                                                                                            x 100 =                       x 100% = 75%

                                     available hours                      640

                          Standard hours of work produced                 540

   Efficiency =                                                               x 100 =            x 100% = 112.5%

                                   hours actually worked                             480

  • Capacity requirements are generated by the priority planning system and involve translating priorities, given in units of product or some common unit, into hours of work required at each work center in each time period. This translation takes place at each of the priority planning levels from production planning to master production scheduling to material requirements planning. Figure 5.2 illustrates this relationship.

  • The level of detail, the planning horizon, and the techniques used vary with each planning level. In this text, we will study the material requirements planning/capacity requirements planning level.
    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.

a. Time Needed for Each Order

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

b. Example Problem

  • A work center is to process 150 units of gear shaft SG 123 on work order 333. The setup time is 1.5 hours, and the run time is 0.2 hours per piece. What is the standard time needed to run the order?


        Total standard time = setup time + run time
                                                             = 1.5 + (150 x 0.2)
                                                             = 31.5 standard hours


c. Example Problem

  • In the previous problem, how much actual time will be needed to run the order if the work center has an efficiency of 120% and a utilization of 80%?


Capacity required = (actual time) (efficiency) (utilization)

                                                                     capacity required

                                Actual time =                                   .

                                                                                                                                                                                                                                                                    (efficiency) (utilization)


=                   .

     (1.2) (0.8)

= 32.8 hours

d. Load

  • The load on a work center is the sum of the required times for all the planned and actual orders to be run on the work center in a specified period. The steps in calculating load are as follows:

  1. Determine the standard hours of operation time for each planned and released order for each work center by time period.

  2. 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.

e. Example Problem

  • A work center has the following open orders and planned orders for week 20.

  • Calculate the total standard time required (load) on this work center in week 20.

  • Order 222 is already in progress, and there are 100 remaining to run.

                                        Order             Setup Time         Run Time           Total Time

                                       Quantity            (hours)             (hours/piece)          (hours)

Released Orders

                     222              100                   0                          0.2

                     333              150                   1.5                      0.2

Planned Orders

                     444              200                   3                          0.25

                     555              300                   2.5                      0.15

Total Time


Released Orders


Total time = 0 + (100 X 0.2)

= 20.0 standard hours



Total time = 1.5 + (150 x 0.2)

  31.5 standard hours

Planned Orders


Total time = 3 + (200 x 0.25)

= 53.0 standard hours



Total time = 2.5 + (300 x 0.15)

= 47.5 standard hours

Total Time



= 152.0 standard hours

  • In week 20, there is a load (requirement) for 152 standard hours.

  • The load must now be compared to the available capacity. One way of doing this is with a work center load report.

f. 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.

  • The load of 152 hours calculated in the previous example is for week 20. Similarly, loads for other weeks can be calculated and recorded on a load report such as is shown in Figure 5.5. Figure 5.6 shows the same data in graphical form. Note that the report shows released and planned load, total load, rated capacity and (over)/under capacity. The term overcapacity means that the work center is overloaded and the term undercapacity means the work center is underloaded. 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 1 and 2 are overloaded, the balance are underloaded, and the cumulative load is less than the available. For the planner,

Week 20 21 22 23 24 Total

Released Load







Planned Load







Total Load







Rated Capacity







(Over)/Under capacity







Figure 5.5 Work center load report.


  • this shows there is enough total capacity over the planning horizon, and available Capacity or priority can be juggled to meet the plan.

  • So far we have assumed that we know when an order should be run on one work center. Most orders are processed across a number of work centers, and it is necessary to calculate when orders must be started and completed on each work center so the final due date can be met. This process is called scheduling. In the ninth edition of the APICS Dictionary, scheduling is defined as “a timetable for planned occurrences.”

a. Back scheduling.

  • The usual process is to start with the due date and, using the lead times to work back to find the start date for each operation. This process is called back scheduling. To schedule, we need to know for each order:

  • The quantity and due date.

  • Sequence of operations and work centers needed

  • Setup and run times for each operation.

  • Queue, wait, and move times.

  • Work center capacity available (rated or demonstrated).

The information needed is obtained from the following:

  • Order file. Quantities and due dates.

  • Route file. Sequence of operations, work centers needed, setup time, and run time.

  • Work center file. Queue, move, and wait times and work center capacity.

The process is as follows:

  1. For each work order, calculate the capacity required (time) at each work center.

  2. Starting with the due date, schedule back to get the completion and start dates for each operation.

b. Example Problem

  • Suppose there is an order for 150 of gear shaft SG 123. The due date is day 135. The route sheet, shown in Figure 5.3, gives information about the operations to be performed and the setup and run times. The work center file, shown in Figure 5.7, gives lead time data for each work center. Calculate the start and finish dates for each operation. Use the following scheduling rules.

  1. Operation times are rounded up to the nearest eight hours and expressed as days on a one-shift basis. That is, if an operation takes 6.5 standard hours, round it up to eight hours, which represents one day.

  2. Assume an order starts at the beginning of the day and finishes at the end of a day. For example. if an order starts on day 1 and is finished on day 5, it has taken five days to complete. If move time is one day, the order will be available to the next workstation at the start of day 7.


The calculations for the operation time at each work center are as follows:

Setup time + run time = total time (standard hours)

Operation 10: Work center 12: 1.5 + 0.20 x 150 = 31.5 standard hours

                                                                      = 4 days

Operation 20: Work center 14: 0.50 + 0.25 x 150 = 38.0 standard hours

                                                                        = 5 days

Operation 30: Work center 17: 0.30 + 0.05 x 150 = 7.8 standard hours

                                                                        = 1 day

Operation 40: Work center 03: 0.45 + 0.10 x 150 = 15.45 standard hours

                                                                        = 2 days

  • The next step is to schedule back from the due date (day 135) to get the completion and start dates for each operation. To do so, we need to know not only the operation times just calculated, but also the queue, wait, and move times. These are in the work center file. Suppose the information shown in Figure 5.7 is obtained from these files.

  • The process starts with the last operation. The goods are to be in the stores on day 135. It takes one day to move them, so the order must be completed on operation 40 on day 133. Subtracting the wait, queue, and operation times (11 days), the order must be started on day 123. With a move time of one day, it must be completed on operation 30 on day 121. Using this process, the start and completion date can be calculated for all operations. Figure 5.8 shows the resulting schedule and Figure 5.9 shows the same thing graphically.

Work Center Queue Time
Wait Time
Move Time (days)

















Figure 5.7 Lead time data from work center file.


Finish Date




































Figure 5.8


  • So far we have discussed the data needed for a capacity requirements plan, where the data come from, and the scheduling and loading of shop orders through the various work centers. The next step is to compare the load to available capacity to see if there are imbalances and if so, to find possible solutions.

  • There are two 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 leveled. 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 master production schedule changed.

  • Consider the bill of material shown in Figure 5.10. If component B is to be rescheduled to a later date, then the priority for component C is changed, as is the master production schedule for A. 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 undertime. This will provide temporary and quick relief for cases where the load/capacity imbalance is not too large.

  • 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. The higher the skill level and the longer the training needed, the more difficult it becomes to change quickly the level of the workforce.

  • Shift workforce from underloaded to overloaded work centers. This requires a flexible cross-trained workforce.

  • Use alternate routings to shift some load to another work center. Often the other work center is not as efficient as the original. Nevertheless, the important thing is to meet the schedule, and this is a valid way of doing so.

  • Subcontract work when more capacity is needed or bring in previously subcontracted work to increase required capacity. It may be more costly to subcontract rather than make the item in-house, but again it is important to maintain the schedule.

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