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Basics of Supply Chain Management

Unit 1
UUnit
nit 11
BBasics
asics ooff SSupply
upply CChain
hain
M anagement
Management
Lesson 5
Capacity Management and PAC
Basics of Supply Chain Management

Unit 1
Preface............................................................................................................3
Course Description................................................................................................................. 3
Lesson 5 – Capacity Management and PAC.....................................................4
Introduction and Objectives.................................................................................................. 4
Capacity Management and Planning Processes .................................................................. 4
Determine Available Capacity .............................................................................................. 7
Identify Capacity Requirements and Load Profiles............................................................ 9
Resolving Differences........................................................................................................... 11
PAC........................................................................................................................................ 12
Scheduling ............................................................................................................................. 13
Bottlenecks ............................................................................................................................ 14
Shop Order Packets ............................................................................................................. 14
Control of Inputs and Outputs............................................................................................ 15
CRP and MRP...................................................................................................................... 17
Summary ............................................................................................................................... 18
Further Reading ................................................................................................................... 18
Review ................................................................................................................................... 19
What’s Next? ........................................................................................................................ 20
Appendix.......................................................................................................21
Answers to Review Questions .............................................................................................. 22
Glossary ........................................................................................................24

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Preface
Course Description
This document contains the fifth lesson in the Basics of Supply Chain Management unit, which
is one of five units designed to prepare students to take the APICS CPIM examination. The
Basics of Supply Chain Management unit provides the foundation upon which the other four
units build. It is necessary to complete this unit, or gain equivalent knowledge, before
progressing to the other units. The five units, which together cover the CPIM syllabus, are:
Basics of Supply Chain Management
Master Planning of Resources
Detailed Scheduling and Planning
Execution and Control of Operations
Strategic Management of Resources
Please refer to the preface of Lesson 1 for further details about the support available to you
during this course of study.

This publication has been prepared by E-SCP under the guidance of Yvonne Delaney MBA,
CFPIM, CPIM. It has not been reviewed nor endorsed by APICS nor the APICS Curricula and
Certification Council for use as study material for the APICS CPIM certification examination.

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Lesson 5 – Capacity Management and PAC
Introduction and Objectives
This lesson introduces the concept of capacity management, its objectives and methods. The
lesson also looks at the purpose and functionality of production activity control (PAC).
On completion of this lesson you will be able to:
Identify objectives of capacity management
Explain the relationship between capacity management and priority planning
Determine rated or calculated capacity
Calculate the capacity required for a shop order
Identify the objectives and activities of PAC
Describe the process of order preparation and the data requirements for a PAC system
Identify the basic techniques of scheduling
State the purpose and content of a shop order
Detail the steps involved in implementing and controlling work orders
Create an input/output report

Capacity Management and Planning Processes


Capacity management is the planning and control of resources required to meet production
objectives. The company must calculate how much output is needed from its manufacturing
facilities and suppliers to meet those targets. It involves the following activities:
The resources needed to meet the production plan must be identified.
Plans to ensure that the required level of capacity is available must be developed.
When those plans are implemented it is necessary to monitor output and compare against
plan in case corrective actions are required.
For example, if yield is consistently below expected levels further capacity mus t be made
available to ensure production levels are met and the reasons for the low yield must be
investigated.
Capacity planning occurs at each level in the priority planning system. As with production
planning, the level of detail required at each stage in capacity planning becomes progressively
higher.
The highest level of capacity planning is resource requirements planning (RRP) which is at the
same level of detail as the sales and operations plan or production plan. The next level is rough-
cut capacity planning (RCCP) which is roughly equivalent in time frame and level of detail to
the master production schedule (MPS). Capacity requirements planning (CRP) is the next step in
the process and equates to the MRP in the level of detail required. The following diagram
illustrates the hierarchy of priority planning and capacity planning.

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Priority Planning Capacity Planning
Sales and Operations Resource Requirements
Long Plan Plan (RRP)
Range

Master Production Rough-Cut Capacity


Schedule Plan (RCCP)

Medium Material Capacity


Range Requirements Requirements
Planning (MRP) Plan (CRP)

Purchasing and Input/Output Control


Short
Range PAC
Operation Sequencing

Definition of Capacity
Capacity is the capability of a system to perform its expected function. It is the capability of a
worker, machine, work center, plant or organization to produce output per time period. Capacity
is usually measured in standard hours as this is an easily recognized metric and can be applied to
most areas of production.
In a steady and uniform production environment, other parameters may be used to measure
capacity. For example, in a paper mill, it may be useful to measure capacity in terms of the
number of square feet of paper produced per minute. This could also be termed the throughput of
the production operation.

Definition of Resources
A resource is defined in the APICS dictionary as ‘anything that adds value to a product or
service in its creation, production, or delivery. The four main types of resource are labor,
equipment, tools, and facilities.
Labor: in most production environments the availability of manpower has a large
impact on capacity. In some work stations, the equipment required may be
minimal and manpower determines capacity rather than machinery.
Equipment: In production planning, equipment requirements are compared to
available equipment. At the CRP level, lead-time offsets between operations
and work records are examined to help fine-tune work center loads. For
example, a clothing manufacturer may have to adjust its schedules to allow for
a number of slow running sewing machines.
Tools : The availability of tools and fixtures can affect capacity as much as larger
equipment. It is important to consider the maintenance requirements and expected life
of tools required in production, and identify the need for tools in the
BOM or routing file.
Facilities: These are the buildings in the plant, for example, workshops. These
must be examined during top level planning. Where new facilities are required,

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the lead time is generally very long as it includes planning, building, kitting out, and approving
the new facility.

Definition of Routing
A routing file holds information on the method of manufacture for an item, the operations to be
performed, the sequence of those operations, the work centers to be used, setup and run
specifications. Basically, it describes the route of work through a manufacturing facility to
completion. A routing often contains information on tooling, required operator skills, quality and
testing.

Long Range Capacity Management


At the Sales and Operations planning level, input is provided by
marketing and finance executives, following the guidelines of the
strategic plan. The time periods involved in this activity are usually
months or quarters. Generally, the sales and operations plan has three
parts: the first set out in monthly buckets, the next in quarters, and a
final long term planning section that enables the company’s resources to
be checked.
This level of planning determines the volume of output required and subsequently resource
requirements. Decisions may be made at this stage about how to provide for capacity
requirements where there is insufficient capacity: i.e. either invest in increased capacity or
reduce the plan.
The second level of long range planning is the master production schedule (MPS)
and rough cut capacity plan (RCCP). The master scheduler breaks down the
information from the S&OP into the appropriate level of detail, using a sales
forecast to help calculate the balance of product required in each product family.
The MPS time buckets are generally weekly or daily. Rough-cut capacity
planning is used to balance the load required by the MPS.

Medium Range Capacity Management


Using MPS requirements, MRP calculates when parts should be made or purchased in order to
fulfil projected demand on time, by means of a logical method called netting, which uses the lead
time for each part required in a product along with the demand information for the product, to
calculate start dates for production or for placing a purchase order. Individual work orders are
generated at this point.
At this stage, capacity requirements planning (CRP) can be used along with work order
information to determine the load profile for each work center. Often, certain workstations will
be overloaded and the planner must ensure on the best way to alleviate overloads and ensure
MPS requirements are met.

Short Range Capacity Management


Short range capacity management involves controlling the volume of work in each job shop and
deciding on a sequence of work which optimizes production with priorities.
Release of work orders to the production floor in managed by Input/Output Control, which
measures actual input and output against expected levels. The planner must adjust the load for

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each period accordingly. The sequence of work is determined by a dispatch list in job shops or
by the run schedule in repetitive manufacturing environments.
1. Available Capacity is:
A. The load on a work center required to produce a particular level of output
B. The amount of released work to a facility during a specified period
Review Q C. The resources needed to produce a level of output within a given time
D. The ability of a resource to produce a quantity of output within a given time

4-Step Capacity Planning Process


There are four main steps to the capacity planning process. These include determining available
capacity and capacity requirements, translating requirements into the throughput required for
each work center and resolving any issues where available capacity is not sufficient to meet
required capacity. The steps are:
1. Determine capacity available
2. Translate released and planned orders into capacity required
3. Total the capacity required for each work center
4. Resolve differences between available and required capacity.

Determine Available Capacity


Available capacity can be defined as the capacity of a resource, such as a work center or
production line, or individual piece of equipment, or team, to produce a quantity of product or
output in a particular time period.
To calculate available capacity, three things must be known to the planner:
Available time
Utilization
Efficiency

Time Available
The time available, which depends on the number of machines, the number of workers, and the
hours of operation, is calculated by multiplying the number of machines (or workers) by the
hours of operation.
Available time = (number of machines / workers) x (hours of operation)
For example, the planner in a chocolate factory is calculating the capacity
requirements for a range of exclusive hand made chocolates. There are five people
available for production and they work 35 hours per week.
Capacity for the week is 5 x 35, or 175 hours.

Utilization
The rate of utilization, that is, the percentage of time that the work center is active is calculated
by dividing actual hours worked by scheduled hours. This measures the amount of time that the

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work center is active, which can be discovered from historical data or from a work sampling
study.

Utilization = (Actual hours worked)


----------------------------- x 100%
(Scheduled work hours)
For example, the chocolate making work center may be available for 7 hours each day, but set-
up time and finishing off at the end of each shift may take an hour or more. Therefore the actual
hours worked is only 6 hours each day and the rate of utilization over the week is therefore 85%.

Efficiency
The efficiency of the work center, which is the actual work center output expressed as a
percentage of expected output is calculated as a percentage also:

Efficiency = (standard hours of work)


----------------------------- x 100%
(actual hours of work)
The output of the handmade chocolates work center is expected to be around 350 sets of a dozen
chocolates per 35 hours. At the end of a week of production, the work center has produced 385
boxes of a dozen chocolates. That is equivalent to 38.5 standard hours of work. Therefore the
efficiency of the work center is 110 %.

2. The available time for a work center is 160, of which 140 hours are actually
worked. The work center produces 180 standard hours of work in a week.
What are the utilization and efficiency parameters of the work center?
A. Utilization = 87.5%, Efficiency = 129%
Review Q B. Utilization = 129%, Efficiency = 77.8%
C. Utilization = 77.8%, Efficiency = 129%
D. Utilization = 129.5%, Efficiency = 87.5%

Rated Capacity
When the available time, utilization, and efficiency parameters have been calculated, an accurate
capacity figure can be calculated. Rated, or calculated, capacity is a measure of the expected
output from a work center. It is calculated by multiplying the available time by the utilization
and efficiency percentages for the work center:
Rated Capacity = (available time ) x (utilization) x (efficiency)
The rated capacity for the chocolate factory is therefore the available hours (175) multiplied by
the utilization figure (85%) then by the efficiency figure (110%). The rated capacity for the
chocolate making work center for the week is 163.63 hours.

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3. If the utilization of a work center is 80% and its efficiency is 110%, what is
the rated capacity for that work center over a five day week of 8 hours per
day?
A. 7.04
Review Q B. 32
C. 35.2
D. 44

Demonstrated Capacity
Demonstrated capacity is proven capacity. This is calculated by averaging the performance data
of a work station. Utilization and efficiency are not used in this calculation but demonstrated
capacity is still affected by them.
The handmade chocolates work center has produced 350, 385, 390, and 387 standard hours of
work in the past four weeks. Its demonstrated capacity over those 4 weeks is 378.

Identify Capacity Requirements and Load Profiles


Identifying capacity requirements involves translating the planned production (in units) into the
time required at each work center in each period. Although this occurs at each level in the
planning process, this lesson is concerned only with capacity requirements planning (CRP) at the
MRP level. The first step is to identify the required starting and completion dates for each order
in each work center, using data from open order files, MRP, routing files, and work center files.
Information Required Information Source
Open shop orders Open order files
Planned order releases MRP
Location of work to be carried out Routing file
Standard hours Routing file
Lead times Routing file or work center file
Work Center Capacity Work Center File

Lead Time
Manufacturing lead time comprises several components. These are explained below:
Queue time Waiting for an operation to begin
Setup time Getting ready for the operation
Run time Performing the operation
Waiting time Waiting time after the operation ends
Moving time Time taken to physically move product between operations

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Lead Time Components

100%

80% Move
Wait
60%
Run
40% Setup
20% Queue

0%
Operation 1 Operation 2

As can be seen from the chart above, it is, perhaps surprisingly, queuing which takes up most
time. This is true for many reasons, mainly due to the problems associated with organizing and
coordinating the flow of materials.

Scheduling Orders
Lead time has a strong effect on the process of scheduling orders as it affects the start times of
each order. Scheduling orders involves calculating the operation time for each work center,
making allowances for queue, wait, and move times, then taking into account the length of each
shift.
Operation time = (setup time ) + (runtime)
To convert scheduled hours into a number of days worked, the total hours required is rounded up
to the nearest eight hours and then expressed as number of days assuming
one shift per day. input

Load Profile
Once the necessary start and end dates have been determined, the start and
finish dates for all work orders on each work center must be established. load
When this has been done, a load profile is calculated for each work center.
A load profile shows the capacity requirements based on planned and
released orders for each time period in the MRP. A typical load profile is output
displayed below:
Week 10 11 12 Total
Released load 210 200 160 570
Planned load 120 120
Total load 210 200 280 690
Rated capacity 220 220 220 660
Over/under capacity 10 20 (60) (30)
Work Center: 21 Rated Capacity: 220 standard hours per week
Figure 1 Example Load Profile

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4. Which of the following will affect available capacity?
§ Quantity of customer order
§ Pace of wo rk

Review Q § Product specification


§ Product mix
A. All except pace of work
B. All except product specification
C. All except the quantity of customer order
D. Product specification and pace of work

Resolving Differences
The final step in capacity planning is to resolve any differences between available and required
capacity. In the example load profile given above, by week 12 the work center is unable to meet
demands and so an alteration must be made to ensure that production requirements are fulfilled.

Available Capacity < Required Capacity

160

155

150
Required Capacity
145

140 Linear (Available


Capacity)
135

130

125
Week 1 Week 2 Week 3

If available capacity is less than required capacity, production requirements cannot be met unless
some changes are introduced. The changes must either affect capacity or work load, although
altering the load may complicate the scheduling of other work centers. The following table lists
examples of changes that may be made.

Capacity Changes Changes to Load


Overtime or Undertime Change lot sizes
New Hires or Layoffs Reschedule production
Shift-work
Modified production routings
Subcontracting production

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Available Capacity > Required Capacity

180
160
140
120
Required Capacity
100
80 Linear (Available
60 Capacity)

40
20
0
Week 1 Week 2 Week 3

If available capacity is greater than required capacity, resources may be under-used.

PAC
Production Activity Control (PAC) is responsible for executing the MPS and the MRP and
ensuring optimal use of resources, minimal work in progress and optimum customer service
levels.
Priority Planning
Sales and Operations
Plan

Master Production
Schedule Planning

Material
Requirements
Planning (MRP)

Purchasing PAC
Implementation
Input/Output Control

PAC and purchasing represent the implementation phase of the priority planning system.

Functions
The three main functions of PAC involve planning, execution and control.

Plan Execute Control


Ensure resources Collect relevant Develop and maintain order
are available shop order priority
information
Schedule start Measure actual performance
dates and Release shop Monitor WIP, lead times and
completion dates orders queues
Report work center performance

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Plan and
Schedule

The results of monitoring and reporting on WIP,


lead times, queues and work center performance
will be fed back into the PAC system to ensure
Work Control and
Authorization Monitor
continuous improvement of the accuracy of the
PAC system.
PAC is therefore a loop system.

Manufacturing

PAC Data
To work effectively, the PAC system must be provided with information on what to produce,
when to produce it, and in what quantity. It must also have access to information on the
operations required, their duration, and the capacity of each work center.
The table below shows where this information may be found.

Information Required Source of Information

What and how much to produce MRP, open orders


When parts are needed MRP
What operations are needed Routings
How much time each operation will take Routings
How much capacity is available at each work center Work Centers

Scheduling
Scheduling is the act of creating a schedule, for example, an MPS, a shop schedule, a
maintenance schedule or a supplier schedule. Basic rules may be applied to aid in the process. In
this case, a schedule for each operation on the production floor is required.

Objectives
The aim of the schedule is to ensure that the required delivery dates are met and that the
manufacturing resources are used effectively and efficiently. This involves establishing start and
finish times for each operation needed to complete an order in good time for the order finish date
but not so far ahead that inventory costs escalate. There are several techniques for scheduling.

Techniques
The basic techniques of scheduling and loading include forward scheduling, backward
scheduling, infinite loading and finite loading
1. Forward Scheduling
Using this technique activities start as soon as the order is received without
reference to the due date of the order. Forward scheduling allows the work load to
be levelled more easily across the period by using excess capacity in advance to
build up finished goods for an expected order.

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2. Backward Scheduling
When using backward scheduling, the start and finish times are calculated
backward from the due date of the order to ensure finished goods arrive at exactly
the time required. The advantages of this approach are that resources are not
committed to the production of a particular order until necessary. Also, the
finished product is not sitting ready before it is required, which cuts down
inventory costs.
3. Infinite Loading
Infinite loading assumes that there is an unlimited capacity for throughput at all work centers.
This is appropriate where it is very complicated to calculate the capacity of a work station. It is
also useful where it is difficult to quantify the actual load on a work station. Most MRP systems
infinitely load work centers.
4. Finite Loading
Finite loading assumes that each work center has a definite capacity limit and therefore
schedules cannot exceed that limit.

5. From which activity are purchase requisitions usually output?


A. PAC
B. MRP

Review Q C. Capacity planning


D. MPS

Bottlenecks
A bottleneck is created when there is a facility, function or resource which cannot keep pace with
the demand placed upon it. This occurs in intermittent manufacturing as it is practically
impossible to balance the available capacities of workstations with demand. Usually one or two
workstations become overloaded.
When a bottleneck occurs the following conditions are true:
The throughput of all products using the bottleneck operation will be controlled by the
speed of the bottleneck
Any work centers feeding the bottleneck must be scheduled to provide work at a rate that
can be handled by the bottleneck operation to avoid build ups of work in progress.
A time buffer inventory should be established in front of the bottleneck
The throughput of all work centers subsequent to the bottleneck operation will be
controlled by the bottleneck.

Shop Order Packets


A production order can be released when all the resources needed to process it are available.
When an order is released to the shop or production floor, it must contain all the information
necessary for successful and efficient production. The information will be contained in a ‘shop
order packet’ and will include some or all of the following:
Order number Bills of Material

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Part Number Route Sheets
Name and Description of part Material Issue Tickets
Quantity required Tool requisitions
Engineering Drawings Job and Move tickets
In practice, shop order packets vary extensively from one industry to another and from one
company to another. In all cases, the shop order packet is designed to ensure efficient production
of the correct orders to meet the required delivery date.
Where vital elements of the shop order packet are missing, mistakes
can occur leading to longer work in progress times, production of the
wrong product or delays in delivery.

Control of Inputs and Outputs


When a work order has been issued, its progress through the manufacturing plant must be
carefully monitored and controlled to determine what is happening, compare that to the plan and
if necessary, take corrective actions to ensure production will deliver on time.
Work orders are controlled by adjusting the amount of work entering and leaving work centers
and by prioritizing the orders running at each work center.

Input/Output Reports
The control of work entering and leaving a work center is referred to as input/output control. An
input/output report with a capacity per period of 80 standard hours is displayed below.

Period 4 5 6 7 8 Total
Planned Input 76 64 72 80 88 380
Actual Input 68 64 64 83 82 361
Cumulative Variance -8 -8 -16 -13 -19 -19

Planned Output 80 80 80 80 80 400


Actual Output 64 72 88 88 72 384
Cumulative Variance

Planned backlog 64 60 44 36 36 44
Actual backlog 64 68 60 36 32 40
Figure 2 Input/Output Control report
The backlog is equal to the previous backlog minus the actual output.

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6. Complete the following input/output report and select the most appropriate
statement below.
A. Input is slightly larger than planned but output is 19 less than planned so
there is a need to increase production rates
Review Q B. Input is larger than planned so inventory levels must be examined
C. Input is larger than planned, so production rates must be reduced.
D. Production must be increased to reduce the backlog

Period 4 5 6 7 8 Total
Planned Input 50 50 50 50 50
Actual Input 71 50 48 30 56
Cumulative Variance

Planned Output 50 50 50 50 50
Actual Output 59 48 40 29 55
Cumulative Variance

Planned backlog 30 30 30 30 30 30
Actual backlog 30

Priorities
The sequence of orders through each workstation is important to maintain overall plant
efficiency. Order sequence is communicated to the factory in a despatch list. Priority control
means deciding on the sequence in which to run orders at each workstation.
The dispatch list provides information such as the order number, part number, setup quantity, run
hours, operation hours, and start and finish dates. The jobs are listed in priority order, which is
determined by dispatching rules. The list may also provide visibility on jobs next in the queue.

Dispatching Rules
Dispatch rules vary according to the requirements of the company and the production process.
Some common dispatch rules include:
First come, first served (FCFS) where jobs are performed in the order they are received
Earliest job due date (EDD) where orders are ranked according to the date they are
required by the customer.
Earliest operation due date (ODD) where orders are produced according to operation
due dates
Shortest process time (SPT) where jobs that will be completed most quickly are highest
in the dispatch list

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Critical ratio (CR), which schedules order priority according to whether the order is
late, on time or ahead of schedule.
The critical ratio is defined as the time remaining divided by the work remaining. If the critical
ratio is less than 1, the order is late, if equal to 1, the order is on time, and if greater than 1, the
order is ahead of schedule. The critical ratio for each job is used to establish an order of job
priority where the lowest CR jobs are completed first.

Production Reports
Feedback on production activities across the plant and in each individual work center is provided
by means of production reports. These reports vary according to the reporting needs of the
management and planning teams. The reports may be manual, card-based, or computer-based.
Production reports may include:
Order status
Exception reports
Inventory status
Labor reports
Machine performance

CRP and MRP


Capacity management occurs at all planning levels in an organization and is closely related to the
priority plan. At the MRP level the most detailed level of capacity management, capacity
requirements planning (CRP), takes planned MRP opers and open shop orders and converts them
to a load on each work center, considering lead times and actual order quantities. Both MRP and
CRP should form a closed- loop two-way communication system with MPS, ensuring planning is
always well- informed and up-to-date. This is illustrated in the figure below.
MPS

Resources available? No
(RCCP)

Yes
MRP

Capacity available? No
(CRP)

Yes

Purchasing PAC

Performance Measurement

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Summary
This lesson introduced the concept of capacity management, its objectives and methods. It also
covered the purpose and functionality of production activity control (PAC).
You should be able to:
Identify objectives of capacity management
Explain the relationship between capacity management and priority planning
Determine rated or calculated capacity
Calculate the capacity required for a shop order
Identify the objectives and activities of PAC
Describe the process of order preparation and the data requirements for a PAC system
Identify the basic techniques of scheduling
State the purpose and content of a shop order
Detail the steps involved in implementing and controlling work orders
Create an input/output report

Further Reading
Introduction to Materials Management, JR Tony Arnold, CFPIM,
CIRM and Stephen Chapman CFPIM
5th edition, 2004, Pearson Education International

APICS Dictionary
10th edition, 2002, APICS

Study Notes for Basics of Supply Chain Mangement, Brian


Willcox CFPIM, CIRM
2001, Action Materials Management (Proprietary) Limited trading as
Action MRPII

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Review
The following questions are designed to test your recall of the material covered in
lesson 5. The answers are available in the appendix of this workbook.

7. CRP is concerned with:


A. Labor hours for a product family and individual work centers
B. Calculating work center loads and labor hours for product families
C. Validating capacity for the MPS and calculating work center loads
D. Individual work orders, individual work centers, and calculating work center loads

8. The most accurate description of a routing is:


A. The critical ratio to determine whether jobs are on time
B. The path followed by information transactions
C. The path work follows from work center to work center until the work is competed
D. The path of materials from receipt of raw materials to the sale of finished goods

9. In which scheduling technique do production activities start as soon as the order is


received without reference to the due date of the order?
A. Infinite Scheduling
B. Finite Scheduling
C. Backward Scheduling
D. Forward Scheduling

10. Available time may be either demonstrated or calculated. Which of the following is
required to determine demonstrated capacity?
A. Machine utilization and efficiency
B. Available time and efficiency
C. Historical data
D. Rated Capacity

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What’s Next?
Lesson 5 introduced capacity requirements planning and PAC. At this point you have completed
five of the ten lessons in Unit 1.
You should review your work before progressing to the next lesson which is:
Basics of Supply Chain Management – Lesson 6 – Basics of Inventory Management

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Appendix

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Answers to Review Questions
1. D
Available capacity is the ability of a resource such as a plant, machine or workstation to
produce output, for example, a part of finished product, during a specified period of time (hour,
day, or week, for example). Required capacity is the amount of resource needed to produce the
necessary output for a specified period of time. The amount of released work to a facility during
a particular time period is the load for that facility.
2. A
The utilization is equal to the percentage of actual hours worked (140) compared to the
scheduled hours (160). The efficiency of the workstation is the standard hours of output (180)
divided by the actual hours worked (140) as a percentage.
3. C
The rated capacity is equal to the available hours (40) multiplied by the utilization percentage
(80%) and by the efficiency percentage (110%).
4. C
Available capacity is affected by product specification, product mix, pace of work, and methods
of production. The quantity of the customer order affects required capacity.
5. B
Material requirements planning (MRP) outputs planned requisitions and planned manufacturing
orders. The planned requisitions then become purchase orders to be released to suppliers.
6. A
The backlog is not a priority. It is more important to ensure that the cumulative actual output is
as close to the cumulative planned output as possible.

Period 4 5 6 7 8 Total
Planned Input 50 50 50 50 50 250
Actual Input 71 50 48 30 56 255
Cumulative Variance 21 21 19 -1 5 5

Planned Output 50 50 50 50 50 250


Actual Output 59 48 40 29 55 231
Cumulative Variance 9 7 -3 -24 -19 -19

Planned backlog 30 30 30 30 30 30
Actual backlog 30
7. D
CRP takes place at the MRP level of planning. It is concerned with detailed scheduling for
individual work orders at each work center in order to ensure that requirements are met without

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overloading work centers. Resource planning checks resources available for product families.
The MPS is validated prior to running by using rough-cut capacity planning (RCCP).
8. C
A routing concerns the steps in production required for a particular product. A routing file
contains information on the operations to be completed, the sequence of those operations, the
work centers (or alternatives) required, standard setup and runt times and other information such
as required tooling and operator skills.
9. D
In forward scheduling activities start as soon as the order is received without reference to the due
date of the order. Forward scheduling allows the work load to be levelled more easily across the
period by using excess capacity in advance to build up finished goods for an expected order.
Using backward scheduling, the start and finish times are calculated backward from the due date
of the order to ensure finished goods arrive exactly when they are needed.. Infinite loading
assumes unlimited capacity for throughput at all work centers while set limits are used to define
capacity for each work station in finite loading.
10. C
In demonstrated capacity, available capacity is based on historical data of the rate of the
production for the machine in the past. Available capacity may also be calculated by taking into
account available time, utilization and efficiency rates for the machine in question.

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Glossary

Term Definition
Backward A technique for calculating operation start dates and due dates that begins
scheduling with the due date for an order and works backward by the expected lead
time to determine the required start date

bill of material A listing of all the subassemblies, intermediates, parts and raw materials
(BOM) that are needed by a parent assembly, showing the amount of each needed
to make one assembly. It is used with the MPS to determine purchase
requisitions and production orders.
Bottleneck A bottleneck machine or work center will process jobs at a slower rate than
they are demanded. Any function whose capacity is less than the demand
placed upon it.

Capacity The capability of a worker, machine, work center, plant or organization to


produce a level of output in a given time.

Capacity The function of establishing, measuring and adjusting limits or levels of


Requirements capacity, determining the amount of labor and machine resources required
Planning (CRP) to accomplish the tasks of production.
Critical ratio A dispatching rule that calculates a priority index by dividing the
remaining time to due date by the expected elapsed time to finish the job. A
ratio of less than 1 shows that a job is behind schedule, greater than 1
indicates that the job is ahead. If the critical ratio is equal to 1, the job is on
time.

Demonstrated Proven output capability of a resource as evidenced from historical


capacity performance data, usually the average number of items produced x the
standard hours per item

Earliest due date A priority or dispatching rule that sequences jobs according to their due
(EDD) dates

Efficiency A percentage representing the actual output compared to the expected


standard output. This percentage shows how well a process or resource is
performing in line with expectations

Finite loading Assigning no more work to a work center than it can be expected to
complete in a given time period. The term often refers to a computer
technique involving calculating shop priority revisions to level loads by
operation

First-come -first- A dispatching rule that requires jobs to be sequenced according to their
served (FCFS) arrival times, also known as first in, first out (FIFO)

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rule

Forward A technique for calculating operation start and due dates where the
scheduling scheduler begins with a known start date and computes the earliest
completio n date for the order

Infinite loading Calculation of the capacity required at work centers in the time periods
required regardless of the capacity available to perform the work

Input/output A technique for capacity control where planned and actua l inputs and
control planned and actual outputs of a work center are monitored to identify
problems within the work center. The planned inputs and outputs are
developed by capacity requirements planning (CRP)

Job shop Organization of production where similar equipment is organized by


function and each job follows a distinct route through the shop
lead time Lead time is the span of time required to perform a process.
Load profile A display of future capacity requirements based on released and / or
planned orders over a specified time period.

Master The anticipated build schedule for those items assigned to the master
Production scheduler. It becomes a set of planning numbers that drive material
Schedule (MPS) requirements planning. The MPS represents what the company plans to
produce expressed in quantities and dates.
Material A set of techniques that uses bill of material data, inventory data, and the
Requirements master production schedule to calculate requirements for materials. It
Planning (MRP) makes recommendations to release replenishment orders for material and to
reschedule orders.
Move time The time a job spends in transit between operations

Priority control The process of communicating start and completion dates to manufacturing
departments in order to execute a plan. The dispatch list is the usual means
of providing these dates and priorities, based on current plan and open
order status.

Production The function of routing and dispatching work through the production plant
activity control and performing supplier control.
(PAC)
Queue time The amount of time a job waits at a work center before setup begins. Queue
time is an element of manufacturing lead time

Rated capacity The expected output capability of a resource taking into account planned
hours, efficiency and utilization rates. Rated capacity = available time x
efficiency x utilization

rough-cut The process of converting the master production schedule into


capacity planning requirements for resources such as labor, machinery, warehouse space,
(RCCP) supplier capabilities. Demonstrated capacity is examined for each key

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resource.

Routing Information detailing the method of manufacture of a particular item,


including the operations to be performed, their sequence, the work centers
to be used, and setup / run specifications. It may also include information
on tooling, operator skills required, quality and testing requirements.

Run time The time required to process a piece or lot at a work center. It does not
include setup time. Run time is an element of manufacturing lead time.

Setup time The time needed to prepare a manufacturing process run. It may include
run and inspection time for the first piece and is an element of
manufacturing lead time.

Shop order packet A pack of document s used to plan and control shop floor movement of an
or shop packet order. The packet may include a manufacturing order, operations sheets,
engineering blueprints, picking lists, move tickets, inspection tickets and
time tickets.

Shortest A dispatching or priority rule that directs the sequencing of jobs in


processing time ascending order by the length of their expected processing time. The
(SPT) rule average lateness of jobs at a work center will be minimized but some jobs
will be very late

Utilization A percentage measure of the ratio of direct time (setup and runt time) to
clock time. Utilization measures the amount of scheduled time actually
used in production for a resource.

Waiting time This is idle time or the amount of time a job remains at a work center after
completion of the operation before it is moved to the next stage of
production. It may sometimes be added to move time and is an element of
manufacturing lead time

Work center A production area consisting of one or more operators and machines with
identical capabilities. A work center is considered a single unit when
performing capacity requirements planning and detailed scheduling

work order A work order is an order to the machine shop for tool manufacture or
equipment maintenance or an authorization to start work on an activity or
product.

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