Bridgefield Group Consultilng
Business Planning+Execution™

Integrating Capacity and Material Planning

Which ERP system module is implemented the least?

It's not inventory, MRP, purchasing, or costing- it's capacity planning. Many organizations that purchase an ERP system concentrate on the materials planning function and ignore capacity, while losing key capabilities to schedule and promise orders. Many companies can't identify their own true production capacity, let alone that of their vendors, storage facilities or logistics network. If other system modules are in place and functioning well, capacity planning can be one of the easiest system areas to implement.

In process industries capacity is key- facility design determines the timing and quantity of production, and is integrated into the planning process from the beginning. Pipelines and processing tanks are scheduled based on capacity, and the material plan follows, which typically involves a flat bill of material and fewer components or ingredients than discrete or repetitive industries, and less product variation and use of expediting.

In other manufacturing environments (discrete and repetitive), the material plan is generated and capacity planning may or may not follow. The reasons why it may not include:

A) We don't need to, we have plenty of capacity

That's great, but if that's really true your organization is probably not making the most effective use of your capital. Cyclical downturns may create a temporary excess of capacity, but permanent overcapacity usually requires examination of the business and product mix. "Plenty of capacity" also often means plenty as a whole, but with shortages of certain key resources.

B) We can't measure our true capacity, because...

Our operators float between production lines as required. Our product mix varies constantly. We outsource labor-intensive subassemblies.

None of the above statements are negatives; neither are they reasons why an average or rated level of capacity can't be measured. Also, in a supply chain trading partners usually need some estimate of your capabilities, at least in key areas. If your facility creates a constraint on the rest of the chain, your partners deserve to know.

C) We like to plan capacity on a spreadsheet

Spreadsheets are easy to change and configure as needed, but require manually loading or downloading order status and capacity data from the base ERP system, and usually can't be uploaded back to an ERP system once a plan is developed. The plan is visible only when printed out, and is not integrated into the base system for use in promising orders.

D) Our production order dates and quantities aren't accurate

Yikes. If they're so bad you can't use them for capacity planning, your organization's material planning, inventory projections, purchasing budget and order promising functions aren't in good shape either.

Generating a Material Plan is Most of the Battle

Generating a capacity plan requires two things- demand (in the form of material requirements) and supply (resource capabilities). To open production orders and estimate product costs, you already need a definition of which resources are required and the amount of each resource needed (even if capacity planning isn't currently done). With a viable material plan, the only factor left to develop is an estimate of resource availability. If you are currently running MRP, open a production schedule, and have a standard costing system, most of the work in generating a capacity plan is already done. Even if MRP is not being run, capacity requirements can be generated from open production orders and manually-created projected orders- firm planned orders (FPO).

Capacity Planning Alternatives

Enterprise capacity planning breaks down into three basic alternatives:

1) Batch MPS and MRP with infinite capacity planning

In this scenario, MPS is run as a batch generation to generate a suggested master schedule based on forecast and customer order requirements. The suggested master schedule is then run through Rough Cut Capacity Planning, which compares the requirements to availability of key resources only, and highlights over/under capacity areas, without suggesting date or quantity changes. When the MPS is signed off as viable, MRP is run as a batch to explode the bill of materials and generate lower level requirements. Since MRP only considers material, CRP (Capacity Requirements Planning) is then run as a batch to compare MRP suggestions to daily or shift-by-shift resource availability and highlights exceptions, without recommending or performing schedule changes (assumes infinite capacity). In this scenario, four separate batch runs are required; Rough Cut and CRP typically run much faster than MPS and MRP. Manual review is required at each step

2) Batch MPS and MRP with finite capacity planning

Similar to alternative 1, except that after the batch MPS and/or MRP generations create a material plan, the capacity programs take the plan and automatically rearrange proposed dates based on resource availability (finite capacity). The rearrangement is done based on either backscheduling (take order due date and back into start date based on production rates and resource availability) or forward scheduling (begin with start date and go as far into future as required based on rates and resource availability). Finite scheduling can reduce the amount of manual review but requires rules definition (if production line 1 is over capacity, do you move proposed orders backwards or forwards to meet capacity, or can products A and B but not C be offloaded to other production lines). Planner review is still required- backscheduling to stay within capacity may create requirements for components in a time frame not viable for the vendor, and forward scheduling based on capacity can move proposed orders far enough into the future that customer orders must be rescheduled out.

3) Combined Material/Capacity Planning with finite capacity planning

Advanced Planning and Scheduling (APS) systems combine material and capacity planning in real-time calculations that consider order status, inventory levels and finite capacity planning. Individual orders can typically be inserted into an existing plan to generate a new plan based on inventory and resource availability, for a single organization or multiple trading partners in a supply chain. Because of the complexity of defining rules and alternatives, APS systems are typically used as a short-term capacity and order promising tool; traditional MPS/MRP and capacity planning systems may still be used for longer-term purchasing requirements and family-level capacity planning.

In any scenario, planning only material requirements and availability tells only part of the story.

Generating the perfect materials plan without verifying resource availability usually creates rescheduling, expediting and missed customer order dates. Available to Promise (ATP) calculations consider current inventory, proposed production and current order status when providing availability dates to customers; Capable to Promise includes those factors but also includes resource availability to provide a more accurate picture. Your material plan takes your organization most of the way; the benefits derived from including resource planning are well worth the additional effort.

Source: Bridgefield Group Copyright©2013. All rights reserved.

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