Capacity Requirements Planning - CRP

Having enough "supply" to meet customer demand is the basis for capacity requirements planning (CRP). It all starts with projecting customer orders for a particular period of time (monthly, quarterly and/or annually) and then that number determines how many of all the various components of production are needed.

This plan is carefully monitored by the purchasing department who has to place orders for all the parts needed for a finished product within the appropriate lead times. A car, for example, contains hundreds of parts, but it only takes one missing component to shut down the entire manufacturing line.

Depending on the industry, it is not such an easy task to predict customer demand. One has to look at past sales history and hope it will be the same (or more) for the time frame that you are planning for. (You wouldn't use the busy holiday season in December to predict what summer sales will be.)

After subtracting the amount of finished inventory that's now on hand, you are ready to plan the capacity needed to meet those forecasted numbers. This could include having the right number of employees, knowing how many widgets a certain machine can produce in an hour and planning to have the raw materials arrive on time. And you don't want to be too far off the mark in capacity requirements planning. If you don't have enough product to meet customer demand they could start buying from the competition, or if you make too much that ties up all your cash with inventory sitting around.

Fortunately, there are numerous software programs available to help with CRP. Just remember, garbage in, garbage out, so it will only be as good as the numbers you enter.