Management Notes

Reference Notes for Management

Capacity Requirement Planning – Inventory Management | Operations Management

Capacity Requirement Planning

The capacity requirement planning process is a part of the operational stage of the planning process, and it is in conjunction with a manufacturing requirements planning system (MRP). It provides the operations manager with a detailed insight into the production cell’s operational level and helps to identify all the elements that will be necessary to deliver the output. It may be necessary for an operations manager to consider materials, machine production time, tooling changes and maintenance, along with manpower availability as well as skill, in order to assign work shifts effectively and leverage resources.

It is the operational team’s responsibility to provide feedback on its ability to meet the production requirements to the planning team, which will then look for ways to ensure materials or components are available on time and in full as required. After the capacity plan and material requirements plan are confirmed by the planning team, a works order is generated and handed over to the production team.

Objectives of Capacity Requirement Planning

  • The balance that is struck between capacity and demand will influence the cost structure.
  • The balance struck between capacity and demand will influence revenues.
  • If finished goods are manufactured for stock (inventory); working capital will be tied up.
  • Large fluctuations in the demand may cause quality problems.
  • Enhancement of the speed with which a customer’s order can be filled.
  • The closer the demands are to the available capacity the more dependable the supply of goods will be.

Functions of Capacity Requirement Planning

  • Tests the feasibility of the Master Production Schedule (MPS)
  • Removes the planned order releases from the MRP
  • Routings are used to determine labor and machine loads
  • Recommends freezing if schedule is feasible
  • When the schedule overloads resources, identify the overscheduled processes
  • The manager can increase capacity (by overtime, subcontracting, etc.) if it is possible and cost-effective, change the routing of orders or assign them to work centers, or modify the MPS and repeat the process.
  • Analyzes actual labor and machine hours against available hours
  • A schedule is offset by lead times between successive stages of production
  • Creates a feasible MPS with economically loaded work centers
  • Improves the efficiency of the system and reduces costs.


Which of the following is not a type of inventory?

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