Capacity Requirements Planning (CRP): Definition and Procedures

What Is Capacity Requirements Planning (CRP)?

Capacity requirements planning (CRP) is the process of discerning a firm's available production capacity and whether it can meet its production goals. The CRP method first assesses the company's planned manufacturing schedule. Then, capacity requirements planning weighs this schedule against the company's actual production capabilities to see if the current capacity can successfully meet the existing production schedule.

Understanding Capacity Requirements Planning

Capacity requirements planning is the process through which a company—primarily in manufacturing—figures out how much product it needs to make, and determines if it has the ability to meet its production goals.

You can also understand CRP as a management tool that's based on using a company's resources efficiently by projecting its production expectations accurately. If a company finds that its production capacity is inadequate, it may alter its production goals, or take other steps to bring expectations in line with capacity—which could include contracting with another firm that has excess capacity to handle its production.

Why Does CRP Matter?

A large part of a company's success is in planning for the future. Without a solid plan, a business owner may risk encountering unforeseen issues, including those that can affect its bottom line.

Capacity requirements planning has both long- and short-term implications for a firm's success. In the short term, monthly and quarterly sales numbers are heavily affected by whether the company is prepared for the regular ups and downs of customer demand. Not being able to meet customer demand can often mean losing customers to the competition. In the long term, CRP can help determine capacity cost and decide how much a company will invest in its employees, materials, and equipment.

Discrepancies between capacity estimates and the actual production output can result in a shortage of products or personnel, which could cause long delays in deliveries and even leave some customers' orders completely unfilled. Poor CRP can also lead to oversupply, in which unused inventory ties up a company’s revenue and depresses reported earnings.

CRP Procedures

Businesses generally develop their own capacity requirements plans based on individual factors, including their industry and sector. However, we may broadly categorize CRP into three rudimentary portions: determining service-level requirements, analyzing current capacity, and planning for the future.

Determining Service-Level Requirements

A business may divide its work into categories and quantify users’ expectations for how that work gets done:

• Establishing workloads: Organize workloads according to who is doing the work, the type of work performed, or the work process.
• Determining the unit of work: Create a definition of satisfactory service for each portion of work; a workload measures the resources needed to accomplish the work, and a unit of work measures the quantity of work completed.
• Setting service levels: A service-level agreement (SLA) lays out the acceptable parameters between provider and consumer.

Analyze Current Capacity

Here are some steps that a business can take to analyze its production systems and their individual workloads: 

• Compare the measurements of items referenced in SLAs with their objectives
• Check the usage of the system's various resources
• Analyze which workloads are the major users of each resource
• Determine where each workload spends its time for insight into which resources take the greatest portion of response time for each workload

Plan for the Future

• Base a future plan on forecasted processing requirements to prevent overwhelming the system.
• Establish the amount of incoming work expected over a period of specific quarters.
• Configure the optimal system for satisfying service levels for this period.

Capacity Requirements Planning in IMT

Some companies, however, may choose to use off-the-shelf software packages to help them implement their CRP. In information management technology (IMT), capacity requirements planning refers to an enterprise application. Essentially, the software manages the CRP process for the company. Depending on the data input by management, CRP software can create a personalized production plan that includes labor, materials, systems, and other resources.