What is Capacity Planning (CRP)?
Capacity Planning is pre-planning done by a company in which it figures out how much it needs to produce, and determines if it is potential enough to meet those production goals.
Capacity Planning, also termed as Capacity Requirement Planning (CRP), also refers to the outlining the estimation for each process according to the order manufacturing, the adjustments are made, and then the work of each process is planned– so that the goal could be achieved by the firm without any extra effort- going in vain.
It’s usually done monthly, quarterly or annually depending on the firm and type of business. However, industries that experience high sales during a particular season, such as retail stores (selling raincoats, sweaters) or agricultural products company, may need to re-evaluate their capacity requirements more often than companies that have routine revenue, such as FMCG industry or tech service providers.
Types of Capacity Planning
- Lead Strategy: In this strategy, the company increases its basic capacity in anticipation of an increase in demand for its products and services. The lead strategy is usually practiced to entice your competitor’s customers to you by reducing your lead time.Advantage of lead strategy is that even during high sales period the company will have adequate capacity of product/service to meet all demand.
- Lag Strategy: This strategy is used when the firm is already running at its full capacity or beyond due to increase in demand. The chances of product/service going waste will be least using this strategy. Although there is a high chance it may result in the loss of possible customers either by stockout or low service levels (you may not be able to fulfill the sudden rise in demand hence losing your customers to competitors).
- Match Strategy: The most clever strategy for capacity planning, yet most difficult to accomplish. In this rather than extensively boosting capacity based on expected or actual increases in demand–the capacity of the company is only modified or increased based on changing conditions of the marketplace.