Capacity Evaluation is not sexy
But it is vital to the Plan to Manufacture process!
Let’s face it; the Capacity Evaluation transactions (transactions CM01 to CM05) that have been around since the R/3 days are ugly! Even the opening screen is wanting; you can’t save a selection screen variant, thanks to a greyed-out ‘Save’ button, making the transaction cumbersome to execute.
Moreover, the term “Capacity Evaluation” steers some novice consultants to dismiss it as an unnecessary step. In fact there is a lot more “doing” than “evaluating” in this step. Skip it at your peril!
Where does Capacity Evaluation fit within the Plan to Manufacture process?
The Capacity Evaluation process follows the nightly MRP run and daily Exception Monitoring and precedes Dispatching. It is Step 4 in the screen shot below.
What is the purpose of Capacity Evaluation?
If you have correctly executed non-operative planning — Sales & Operation Planning and/or Long-Term Planning — you will have prevented the most egregious of work-center capacity overloads. But capacity overloads can still occur in the operative plan. Consider these situations:
- Sales Order quantities exceed the forecast
- Planners increase safety-stock levels
- Planners reduce the forecast-consumption period
The purpose of Capacity Evaluation is to find and fix capacity overloads as they come into the evaluation horizon. By default, the horizon is nine weeks (60 calendar days) but that can easily be changed before executing the transaction by following the menu path: Settings \ General. Change 60 days to 183 days to report on the next 26 weeks. (It can also be configured to default to the desired number of days).
We must find and fix capacity overloads for two main reasons:
1. Promise accurate ship dates to customers
Your Sales Order Available to Promise (ATP) check promises dates and quantities to your customer based not only on inventory but also on production orders and planned orders. If your work centers are 150% loaded, you will not fulfil your promises. Below is a screen shot of a typical configuration for the Sales Order ATP “Scope of Check”.
2. Keep inventory at the correct level
If work center capacity is 150% and your component materials are planned using deterministic planning, such as MRP type PD, you will purchase 50% more material than you can process at your work center. As a result, inventory levels will be too high!
Therefore, your Capacity Evaluation period must be long enough to cover most sales order ship dates and procurement lead times. If customers’ requested ship dates are generally between today and four weeks from today, a nine-week period is likely sufficient. On the other hand, if several PD planned component materials have lead times that exceed nine weeks, you should run Capacity Evaluation for a longer horizon. (Another solution is to plan long lead-times materials using consumption-based planning instead of deterministic planning. But that’s a whole other subject deserving of a future blog post).
I’ve executed the CM01 report, now what?
As you can see in the screen shot below, the machine (line) capacity of this work center is overloaded for two periods: Weeks 31 and 36. Let’s look at Week 31 first, when 47.72H of capacity are required but only 41.25H are available.
Select week 31/2021 and click on the icon Cap.details/period and you will be taken to the detailed report where you can see the planned orders (PeggedRqmt) that make up the 47.72 H of capacity requirements that week. Note that the report below shows the capacity requirements in MIN instead of H (my current client’s setup).
Here are some things that we can do to solve the overloads in Week 31 (three weeks from today).
I. Jump off this report to re-schedule planned order 10232252 from Week 31 to Week 30. Run a planned order ATP check to ensure that components will be available at this earlier date. Save.
II. Jump off this report to re-schedule planned order 10232252 to a different work center: A1-LD02 since it can also run there; a production version exists.
III. Get agreement from the production manager for overtime work in Week 31. Update the work center’s capacity to reflect this.
After doing any of the above, re-run this Capacity Evaluation report to prove the overloads have been resolved. I used Option II to solve the overloads.
Now let’s look at Week 36, when the work center has a 127% load. We could use any of the first three solutions proposed above, although it is probably too early to propose overtime, since the capacity situation will likely change significantly before then.
Here are some additional solutions when the capacity overload is several weeks away:
IV. If this material can be made in-house or procured externally, convert one or two planned orders into purchase requisitions to buy instead of making in-house.
V. If you use quota arrangements to plan quantities of these materials against work centers A1-LD01 and A1-LD02, maintain the quota arrangement to drive more volume to work center A1-LD02, if capacity exists there.
VI. If the capacity overloads are a chronic problem institute a permanent, extra shift.
VII. As a last resort, ask the demand planner to review her forecast for the materials that run on this work center. Is she satisfied that the forecast is correct? If it is too high, request that she reduce it. Then you will re-run MRP and this Capacity Evaluation report.
Solve capacity overloads as soon as they enter your capacity planning horizon (the period of your CM01 report). In doing so you will provide accurate promise dates to customers since they are based on a feasible plan. And you will procure the right quantity of component materials that will be consumed shortly after they arrive.
Don’t be like the supposedly seasoned consultant I once worked with who wanted to skip the Capacity Evaluation step and jump right into Dispatching. This guy suggested we dispatch the work centers for the next three weeks even though they had 160% loads; he wanted to smooth the next three weeks of MRP planned orders out over the next five weeks. “Problem solved,” he said!
Why was the consultant’s suggestion wrong? Please comment below.