When I was appointed as the first Production Master Scheduler in my company, during an S&OP implementation project, Rough-cut Capacity Planning was one of the initial tools I was introduced to.

It was an easy-to-use tool, straight forward, very helpful and above all, very powerful. It allowed us to identify ahead of time, if certain critical resources could become constraints to our plan in the following months. This information was very valuable in our S&OP Process. It would allow the S&OP Team to make informed decisions regarding future plans and resource requirements.

After a while, the team realized how powerful it was, and how it could be used to evaluate resources not only related to our manufacturing departments, but also to other finite resources in any areas related to demand, replenishment or inventory management.

What Rough-cut Capacity Planning is?

Rough-cut Capacity Planning (RCCP) is a tool that allows the Master Scheduler or the S&OP Team in general, to quickly analyze the planned rates of demand, replenishment and inventory, and to evaluate if certain critical resources could mean a future limitation to the plan.

Basic information, product line demand, replenishment and inventory levels

At the heart of S&OP lies the process of balancing out Demand (Sales, indirect demand, etc.) and Replenishment (Manufacturing, Purchasing, etc.). This balance will be achieved, most of the time, by building and maintaining adequate inventory levels to cover that demand.

At the end of the day, a product-by-product plan needs to be defined, however for analysis, these plans need to be aggregated at product line (or product family) level. In your S&OP process you will project these volumes 12 – 18 months into the future, getting results like this:

This analysis presents aggregated demand, replenishment and inventory rates for a given Product Line A, in units, for each planned month.

For the moment, take into account that in S&OP the selected Product Lines or Product Families are those defined by the Commercial side of the business. This is so, since it is easier to have a global business discussion using these families rather than using manufacturing or operations product families.

Additionally, bear in mind that Demand and Replenishment rates should not be the same. This because Operations needs to fulfill demand requirements in the most efficient way, and having an equilibrated and stable Operations Plan is usually the best way to do it. Finally, Inventory levels need to be built ahead of demand requirements, so somehow, they resemble demand, but they have a time shift with it.

How do you use RCCP?

RCCP is simple and it won’t require more than an excel spreadsheet to start from.

The idea is to first define those critical resources that you would like to analyze at the light of the current plan. Also, the maximum available capacity for each one of these resources has to be calculated and documented. I would suggest to have a table like this one:

In this example, I have listed not only manufacturing resources (packaging unit) but also warehousing, order entry, financial (insurance) resources. This is the power of RCCP.

The example table states that you can use a maximum of 176 machine-hours (per month) of the packaging unit, a max. of 450 warehouse positions for inventory, a maximum of 704 men-hours (per month) of order entry resources, and finally, that the maximum value of your insurance covered inventory is US$ 300K.

The final step is to find the rate at which each unit of the Product Line consumes these resources. This is called a resource usage driver or a per unit resource consumption rate. It should be defined using the same dimensions considered in the maximum resource capacity.

Resource Usage = Planned Units of the Product Family * Driver

The key of RCCP is to find a suitable driver for each resource and product line. Remember, you can improve your drivers along the way, to start “good is enough”. Do not look for perfection.

It is also important to understand that some resources will be related to Demand (for example the Order Entry Capacity), others to Production / Replenishment (Packaging Unit) and some others to Inventory Levels (Warehousing Space and Inventory Insurance, etc.). So, you need to be clear on which one to use.

Finally, remember that you are going to be using aggregated units for a Product Line, this could mean a complex mix of products. The Driver needs to reflect an average resource usage for all the products in that line. Sometimes, the resource usage per unit within the product line is too diverse and cannot / should not be averaged. For example, if the product line is comprised of manufactured and purchased items, you cannot average the Packaging Unit usage for all the products; it would be an error, since only manufactured items would use this resource. In this case, the suggested procedure is to first transform the aggregated plan from Commercial Product Lines to Operations Product Lines, and then apply the required driver for these new product families (you can easily do this transformation by using a cross-reference table).

When complete, your Resource Matrix will look like this:

Next step is to define the Consumption Rate / Usage for each Resource and for each Product Line. You can define a table like this:

In this example, we are using just two product lines: large and small appliances.

Defining the resource usage rates for each line will be the most time-consuming task for the team. Probably, you will need to go to the shop floor with a stop-watch, a measuring tape and a scale, and quantify process times, product dimensions, weights, etc. This needs to be done for a product line sample that statistically gives you relevant information to define an average resource consumption rate for that line. Again, be practical, start with some fair estimates, and then go on improving your usage rates over time.

Now, let the fun part begin

Let’s assume that for Product Line B, the current S&OP Plan is the following:

For each Resource, you need to multiply the related planned volumes (Demand, Replenishment or Inventory) in each family by the respective consumption rate, and then add up the total resource usage.

For example, let’s review Month 4 for a couple of resources:  

I hope that with this example, I was able to give you an idea of how RCCP works, its simplicity and its power. RCCP is a tool that properly used will give you, and the S&OP team, very valuable information, and will allow you to easily and swiftly identify future problems with your critical resources. Once you have your spreadsheet set, it will take you just seconds to do what-if analysis on future plans and to review suggested adjustments to them.

It is so general in its use, that it can be applied to any products, in any industry and with any kind of resources.

Please, let me know if you find it useful.

Juan Pablo Franco

General Manager