Having too much business isn't always a good thing.
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If your business is a success, you will eventually have to increase your capacity to keep up with growing customer demand. If you increase your capacity too much, you'll have more inventory than you know what to do with. But if you don't increase your capacity enough, you could lose customers to the competition.
Capacity planning helps businesses strike a balance between production and demand. If it's done right, it can accurately match production resources with the demand that exists in the marketplace. The downside is that capacity planning isn't as simple as it sounds – it's a multi-stage process that employs various tools to gauge your company's production readiness.
One of those tools is called Resource Requirements Planning (RRP). Resource Requirements Planning isn't a technique or a formula; it's a strategy for measuring a company's ability to keep pace with a Sales and Operations Plan (the larger planning process through which products are produced and brought to market).
Resource Requirements Planning varies from one business to the next. However, there are some generalities about RRP that hold true across the board:
- Resource Requirements Planning is a long-run planning strategy. Resource Requirements Planning is typically a long-term approach to capacity planning and management – an early stage assessment of whether or not the company's production resources are up to the tasks prescribed by the business plan. At this stage of the planning process, the focus is primarily on labor, equipment, and other resources that require a little time to acquire.
- Resource acquisition. If Resource Requirements Planning demonstrates that the company has adequate resources to achieve the Sales & Operation Plan, no additional action is required, at least at this stage of the capacity planning process. If RRP shows that the company is under resourced, one possible response is to acquire additional facilities, capital, equipment, or workers to achieve the necessary capacity. Since the individuals involved with both Sales & Operation Planning and RRP are senior-level staff, it's assumed they have the ability to approve the necessary resource acquisitions.
- Scaling back. If capital acquisition is not a possibility, another response to a resource shortfall is to scale back the Sales & Operations Plan or Aggregate Production Plan to a level that can be achieved with current or prorated levels of resources.