Finite Capacity Scheduling is a process whereby a production plan consisting of a sequence of operations to fulfil orders is generated based upon the capacity of resources. These can be machines, operators, tooling or anything which is a constraint on the production process.
An MRP system typically takes the orders for products, breaks them down into component parts & calculates when to start making them based upon lead times. No account is taken of current available capacity of resources.
If there is a delay in production upstream of a particular operation, then the material will be ordered too early. With no concepts of bottlenecks available to the planning system, resources become overloaded, queues of work get longer & WIP increases. Because jobs must join the queue at each process step, orders take longer to progress, lead times become too optimistic, deliveries are late.
Using Finite Capacity Scheduling, operations are only planned when resources are available. Materials are ordered only when they are needed. Inventory levels fall & bottleneck resources are not overloaded. WIP remains relatively constant, lead times are more predictable, delivery dates more reliable.