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PRODUCTION PLAN

It is the planning for the quantities of each product group to be produced each period. It utilizes the
resource allocation of activities of employees, materials and production capacity, in order to serve
different customers.

BASIC PRODUCTION PLAN STRATEGIES:

In chase strategy, production varies to meet changes in demand.

In level Strategy, production department establish average demand level and set production rate to that
level.

In hybrid strategy, company uses a combination of chase and level strategy.

THE MASTER SCHEDULE IS:

• The formal link between production planning and actual production

• The basis for calculation of resources needed

• The driving force behind the material requirements plan

• The primary priority plan for manufacturing

INFORMATION NEEDED TO DEVELOP AN MPS

• Production Plan data

• Forecasts

• Actual customer orders

• Inventory levels

• Capacity constraints

OBJECTIVES AND STEPS FOR THE MPS

• Objectives –

• Maintain good customer service

• Make effective use of resources

• Maintain effective levels of inventory


• Accomplished by:

• Develop a preliminary MPS

• Check MPS against capacity and resources

• Reconcile any differences

ROUGH-CUT CAPACITY PLANNING

• Establishes whether critical resources are available

• Bottleneck operations

• Critical labor resources

• Critical material

• Often uses a resource bill for a single product

MAJOR OBJECTIVES OF MRP

Determine Requirements – Calculated to meet product requirements defined in the MPS

• What to order

• How much to order

• When to order

• When to schedule delivery

MAJOR INPUTS TO MRP

• Master Production Schedule quantities and times

• Inventory records of all items to be planned

• Planning factors such as lead times, order quantities, and safety stock

• Current status of each item

• Bills of material for MPS items

BILL OF MATERIAL POINTS

• The BOM shows all parts to make one of the item

• Each part has one, and only one, part number


• A part is defined by form, fit, and function – any change requires a new part number

PLANNING BILLS OF MATERIAL

• Artificial grouping of components for Planning Purposes

• Used to simplify

• Forecasting

• Planning

• Master Scheduling

• Represent an average, not buildable product

MAJOR USES FOR BILLS OF MATERIAL

• Defines the product

• Provides method for design change control

• Planning – What is needed and when

• Order entry – order configuration and pricing

• Production – Parts needed to assemble a product

• Costing – material cost of goods sold

COMMON INVENTORY CLASSIFICATIONS

• Raw materials – not yet entered into the production process

• Work-in-process (WIP)

• Finished goods

• Distribution inventories

• Maintenance, repair, and operational supplies (MRO) – item that do not become part of the
product
INVENTORY FUNCTIONS

• Anticipation – anticipation of future demand, such as seasonality or promotional

• Safety Stock (buffer inventory) – buffer against issues including

• Quality problems

• Lead time fluctuations

• Equipment problems

• Lot-size inventory – used to reduce setup or purchasing costs

• Transportation inventory

• Hedge inventory – hedge against price changes

ABC INVENTORY ANALYSIS

• Determine the relative importance of inventory

• Annual monetary usage

• Critical/difficult items to obtain

• Degree of control based on ABC value

• A items about 20% of items, 80% of value

• B items about 30% of items, 15% of value

• C items about 50% of items, 5% of value

CONTROL USING ABC

• Keep large amount of “C” items on hand

• Value of items usually not worth the extra control to keep inventory accurate

• Control “A” items with large effort

• Financial value dictates very small inventory

REASONS FOR BUYING OR OUTSOURCING

 Cost advantage: Especially for components that are non-vital to the organization’s operations.

 Insufficient capacity: A firm may be at or near capacity.


 Lack of expertise: Firm may not have the necessary technology and expertise.

 Quality: Suppliers have better technology, process, skilled labor, and the advantage of economy
of scale.

REASONS FOR MAKING

 Protect proprietary technology

 No competent supplier

 Better quality control

 Use existing idle capacity

 Control of logistics- lead-time transportation, and warehousing cost

 Lower cost

SUPPLY BASE: Suppliers that a firm uses to acquire its materials, services, supplies, and equipment.

REASONS FAVORING A SINGLE SUPPLIER

 Loyalty weakness: disruption in supply chain

 Less quality variability

 Lower cost

 Transportation economies

 Proprietary product or process

 Volume too small to split

REASONS FAVORING MORE THAN ONE SUPPLIER

 Need capacity dual suppliers: contingency planning

 Spread risk of supply interruption

 Create competition

 Information

 Dealing with special kinds of business

 For rare components

 Innovative idea and technology awareness


GLOBAL SOURCING

 Opportunity to improve quality, cost, and delivery performance.

 Requires additional skills and knowledge to deal with international suppliers, logistics,
communication, political environment, and other issues.

OUTSOURCING: Buying materials and components from suppliers instead of making them in-house. The
trend has moved toward outsourcing.

BACKWARD INTEGRATION: refers to acquiring sources of supply

FORWARD INTEGRATION: refers to acquiring customer’s operations.

“The Make or Buy decision is a strategic decision.”

COLLABORATIVE PLANNING, FORECASTING, AND REPLENISHMENT

“Collaboration process whereby supply chain trading partners can jointly plan key supply chain activities
from production and delivery of raw materials to production and delivery of final products to end
customers”

OBJECTIVE OF CPFR- optimize supply chain through improved demand forecasts, with the right product
delivered at right time to the right location, with reduced inventories, avoidance of stock-outs, &
improved customer service.

VALUE OF CPFR- broad and open exchange of forecasting information to improve forecasting accuracy
when both the buyer and seller collaborate through joint knowledge of base sales, promotions, store
openings or closings, & new product introductions

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