PRODUCTION PLANNING

A good planning system must have balanced capacity

and demand.

Demand

Capacity

 Capacity:
The capability of the firm to produce goods and services.
It depends upon the resources of the company.

Priority:
What products are needed, how many are needed, and
when they are needed.
Marketplace establishes the priority.

Manufacturing Planning And Control System

Five major levels of MPC system.

Strategic Business Plan.

Production Plan
Master production schedule.
Material requirements plan.
Purchasing and production activity control.

 At each level firm look following aspects:

Purpose of the plan.
Planning horizon.
Level of detail the detail about products required for planning.
Planning cycle.
At each level, three questions must be answered.
What are the priorities how much of what is produced and when?
What is the available capacity what resources do we have?
How can differences between priorities and capacity be resolved?

Strategic Business
Plan

Production
Plan

Master Production
Schedule

Master Plan
PLANNING

Material Requirement
Plan

Production Activity
Control

IMPLEMENTATION

Levels of detail vs. planning horizon in the Manufacturing Planning and

Control System

Strategic Business Plan

It is the statement of the major goals and objectives the
company expects to achieve over the period of 2 to 10
years.
It includes the product line to be offered, markets and so
on.
It is based on long range forecasts and includes
participation from marketing, finance, production and
engineering.
Responsibility of senior management to develop this
plan.
The level of detail in the strategic business plan is not
high.
It is usually reviewed every six months to a year.
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The Aggregate Production Plan

In production planning, production management concerned with
the following:

The quantities of each product group that must be produced in each

period.
The desired inventory levels.
The resources required in each period.

Equipment
Labor
Material

The availability of the resources needed.

The goal is to minimize costs over the planning period

 The level of detail is not high.

The plan will only show major product
groups, or families.
The planning horizon is usually 6 to 12
months.
Reviewed each month or quarter.

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Master Production Schedule

Shows, for each period, the quantity of each
end item to be made.
Level of detail is higher than the Production
Plan
End items versus groups of items
Time periods usually shorter (e.g., weeks versus
months)

More Detailed Planning and Control

Material Requirements Plan
End item requirements broken down into specific
components what to make or buy, and when

Production Activity Control

Execution plan, detailing specific orders to produce items
from the Material Requirements Plan

Purchasing
Similar to Production Activity Control, only includes
items to be purchased rather than produced.

Capacity Management
At each level of the planning and control
system, reconciliation with resources must be
made
Must obtain the right resources or change the plan

Inadequate resources = missed production

schedules
Resources significantly exceed planned
production = idle resources and extra cost

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An Example: Aggregate Plan

Example-1
A company manufactures children's bicycles,
tricycles, and scooters in various models
APP will show the production level of product
group or families:
Bicycle 20000 units
Tricycles 5000
Scooters 2000

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An Example: Aggregate Plan

Example-2
A Company Produces Four items Of
Microcomputers:
1) Laptops,
2) Hard Disk Machines,
3) Advanced Technology Machines With High Speed
Chips,
4) Home/Game Pcs.
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An Example: Aggregate Plan

16

Relationships Of Aggregate Plan

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Sales and Operations Plan

Strategic
Business Plan

Annual

SALES AND OPERATIONS PLAN

Monthly
Marketing
Plan

Production
Plan

Detailed
Sales Plan

Master
Production
Schedule

Weekly
or
Daily

Sales and Operations Planning

Can be used to update the strategic plan
Provides a tool to manage change
Enforces functional plans to be realistic and
coordinated
Represents a plan to achieve company
objectives
Provides management visibility of
production, inventory, and backlogs.

Developing the Production Plan

Some key questions that must be answered to
develop an effective planning strategy:
How flexible are the resources, both in quantity
and timing?
Are outside resources available
(subcontracting)?
Can we utilize inventory to meet demand?

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MANAGEMENT OPTIONS TO MEET FLUCTUATING DEMAND

Build inventories in slack periods in anticipation of higher

demands later in planning horizon.
Carry backorders or lost sales during peak periods.
Use overtime in peak periods, under time in slack periods to
vary output, while holding workforce and facilities constant.
Vary workforce by changing size of workforce through hiring
and firings.
Vary capacity through changes in plant and equipment
(generally long term option)

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Basic Production Plan Strategies

Chase Strategy
vary production rates to meet changes in demand
Inventory level remain constant
Often used when inventory cannot be used or when
resources are flexible and inexpensive to change
Adjusts capacity to match the demand pattern.
Firm hires & lays off workers to match production to
demand.
Workforce fluctuates but finished goods inventory
remains constant.
Works well for make-to-order firms
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For Example:
No. of Units

Demand

23

Time

Chase Production:
No. of Units

Chase Production

Demand

24

Time

Basic Production Plan Strategies

Level
Establish average demand level and set production rate to
that level
Often used when resources difficult or very expensive to
change
Relies on a constant output rate & capacity while varying
inventory & backlog levels according to fluctuating
demand pattern.
Workforce levels stay constant & firm relies on fluctuating
finished goods inventories & backlogs to meet demand.
Works well for make-to-stock manufacturing firms
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Level Production:
No. of Units

Level Production

Demand

26

Time

Level Production:
No. of Units

USE Inventory
Level Production

CREATE Inventory

Demand

27

Time

Basic Production Plan Strategies

Hybrid / Mixed Production Strategy
o
o

28

Use a combination of some chase and some

level
To maintain stable workforce core while
using other short-term means, such as :
overtime, & additional subcontracting or
part time helpers to manage short-term
demand

Hybrid:
No. of Units

Hybrid
Demand

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Time

Establish production rate

Inventory level
Backlog
Demand
Customer service level
Low cost operation
Labor relation

Making Production Plan

Issues in production planning

1. Time horizon changing
2. Production demand has few common units
3. Demand is fluctuating
4. Plant and equipment are fixed within the time horizon
5. Management focus
low inventories
efficient plant operation
good customer service
good labor relation

Demand Pattern

Uniform Demand
Constantly increasing demand
Constantly decreasing demand
See-saw demand
Combination

PRODUCTION PLANNING
Production Planning Environment:
1. Make-to-stock
2. Make-to-order (Assemble-to-order)

MAKE TO STOCK PRODUCTION PLAN

Make-to-stock production plan
Information needed to make a production plan

1. Forecast
2. Inventory
3. Back order

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Total production = Total forecast + back orders +

ending inventory opening inventory
Periodic production = total production/ number of
periods (weeks, months, days)
Ending inventory = opening inventory +
production demand

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Numerical Example:
Example A beverage (soft drink) manufacturer has forecast of
one type of soft drink as follows:
Period

Aug

Sep

Oct

Nov

Dec

Total

Forecast (Demand)

110

120

130

120

120

600

The desired inventory = 80 thousand cases at the end of the

calendar year. However, the company has 100 thousand cases
available at the end of July.
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Numerical Example:
Suppose the forecasted demand for a product family looks
like the table below. Assume the product family is a
Make-to-Stock family with a starting inventory of 100 units.
And you want to maintain this inventory at the end of the production plan
Period

Forecast (Demand)

Total

150

160

180

175

155

140

960

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Production Plan Using a Level Strategy

Period

Total

Forecast (Demand)

150

160

180

175

155

140

960

Planned Production

160

160

160

160

160

160

960

Planned Inventory

110

110

90

75

80

100

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What will be the total inventory cost if it costs

Rs. 2,000 to stock every thousand cases. Also,
how much it cost every month.

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 A garment factory has three months order of dress shirts.

The working days in the three months are 20, 21 and 12
days. The order for the next three month is 10,000 pieces.
Suppose the company has dedicated work force and can
afford to stock unsold shirts in stock. What production
strategy will you use?

 A company wants to develop a level production plan for

family of products. The O.I is 100 units and increase to 130
units at the end of the plan. The demand for each month is
given. Calculate total production, daily production and
production and ending inventory for each month
Period

Working Days

21

19

20

10

Forecast (Demand)

115

125

140

150

Total

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For the following data, calculate the number of workers required for level
production and the resulting month-end inventories. Each worker can
produce 14 units per day and the desired ending inventory is 9000 units.

Period

Working Days

20

24

12

19

Forecast (Demand)

28,000

27500

28500

28500

Total

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Make-to-Order Production Plans

Products made to customer specifications
The customer is willing to wait for
completion
Generally products more expensive to make
and/or store
Often several options offered
Company often uses a backlog of unfilled
customer orders rather than inventory
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 Developing make-to-order production plan

Information needed to make a plan

1. Forecast
2. backlog
Backlog: It is unfilled customer orders. It is
for the delivery in future. It is
not late orders or past due orders.
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 Total production = Total forecast + opening

backlog ending backlog
Periodic production = total production/ number
of months

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Example: A juice packaging facility has demand of 200 hours work for
Jan to June. It has unfilled orders of 200 hours and expected to reduce it
to 100 hours. Prepare a level production plan for Jan to May

Period

Forecast (Demand)

Total

200

200

200

200

200

200

1200

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 The opening backlog is 900 units. Forecast demand is shown

in the table. Calculate the weekly production for level
production if the backlog is to be reduced to 200 units.
Period

Forecast (Demand)

Total

600

700

700

700

600

500

3800

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CONCLUSION
1. Identify and deal with production plan
challenges
2. Adopt an applicable production strategies
3. Make information available for future
production plan
4. Focus on low cost operation