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Production planning implies formulation, coordination and determination of activities in a

manufacturing system necessary for the
accomplishment of desired objectives
whereas production control is the process of
maintaining a balance between various activities
evolved during production planning providing
most effective and efficient utilization of
Production planning and control is the organizing
and planning of the manufacturing process. It coordinates supply and movement of materials and
labour, ensures economic and balanced
utilization of machines and equipment as well as
other activities related with production to achive

Objectives of Production Planning and


determining the nature and magnitude of various

inputs factors to manufacture the desired output.
to co-ordinate labour, machines and equipment in
the most
effective and economic manner.
establishing targets and checking these against
ensuring smooth flow of material by eliminating
necks, if any, in production.
to manufacture the desired output of right quality
and quantity at right time.
to maintain optimum inventory level.
to maintain flexibility in manufacturing operations.
to ensure effective cost reduction and cost control.
the ultimate objective is to contribute to the profit

Factors determining Production Planning

Production planning may begin with a product
idea and a plan for the product and the entire
production/operating system to manufacture
the product. It also includes the task of
planning for the manufacturing of a modified
version of an existing product, using the
existing facilities. The wide difference between
planning procedures in one company and
another is primarily due to the economic and
technological conditions under which the firms
The major factors determining production
planning procedures are:
1) Volume of Production
The amount and intensity of production

2) Nature of Production Process

In job shop, the production planning may be
informal and the development of work methods
is left to the individual workman who is highly
In high volume production, many product
designers, equipment designers, process
engineers and methods engineers are involved
and they put enormous amount of effort in
designing the product and the manufacturing
3) Nature of Operations
The degree to which production planning is
carried varies with the nature of the process.
(a) Manufacturing to order which may or may
not repeat.
(b) Manufacturing for stock and sell (under

Production Planning System

There are two inter-related sub-systems in the
production planning system namely:
1. Product planning system and
2. Process planning system.

Production Control:
Importance of Control Function
(i) Provide for the production of parts, assemblies
and products of required quality and quantity
at the required time.
(ii) Co-ordinate, monitor and feed-back to
manufacturing management, the result of the
production activities, analyzing and
interpreting their significance and taking
corrective action if necessary.
(iii) Provide for optimum utilization of all resources.
(iv) Achive the broad objectives of low cost
production and reliable customer service.

Benefits of Production Control

1. Improvement in profit through(a) Maintenance of a balanced inventory of
parts, work-in-process and
finished goods.
(b) Balanced and stabilized production.
(c) Max. utilization of equipment, tooling,
labour etc.,
(d) Minimum investment in inventory.
(e) Reduction in indirect costs.
(f) Reduction in set-up costs.
(g) Reduction in scrap and rework costs.
2. Competitive advantage(a) Reliable delivery to customers.
(b) Shortened delivery schedules to customers.
(c) Orderly planning and marketing of new or

Elements of Production Control

1. Control of planning:
Assure receipt of latest forecast data from sales and
production planning, bill of material data from product
engineering and routing information from process

2. Control of materials:
Control of inventory, issue of materials to the shop and
movement of materials

3. Control of tooling:
Check on the availability of tooling and provide for issue
of tools to shop floor.

4. Control of manufacturing capacity:

Determine the availability of equipment and labour
capacities and issue realistic production schedules and
provide a means of recording completed production.

5. Control of activities:
Release order and information at assigned times.

6. Control of Quality:
Follow-up of progress of production in order to ensure
that the required quantities are processed at each
production step and to ensure that corrective action is
initiated where, work fails to pass each stage of

7. Control of Material Handling:

Release orders for movement of work to ensure
availability of material as required at each stage of

8. Control of due dates:

Check on the relation of actual and planned schedules
and determine the cause of delays and ensure that the
corrective actions are taken.

9. Control of Information:
Distribute timely information and reports showing
deviations from plans so that corrective action can be
taken and provide data on production performance
measurements for future planning.

Role of Production Planning and Control in

Operations Management
Production planning and control never cease in the
production area. There are variety of production/operations
management responsibilities such as:
(i) Product design.
(ii) Job design and process design.
(iii) Equipment selection and replacement.
(iv) Labour skills and training programs.
(v) Input material selection including raw materials and subcontracting.
(vi) Plant selection and layout.
(vii) Scheduling steps of the plan.
(viii) Implementing and controlling the schedule.
(ix) Operating the production system.
In addition, the control systems to be considered are:
(x) Inventory control policies.
(xi) Quality control policies.
(xii) Production schedule control policies.
(xiii) Productivity and cost control policies.

ction planning and control is a management tool employed for the direc
manufacturing operations and their co-ordination with other activities

Scope of Production Planning and Control

PPC encompasses the following areas:
(1) Materials
(2) Methods
(3) Machines and Equipments
(4) Manpower
(5) Routing
(6) Estimating
(7) Loading and Scheduling
(8) Dispatching
(9) Expediting
(10) Inspection
(11) Evaluating
(12) Cost control

Phases in Production Planning and Control

1. Planning Phase:
(a) Pre-planning
(b) Active planning
(a) Pre-planning:
Pre-planning activity involves product planning and
development, demand forecasting, resource planning,
facilities planning, plant location and plant layout.

(b) Active planning:

Active planning involves planning for quantity,
determination of product-mix, routing, scheduling,
material planning, process planning, capacity planning
and tool planning.

2. Action Phase:
Execution or implementation phase including dispatching
and progressing function.

3. Control Phase:
Includes status of reporting, material control, tool
control, inventory control, quality control, labour output
control and cost control.

Main Functions of Production Planning and

Control Department

Production Planning and Control

Production Planning
(i) Estimating

Production Control
(i) Dispatching
(iii) Inspection
(iv) Evaluating and
corrective action

Levels of Production Planning

Make or Buy Analysis:

Consideration in Make or Buy Decision

In the economic consideration based on cost of manufacture versus

the cost of buying the item, the least cost alternative is selected. EBQEconomic Batch Qty or EOQ-Economic Order Quantity


Non-economic consideration:
(a) Availability of supply and alternative sources of supply for
components and sub-units.
(b) Desire to specialize in a particular field of manufacture.
(c) Control of trade secrets and design secrets.
(d) Quality and Reliability considerations.
(e) R & D facilities available in-house.
(f) Delivery schedules to be met.
(g) Reliability of supply of external suppliers.
(h) Lead time required for procurement or in-house manufacture.
(i) Availability of manufacturing capacity
(j) Employee preferences.

When to Make:

Lower cost of manufacturing

Better control on quality
Availability of appropriate manufacturing equipments and expertise.
Desire to preserve trade secrets, design secrets, etc.
Savings on transportation costs.

When to Buy:



When the parts can be bought from the vendors at lowest cost, higher
quality and faster delivery time, than would be possible if the firm made
them in-house.
When the firm uses only a few numbers of a particular item and special
equipments are needed to produce it in-house, then the firm will look for
an outside vendor.
When the vendors can sell an item at a lower cost than the purchasing
firm would have to spend to produce it.
When the vendors hold patents on the required item.
When the vendors are able to meet the requirements of the purchasing
firm in terms of quality, quantity, price and the delivery period.


Definition of Production Capacity:

Capacity in general is the maximum production
rate of a facility or a firm. It is usually
expressed as volume of output per period of
Operations Managers are concerned with capacity
(a) They want sufficient capacity to meet customer
demand in time.
(b) Capacity affects cost efficiency of operations,
the costs of maintaining the facility.
(c) Capacity requires an investment of capital.

Types of Capacity
Design Capacity:
Design Capacity of a facility is the planned rate
of output of goods or services under full
operating conditions. It is also called as installed

System Capacity:
System capacity is the maximum output of a
specific product or product-mix i.e., the
productive system is capable of producing as an
integral whole. It is less than the design capacity.

Relationship between Design Capacity,

System Capacity and Actual output.
Design Capacity

(say 1500 tonnes of steel

per month)

*Reduced by long-range effects

System Capacity

(Say 1200 tonnes of steel

per month)

**Reduced by short-range effects

Actual Output

(say 1000 tonnes of steel

per month)

*Long-range effects: Product-mix, long range market conditions,

**Short-range effects: Labour inefficiency, m/c breakdown,

scheduling, managerial performance

System efficiency :
System efficiency is the ratio of the actual
measured output of goods/services to the system

Actual output
System efficiency = --------------------------System Capacity

Measurement of Capacity
Capacity of a plant can be expressed as the rate
of output viz., unit per day or per week or per
month, tonnes per month, gallons per hour,
labour hours/day, etc.,
Measure of Capacity
Automobile factory - No. of vehicles
Steel mill
- Tonnes of steel
Power plant
- Megawatts of Electricity
- Barrels of Beer
Job shop
- Labour hours worked
- No. of beds
- No. of seats


Capacity Requirement Planning is a
technique for determining what
labour/personnel and equipment
capacities are needed to meet the
production objectives symbolized in the
master production schedule (MPS) and the
material requirement planning (MRP-I)

Capacity Requirement Planning (CRP) Process

CRP Inputs
The major inputs for CRP process are:
(a) Planned orders and released orders from MRP
(b) Loading information from the work centre
status file.
(c) Routing information from the shop routing file.

CRP Outputs
(1) Rescheduling information which call for
capacity modification or revision of MPS.
(2) Verification of planned orders for MRP system
(3) Load reports.

Aggregate Capacity Planning Strategies

Aggregate capacity planning involves planning
the best quantity to produce during time
periods in the intermediate-range horizon and
planning the lowest-cost method of providing
the adjustable capacity to accommodate
production requirements.
Two types of aggregate plans that are
commonly used are:
1. Level capacity plan and
2. Matching capacity with aggregate demand

1. Level Capacity
The underlying
principle of level
capacity plan in
produce to stock and
sell firms are operate
production systems at
uniform production
levels and let finished
goods inventories rise
and fall as they will,
to buffer the
differences between
aggregate demand
and production levels
from time period to
time period.

Advantages of Level Capacity Plan:

(a) The cost of hiring and laying off workers and
using overtime is practically eliminated.
(b) The cost of locating and developing new
sources of material supplies is minimized.
(c) Labour and material costs per unit of output are
(d) Low operating costs, high and consistent
quality of output.
(e) Dependable production rates.

it results in higher finished goods, inventory
levels, tying up cash and increasing inventory
carrying costs.

2. Matching Capacity with Aggregate

Demand Plan
In this plan, the production capacity is matched with the
aggregate demand in each time period. The work force is
fluctuated to support the aggregate plan. Material flows and
machinery capacity would be allowed to change from quarter to
quarter to match the aggregate demand.
the main advantage of this plan is the lower levels of finished
goods inventory resulting in lesser carrying costs when
compared to level capacity plan.

Few more Strategies are:


Active strategies

The objective is to smooth out the peaks and valleys of demand

during the planning horizon to obtain a smoother load on
production facilities.
During periods of low demand, increased sales can be
encouraged through price cuts. During period of high demand,
management can choose not to meet all demand requirements
or accept orders if customers are willing to wait for the delayed


Passive strategies :
the objective is not to change the demand but to absorb some
how the fluctuations in demand. The alternatives include
varying any one of work force size, production rate, inventory,
sub-contracting and capacity utilization.
(a) Pure Strategies :
Varying any one of the factors such as workforce,
production rate, inventory, sub-contracting and capacity
utilization is known as pure strategies.
(b) Mixed Strategies :
This involves the use of two or more pure strategies.


Aggregate Planning
Aggregate planning involves planning the
best quantity to produce during time periods
in the intermediate-range horizon (3 months
to 1 year). The physical plant and
equipment capacity would be fixed over this
horizon. Therefore, the sales orders have to
be met by strategies like using overtime,
hiring of extra staff (temporary) or layoff of
such persons, carrying inventory or giving
A company may manufacture several
products using a set of available facilities.
Similarly, a product may need more than one
facility to manufacture. Aggregate planning


Different capacities which are
generally used to manufacture
products are
Regular time production capacity
Subcontracting capacity
Over time capacity
Hiring and Firing capacity


Any one or a combination of the following
strategies for smoothing fluctuations in
demand. Generally, a mixture of strategies
is preferred.
Building and utilizing inventory through
work force
Varying the size of the work force
Over time utilization


Graphical method:
In this method, cumulative demand
values and cumulative production capacities
are plotted on the same graph. This would
help us to identify the gap between demand
and production capacity in different

Heuristic method:
In this method, a list of pure strategies
and mixed strategies are generated and
evaluated in terms of cost, and finally a
pure strategy or mixed strategy with the

Graphical method:
Example: Demand Pattern



Cumulative Demand


Demand requirements


Average Forecast


Periods (Quarter)
Histogram of Demand and Average requirement


Cumulative and Average Demand Graph

Cumulative Demand

Actual Forecast

Average Forecast
Back orders





Master Production Scheduling (MPS)

The master Production schedule sets the
quantity of each end item (finished product) to
be completed in each time period (week or
month or quarter) of the short-range planning
Mater production schedules are developed by
reviewing market forecasts, customer orders,
inventory levels, facility loading and capacity
information regularly.

Objectives of Master Production Scheduling

(i) To schedule end items to be completed
promptly and when promised to customers.
(ii) To avoid overloading or underloading the
production facility, so that, production capacity
is effectively utilized and low production costs

Functions of Master Production Schedule

Some key functions of MPS are:
(a) Translating aggregate plans into specific
end items;
(b) Evaluating alternative schedules;
(c) Generating material requirements;
(d) Generating capacity requirements;
(e) Facilitating information processing;
(f) Maintaining valid priorities;
(g) Utilizing capacity effectively.

1) Translating aggregate plans into specific end

The aggregate is translated into specific number of
end products
to be produced in specific time periods.
Products are grouped into economic lot sizes that can
be realistically load the firms facilities.

2) Evaluating alternative schedules;

Master scheduling is done on a trail and error basis.
Trail-fitting of alternative MPS can be done by
simulation using computers.

3) Generating material requirements;

MPS is the prime input to the MRP-I system. The MRP-I
system provides for purchasing or manufacturing the
necessary items in sufficient time to meet the final
assembly dates specified, based on MPS for end

4) Generating capacity requirements;

Capacity needs, arise for manufacturing the
components in the required time schedule to meet the
requirements of end products as per the MPS.

5) Facilitating information processing;

By controlling the work centers, the MPS determines
the delivery schedules for end products both for maketo-stock and make-to- order items. It co-ordinates other
information such as marketing capabilities, financial
resources (for carrying inventory) and
policies (for labour supply)

6) Maintaining valid priorities;

The due date and ranking of jobs should correspond
with the time the order is actually needed. MPS should
be modified to reflect the changes in customers change
in their orders materials get scrapped some times,
shortage of some materials

7) Utilizing capacity effectively:

By specifying the end item requirements over a time
period, the MPS establishes the load and utilization
parameter for labour and equipment (i.e., shifts worked
or overtime or idle time)

Procedure for developing MPS

As orders are slotted in the MPS, the effects on
the loading of the production work centres are
checked. This primary checking of the MPS is
called as rough-cut capacity planning. The
main goal in rough-cut capacity planning is to
identify any week in the MPS, when underloading
or overloading of the production capacity occurs
and to revise the MPS as required.

MPS Process Chart

MPS Flow Chart


(MRP or MRP-I)

Material Requirement Planning (MRP or

For manufacturing company to produce end items to meet
demands, the availability of sufficient production capacity
must be co-ordinated with the availability of raw materials
and purchased items from which, the end items are to be
In other words, there is a need to manage the availability of
dependent demand items from which the products are made.
Dependent-demand items are the components i.e., materials
or purchased items, fabricated parts or sub-assemblies that
make up the end products.
MRP is a technique for determining the quantity and timing
for the acquisition of dependent items needed to satisfy
Master Production Schedule (MPS)

Objectives of MRP
1. To improve customer service by meeting
delivery schedules promised and shortening
delivery lead times.
2. To reduce inventory costs by reducing inventory
3. To improve plant operating efficiency by better
use of productive resources.

The basic inputs for MRP:


Product structure or Bill of Materials (BOM)

Master Production Schedule
Economic Order Quantity
Beginning inventory

General Overview of MRP :



The flow chart provides a general overview of MRP as a

means of
co-ordinating purchasing activities to support
manufacturing as well as material requirements and
capacity requirements.
MRP performs three important functions, viz,
Order planning and control, i.e., when to release orders
and for what quantity?
Priority planning and control, i.e., comparison of
expected date of availability with the need date of each
Provision of a basis for planning capacity requirements
and development of broad business plans.

Flow chart-MRP

Operation of the MRP System

he entire MRP system is driven by the MPS. The bill of materials

le and inventory status file are fed into the MRP computer
rogramme to generate the outputs.

MRP System Inputs

1. Master Production Schedule (MPS) :
The MPS specifies what end products are to be produced
and when. The planning horizon should be long enough
to cover the cumulative lead times of all components that
must be purchased or manufactured to meet the end
product requirements.

2. Bill of Material (BOM) or Product Structure file :

This file provides the information regarding all the
materials, parts and sub-assemblies that go into the end
product. The BOM file identifies each component by a unique
part number and facilitates processing by exploding the end
product requirements into component requirements.

Bill-Of-Material (BOM) for Three-drawer cabinet

3. Inventory Status file :

The inventory status file gives complete and upto-date information on the on-hand quantities,
gross requirements, scheduled receipts and
planned order releases for the item. It also
includes other information such as lot sizes,
lead times, safety stock levels and scrap
allowances etc.

MRP System Outputs :

Two primary outputs are :
1. Planned order schedule which is a plan of the
quantity of each material to be ordered in each
time period. The order may be a purchase order
on the suppliers or production orders for parts
and sub-assemblies on production departments.
2. Changes in planned orders i.e., modification of
previous planned orders